Edgar Filing: BRISTOL MYERS SQUIBB CO

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission file number: 1-1136

BRISTOL-MYERS SQUIBB COMPANY

(Exact name of registrant as specified in its charter)

Delaware

22-0790350

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

345 Park Avenue, New York, N.Y. 10154

(Address of principal executive offices) (Zip Code)

(212) 546-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

At September 30, 2010, there were 1,711,685,361 shares outstanding of the Registrant’s $0.10 par value common stock.

BRISTOL-MYERS SQUIBB COMPANY

INDEX TO FORM 10-Q

September 30, 2010


PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements:
Consolidated Statements of Earnings			3
Consolidated Statements of Comprehensive Income and Retained Earnings			4
Consolidated Balance Sheets			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations			33

Item 3.
Quantitative and Qualitative Disclosures About Market Risk			60

Item 4.
Controls and Procedures			60

PART II—OTHER INFORMATION

Item 1.
Legal Proceedings			60

Item 1A.
Risk Factors			60

Item 2.
Issuer Purchases of Equity Securities			61

Item 6.
Exhibits			62

Signatures			63

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF EARNINGS

Dollars and Shares in Millions, Except Per Share Data

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
EARNINGS	2010			2009			2010			2009

Net Sales	$	4,798		$	4,788		$	14,373		$	13,775

Cost of products sold		1,280			1,317			3,863			3,707
Marketing, selling and administrative		892			953			2,686			2,776
Advertising and product promotion		231			256			706			802
Research and development		824			820			2,556			2,539
Provision for restructuring		15			51			50			89
Litigation expense		22			—			22			132
Equity in net income of affiliates		(70	)		(139	)		(252	)		(435	)
Other (income)/expense		(10	)		(35	)		84			(117	)

Total Expenses		3,184			3,223			9,715			9,493


Earnings from Continuing Operations Before Income Taxes		1,614			1,565			4,658			4,282
Provision for income taxes		312			366			987			994

Net Earnings from Continuing Operations		1,302			1,199			3,671			3,288


Discontinued Operations:
Earnings, net of taxes		—			91			—			221
Gain on disposal, net of taxes		—			—			—			—


Net Earnings from Discontinued Operations		—			91			—			221

Net Earnings		1,302			1,290			3,671			3,509

Net Earnings Attributable to Noncontrolling Interest		353			324			1,052			922

Net Earnings Attributable to Bristol-Myers Squibb Company	$	949		$	966		$	2,619		$	2,587


Amounts Attributable to Bristol-Myers Squibb Company:
Net Earnings from Continuing Operations	$	949		$	892		$	2,619		$	2,421
Net Earnings from Discontinued Operations		—			74			—			166

Net Earnings Attributable to Bristol-Myers Squibb Company	$	949		$	966		$	2,619		$	2,587


Earnings per Common Share from Continuing Operations Attributable to Bristol-Myers Squibb Company:
Basic	$	0.55		$	0.45		$	1.52		$	1.22
Diluted	$	0.55		$	0.45		$	1.51		$	1.21

Earnings per Common Share Attributable to Bristol-Myers Squibb Company:
Basic	$	0.55		$	0.49		$	1.52		$	1.30
Diluted	$	0.55		$	0.48		$	1.51		$	1.30

Dividends declared per common share	$	0.32		$	0.31		$	0.96		$	0.93

The accompanying notes are an integral part of these consolidated financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME AND RETAINED EARNINGS

Dollars in Millions

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
COMPREHENSIVE INCOME

Net Earnings	$	1,302		$	1,290		$	3,671		$	3,509
Other Comprehensive Income/(Loss):
Foreign currency translation		82			107			42			127
Foreign currency translation on hedge of a net investment		(79	)		(61	)		64			(63	)
Derivatives qualifying as cash flow hedges, net of taxes of $30 and $20 for the three months ended September 30, 2010 and 2009, respectively; and $18 for the nine months ended September 30, 2009		(61	)		(35	)		8			(32	)
Derivatives qualifying as cash flow hedges reclassified to net earnings, net of taxes of $6 and $1 for the three months ended September 30, 2010 and 2009, respectively; and $3 and $15 for the nine months ended September 30, 2010 and 2009, respectively		(15	)		(7	)		(9	)		(48	)
Pension and postretirement benefits, net of taxes of $4 and $(220) for the nine months ended September 30, 2010 and 2009, respectively		—			—			(12	)		405
Pension and postretirement benefits reclassified to net earnings, net of taxes of $(12) and $(4) for the three months ended September 30, 2010 and 2009, respectively; and $(35) and $(41) for the nine months ended September 30, 2010 and 2009, respectively		14			12			57			77
Available for sale securities, net of taxes of $(2) for the three months ended September 30, 2009 and $(1) and $(3) for the nine months ended September 30, 2010 and 2009, respectively		25			21			57			35

Total Other Comprehensive Income/(Loss)		(34	)		37			207			501


Comprehensive Income		1,268			1,327			3,878			4,010

Comprehensive Income Attributable to Noncontrolling Interest		353			326			1,052			929

Comprehensive Income Attributable to Bristol-Myers Squibb Company	$	915		$	1,001		$	2,826		$	3,081


RETAINED EARNINGS

Retained Earnings at January 1							$	30,760		$	22,549
Net Earnings Attributable to Bristol-Myers Squibb Company								2,619			2,587
Cash dividends declared								(1,658	)		(1,849	)

Retained Earnings at September 30							$	31,721		$	23,287

The accompanying notes are an integral part of these consolidated financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED BALANCE SHEETS

Dollars in Millions, Except Share and Per Share Data

(UNAUDITED)


	September 30, 2010			December 31, 2009
ASSETS

Current Assets:
Cash and cash equivalents	$	7,581		$	7,683
Marketable securities		778			831
Receivables		3,285			3,164
Inventories		1,369			1,413
Deferred income taxes		1,071			611
Prepaid expenses		292			256

Total Current Assets		14,376			13,958

Property, plant and equipment		4,723			5,055
Goodwill		5,218			5,218
Other intangible assets, net		2,720			2,865
Deferred income taxes		1,079			1,636
Marketable securities		2,562			1,369
Other assets		1,207			907

Total Assets	$	31,885		$	31,008


LIABILITIES

Current Liabilities:
Short-term borrowings	$	243		$	231
Accounts payable		1,725			1,711
Accrued expenses		2,684			2,785
Deferred income		289			237
Accrued rebates and returns		741			622
U.S. and foreign income taxes payable		46			175
Dividends payable		556			552

Total Current Liabilities		6,284			6,313

Pension, postretirement and postemployment liabilities		1,209			1,658
Deferred income		893			949
U.S. and foreign income taxes payable		754			751
Other liabilities		409			422
Long-term debt		6,479			6,130

Total Liabilities		16,028			16,223


Commitments and contingencies (Note 17)

EQUITY

Bristol-Myers Squibb Company Shareholders’ Equity:
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; issued and outstanding 5,279 in 2010 and 5,515 in 2009, liquidation value of $50 per share		—			—
Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.2 billion issued in both 2010 and 2009		220			220
Capital in excess of par value of stock		3,661			3,768
Accumulated other comprehensive loss		(2,334	)		(2,541	)
Retained earnings		31,721			30,760
Less cost of treasury stock — 494 million common shares in 2010 and 491 million in 2009		(17,298	)		(17,364	)

Total Bristol-Myers Squibb Company Shareholders’ Equity		15,970			14,843
Noncontrolling interest		(113	)		(58	)

Total Equity		15,857			14,785

Total Liabilities and Equity	$	31,885		$	31,008

The accompanying notes are an integral part of these consolidated financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(UNAUDITED)


	Nine Months Ended September 30,
	2010			2009
Cash Flows From Operating Activities:
Net earnings	$	3,671		$	3,509
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings attributable to noncontrolling interest		(1,052	)		(922	)
Depreciation		348			348
Amortization		198			177
Impairment of manufacturing operations		207			—
Deferred income taxes		100			179
Stock-based compensation		143			130
Other gains		(34	)		(113	)
Changes in operating assets and liabilities:
Receivables		(122	)		77
Inventories		(37	)		1
Deferred income		1			135
Accounts payable		77			228
U.S. and foreign income taxes payable		(187	)		56
Changes in other operating assets and liabilities		(417	)		(1,084	)

Net Cash Provided by Operating Activities		2,896			2,721

Cash Flows From Investing Activities:
Proceeds from sale and maturities of marketable securities		2,612			1,601
Purchases of marketable securities		(3,703	)		(2,318	)
Additions to property, plant and equipment and capitalized software		(299	)		(534	)
Proceeds from sale of businesses, property, plant and equipment and other investments		57			130
Purchase of Medarex, Inc., net of cash acquired		—			(2,232	)

Net Cash Used in Investing Activities		(1,333	)		(3,353	)

Cash Flows From Financing Activities:
Short-term debt borrowings/(repayments)		12			(1	)
Long-term debt borrowings		6			—
Long-term debt repayments		—			(132	)
Interest rate swap termination		98			194
Dividends paid		(1,653	)		(1,857	)
Issuances of common stock and excess tax benefits from share-based arrangements		211			3
Common stock repurchases		(353	)		—
Proceeds from Mead Johnson initial public offering		—			782

Net Cash Used in Financing Activities		(1,679	)		(1,011	)

Effect of Exchange Rates on Cash and Cash Equivalents		14			34

Decrease in Cash and Cash Equivalents		(102	)		(1,609	)
Cash and Cash Equivalents at Beginning of Period		7,683			7,976

Cash and Cash Equivalents at End of Period	$	7,581		$	6,367

The accompanying notes are an integral part of these consolidated financial statements.

Note 1. BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission and United States (U.S.) generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q. These consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position at September 30, 2010 and December 31, 2009, the results of operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated and disclosed through the report issuance date. These unaudited consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009 included in the Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current period presentation. Mead Johnson Nutrition Company (Mead Johnson) financial results, previously reported in the Mead Johnson segment, have been reported as discontinued operations for the three and nine months ended September 30, 2009.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results.

The preparation of financial statements requires the use of management estimates and assumptions, based on complex judgments that are considered reasonable, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and contingent liabilities at the date of the financial statements. The most significant assumptions are employed in estimates used in determining the fair value of intangible assets, restructuring charges and accruals, sales rebate and return accruals, legal contingencies, tax assets and tax liabilities, stock-based compensation expense, pension and postretirement benefits (including the actuarial assumptions), fair value of financial instruments with no direct or observable market quotes, inventory obsolescence, potential impairment of long-lived assets, allowances for bad debt, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from estimated results.

New accounting standards were adopted on January 1, 2010, none of which had an impact on the consolidated financial statements upon adoption. Among other items, these standards:

•

Provide clarifying criteria in determining when a transferor has surrendered control over transferred financial assets and removed the concept of a qualifying special-purpose entity.

•

Require an ongoing reassessment of the primary beneficiary in a variable interest entity; eliminate the quantitative approach previously required in determining the primary beneficiary; and provide guidance in determining the primary beneficiary as the entity that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits for events significant to the variable interest entity.

The Company is currently evaluating the potential impact of an accounting standard that allows for the allocation of consideration received in a bundled revenue arrangement among the separate deliverables by introducing an estimated selling price method for valuing the elements if vendor-specific objective evidence or third-party evidence of a selling price is not available. The standard provides more flexibility in recognizing revenue for bundled arrangements and expands related disclosure requirements. It is effective either on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 or on a retrospective basis and early application is permitted.

Note 2. ALLIANCES AND COLLABORATIONS

The Company maintains alliances and collaborations with various third parties for the development and commercialization of certain products. The following information summarizes the current operating trends of commercialized products. See the 2009 Annual Report on Form 10-K for a more complete description of the below agreements, including termination provisions, as well as disclosures of other alliances and collaborations.

sanofi

The Company has agreements with sanofi-aventis (sanofi) for the codevelopment and cocommercialization of AVAPRO*/AVALIDE* (irbesartan/irbesartan-hydrochlorothiazide), an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy, and PLAVIX* (clopidogrel bisulfate), a platelet aggregation inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the U.S., Canada, Puerto Rico and Latin American countries) and Australia, and the other in Europe and Asia. The agreements expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia, and (ii) the expiration of all patents and other exclusivity rights relating to these products in the applicable territory.

The Company acts as the operating partner and owns a 50.1% majority controlling interest in the territory covering the Americas and Australia and consolidates all country partnership results for this territory with sanofi’s 49.9% share of the results reflected as a noncontrolling interest. The Company recognizes net sales in this territory and in comarketing countries outside this territory (e.g., Germany, Italy for irbesartan only, Spain and Greece). Discovery royalties owed to sanofi are included in cost of products sold. Sanofi acts as the operating partner and owns a 50.1% majority controlling interest in the territory covering Europe and Asia. The Company’s 49.9% ownership interest in this territory is accounted for under the equity method with its share of operating results recognized in equity in net income of affiliates. Distributions of profits relating to the joint ventures among the Company and sanofi are included within operating activities in the consolidated statements of cash flows.

The Company and sanofi have a separate partnership governing the copromotion of irbesartan in the U.S. The Company recognizes other income related to the amortization of deferred income associated with sanofi’s $350 million payment to the Company for their acquisition of an interest in the irbesartan license for the U.S. upon formation of the alliance. Income attributed to certain supply activities and development and opt-out royalties with sanofi are reflected on a net basis in other income.

The following summarized financial information is reflected in the consolidated financial statements:


	Three Months Ended September 30,					Nine Months Ended September 30,
Dollars in Millions	2010			2009		2010		2009
Territory covering the Americas and Australia:
Net sales	$	1,874		$	1,754	$	5,580	$	5,085
Discovery royalty expense		337			305		998		881
Noncontrolling interest – pre-tax		523			443		1,543		1,258
Profit distributions to sanofi		545			451		1,598		1,264

Territory covering Europe and Asia:
Equity in net income of affiliates		73			141		261		442
Profit distributions to the Company		85			160		239		402

Other:
Net sales in Europe comarketing countries and other		87			129		295		387
Other income – irbesartan license fee		7			8		23		24
Other income – supply activities and development and opt-out royalties		(3	)		20		28		43

						September 30, 2010		December 31, 2009
Investment in affiliates – territory covering Europe and Asia						$	32	$	10
Deferred income – irbesartan license fee							68		91

The following is summarized financial information for interests in the partnerships with sanofi for the territory covering Europe and Asia, which are not consolidated but are accounted for using the equity method:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	417	$	732	$	1,465	$	2,259
Gross profit		174		357		662		1,124
Net income		141		279		528		863

Otsuka

The Company has a worldwide commercialization agreement (excluding certain countries) with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote with Otsuka, ABILIFY* (aripiprazole), for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder. In the U.S., Germany, France and Spain, where the product is invoiced to third-party customers by the Company on behalf of Otsuka, the Company recognizes alliance revenue for its contractual share of third-party net sales, which was reduced in the U.S. starting January 1, 2010 from 65% to 58% for 2010. Further reductions in the Company’s U.S. contractual share of revenue in the U.S. will occur on January 1, 2011, January 1, 2012 and January 1, 2013 under the terms of the commercialization agreement. Beginning January 1, 2010, Otsuka reimburses the Company 30% of ABILIFY* related operating expenses in the U.S. Reimbursements are netted principally in advertising and product promotion and selling, general and administrative expenses. The Company continues to receive 65% of third-party net sales in France, Germany and Spain with no expense reimbursement. In certain countries where the Company is presently the exclusive distributor for the product or has an exclusive right to sell ABILIFY*, the Company recognizes 100% of the net sales and related cost of products sold and expenses.

The Company paid Otsuka $400 million in April 2009 for extending the term of the commercialization and manufacturing agreement in the U.S. through April 2015. This payment is included in other assets and is being amortized as a reduction of net sales through the extension period. Previously capitalized milestone payments totaling $60 million are included in intangible assets and amortized to cost of products sold.

The Company and Otsuka also have an oncology collaboration for SPRYCEL (dasatinib) and IXEMPRA (ixabepilone) (the “Oncology Products”) in the U.S., Japan and the EU (the “Oncology Territory”). Beginning January 1, 2010, the Company pays a collaboration fee to Otsuka equal to 30% of the first $400 million annual net sales of the Oncology Products in the Oncology Territory, 5% of annual net sales between $400 million and $600 million, and 3% of annual net sales between $600 million and $800 million with additional trailing percentages of annual net sales over $800 million. This fee is included in cost of products sold. Otsuka will contribute 20% of the first $175 million of certain commercial operational expenses relating to the Oncology Products in the Oncology Territory and 1% of such costs in excess of $175 million. Reimbursements are netted principally in selling, general and administrative and advertising and product promotion.

The following summarized financial information related to this alliance is reflected in the consolidated financial statements:


	Three Months Ended September 30,					Nine Months Ended September 30,
Dollars in Millions	2010			2009		2010			2009
ABILIFY* net sales, including amortization of extension payment	$	608		$	653	$	1,858		$	1,885
Oncology Products collaboration fees		30			—		92			—
Otsuka’s reimbursement – operating expense		(26	)		—		(74	)		—
Amortization expense – extension payments		17			17		49			33
Amortization expense – milestone payments		1			1		5			5

						September 30, 2010			December 31, 2009
Intangible assets:
Extension payment						$	302		$	351
Milestone payments							12			17

Lilly

The Company has a collaboration with Eli Lilly and Company (Lilly) for the codevelopment and promotion of ERBITUX* (cetuximab) in the U.S., pursuant to a commercialization agreement with Lilly’s subsidiary, ImClone Systems Incorporated (ImClone), which expires as to ERBITUX* in September 2018. Lilly receives a distribution fee based on 39% of ERBITUX* net sales in North America, which is included in cost of products sold. In Japan, the Company shares rights to ERBITUX* under an agreement with Lilly and Merck KGaA and receives 50% of the pre-tax profit from Merck’s net sales of ERBITUX* in Japan which is further shared equally with Lilly. The Company’s 25% share of profits from commercialization in Japan is included in other income.

Previously capitalized milestone payments are being amortized through 2018 and are classified in costs of products sold.

The following summarized financial information related to this alliance is reflected in the consolidated financial statements:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	159	$	179	$	497	$	516
Distribution fees		62		70		194		201
Amortization expense – milestone payments		9		9		28		28
Other income – Japan commercialization fee		11		8		30		18

					September 30, 2010		December 31, 2009
Intangible asset – milestone payments					$	295	$	323

In January 2010, the Company and Lilly restructured the commercialization agreement described above as it relates to necitumumab (IMC-11F8), a novel targeted cancer therapy currently in Phase III development for non-small cell lung cancer. As restructured, both companies will share in the cost of developing and potentially commercializing necitumumab in the U.S., Canada and Japan. Lilly maintains exclusive rights to necitumumab in all other markets. The Company will fund 55% of development costs for studies that will be used only in the U.S. and will fund 27.5% for global studies. The Company and Lilly will share development costs in Japan equally. The Company will pay $250 million to Lilly as a milestone payment upon first approval in the U.S. In the U.S. and Canada, the Company will recognize sales and receive 55% of the profits for necitumumab. Lilly will provide 50% of the selling effort. In Japan, the Company and Lilly will share commercial costs and profits evenly. The agreement as it relates to necitumumab continues beyond patent expiration. It may be terminated at any time by the Company with 12 months advance notice (18 months if prior to launch), by either party for uncured material breach by the other or if both parties agree to terminate.

Gilead

The Company and Gilead Sciences, Inc. (Gilead) have a joint venture to develop and commercialize ATRIPLA* (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg), a once-daily single tablet three-drug regimen combining the Company’s SUSTIVA (efavirenz) and Gilead’s TRUVADA* (emtricitabine and tenofovir disoproxil fumarate), in the U.S., Canada and Europe. The Company accounts for its participation in the U.S. joint venture under the equity method of accounting and recognizes its share of the joint venture results in equity in net income of affiliates in the consolidated statements of earnings.

In the U.S., Canada and most European countries, the Company records revenue for the bulk efavirenz component of ATRIPLA* upon sales of that product to third-party customers. Revenue for the efavirenz component is determined by applying a percentage to ATRIPLA* revenue to approximate revenue for the SUSTIVA brand. In a limited number of EU countries, the Company recognizes revenue for ATRIPLA* since the product is purchased from Gilead and then distributed to third-party customers.

The following summarized financial information related to this alliance is reflected in the consolidated financial statements:


	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in Millions	2010			2009			2010			2009
Net sales	$	264		$	218		$	769		$	606
Equity in net loss of affiliates		(3	)		(2	)		(9	)		(7	)

AstraZeneca

The Company maintains two worldwide codevelopment and cocommercialization agreements with AstraZeneca PLC (AstraZeneca), The first is for the worldwide codevelopment and cocommercialization (excluding Japan) of ONGLYZA (saxagliptin), a DPP-IV inhibitor (Saxagliptin Agreement) and the second is for the worldwide codevelopment and cocommercialization (including Japan) of dapagliflozin, a sodium-glucose cotransporter-2 (SGLT2) inhibitor (SGLT2 Agreement). Both compounds are being studied for the treatment of diabetes and were discovered by the Company. Under each agreement, the two companies are jointly developing the clinical and marketing strategy and share development and commercialization costs and profits and losses equally, except for Japan where AstraZeneca bears all the costs of dapagliflozin development under the current development plan. Net reimbursements for development costs from AstraZeneca are included in research and development. Net reimbursements for commercial costs are included principally in advertising and product promotion and selling, general and administrative expenses. AstraZeneca’s share of profits is included in cost of goods sold.

Upfront licensing and milestone payments received for both compounds totaling $350 million, including $50 million received in the first quarter of 2010, are amortized over the useful life of the products into other income.

The Company and AstraZeneca launched ONGLYZA in the third quarter of 2009.

The following summarized financial information related to this alliance is reflected in the consolidated financial statements:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	47	$	20	$	85	$	20
Amortization income – milestone payments		7		4		20		10

					September 30, 2010		December 31, 2009
Deferred income – milestone payments					$	298	$	268

Exelixis

In June 2010, the Company terminated its global codevelopment and cocommercialization arrangement for XL184 (a MET/VEG/RET inhibitor), an oral anti-cancer compound with all rights returning to Exelixis, Inc. (Exelixis). As a result of the termination, the Company paid $17 million, which has been included in research and development expense. In addition, the Company is no longer obligated for contingent development and regulatory milestone payments of $295 million and sales milestone payments of $150 million. The Company will continue its license arrangement with Exelixis for XL281 and other collaborations for small molecule candidates.

Note 3. BUSINESS SEGMENT INFORMATION

The BioPharmaceuticals segment is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and a global supply chain organization are utilized and responsible for the development and delivery of products to the market. Products are distributed and sold through five regional organizations that serve the United States; Europe; Latin America, Middle East and Africa; Japan, Asia Pacific and Canada; and Emerging Markets defined as Brazil, Russia, India, China and Turkey. The business is also supported by global corporate staff functions. The segment information presented below is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods.

Net sales of key products were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions	2010		2009		2010		2009
PLAVIX*	$	1,658	$	1,554	$	4,951	$	4,528
AVAPRO/AVALIDE		303		329		924		944
REYATAZ		375		360		1,105		1,013
SUSTIVA Franchise (total revenue)		342		315		1,008		919
BARACLUDE		228		191		667		522
ERBITUX*		159		179		497		516
SPRYCEL		144		107		407		302
IXEMPRA		29		28		87		81
ABILIFY*		608		653		1,858		1,885
ORENCIA		184		162		531		434
ONGLYZA		47		20		85		20
Mature Brands and Other Products		721		890		2,253		2,611

Net sales	$	4,798	$	4,788	$	14,373	$	13,775

Segment income excludes the impact of significant items not indicative of current operating performance or ongoing results, and earnings attributed to sanofi and other noncontrolling interest. The reconciliation to earnings from continuing operations before income taxes was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in Millions	2010			2009			2010			2009
BioPharmaceuticals segment income	$	1,186		$	1,195		$	3,599		$	3,482

Reconciling items:
Downsizing and streamlining of worldwide operations		(15	)		(48	)		(50	)		(80	)
Impairment and loss on sale of manufacturing operations		(10	)		—			(225	)		—
Accelerated depreciation, asset impairment and other shutdown costs		(27	)		(33	)		(85	)		(89	)
Pension curtailment and settlement charges		(3	)		—			(8	)		(25	)
Process standardization implementation costs		(8	)		(20	)		(27	)		(65	)
Gain on sale of product lines, businesses and assets		—			17			—			72
Litigation charges		(22	)		—			(22	)		(132	)
Upfront licensing, milestone and other payments		—			—			(72	)		(174	)
Medarex acquisition		—			10			—			10
Debt buyback and swap terminations		—			(4	)		—			7
Product liability charges		(13	)		—			(13	)		(3	)
Noncontrolling interest		526			448			1,561			1,279

Earnings from continuing operations before income taxes	$	1,614		$	1,565		$	4,658		$	4,282

Note 4. RESTRUCTURING

The productivity transformation initiative (PTI) was designed to fundamentally change the way the business is run to meet the challenges of a changing business environment and to take advantage of the diverse opportunities in the marketplace as the transformation into a next-generation biopharmaceutical company continues. In addition to the PTI, a strategic process designed to achieve a culture of continuous improvement to enhance efficiency, effectiveness and competitiveness and to continue to improve the cost base has been implemented.

The following PTI and other restructuring charges were recognized:


	Three Months Ended September 30,					Nine Months Ended September 30,
Dollars in Millions	2010		2009			2010		2009
Employee termination benefits	$	3	$	48		$	40	$	80
Other exit costs		12		3			10		9

Provision for restructuring, net		15		51			50		89
Impairment and loss on sale of manufacturing operations		10		—			225		—
Accelerated depreciation, asset impairment and other shutdown costs		27		30			85		80
Pension curtailment and settlement charges		3		—			8		25
Process standardization implementation costs		8		20			27		65

Total cost		63		101			395		259
Gain on sale of product lines, businesses and assets		—		(17	)		—		(72	)

Net charges	$	63	$	84		$	395	$	187

Most of the accelerated depreciation, asset impairment and other shutdown costs were included in cost of products sold and primarily relate to the rationalization of the manufacturing network in the BioPharmaceuticals segment. These assets continue to be depreciated until the facility closures are completed. The remaining charges were primarily attributed to process standardization activities or attributed to pension plan curtailment charges both of which are recognized as incurred.

Restructuring charges included termination benefits for workforce reduction of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 60 and 232 for the three months ended September 30, 2010 and 2009, respectively, and approximately 540 and 587 for the nine months ended September 30, 2010 and 2009, respectively.

The following table presents the detail of expenses incurred in connection with restructuring activities and related restructuring liability activity:


	Nine Months Ended September 30, 2010									Nine Months Ended September 30, 2009
Dollars in Millions	Employee Termination Liability			Other Exit Costs Liability			Total			Employee Termination Liability			Other Exit Costs Liability			Total
Liability at January 1	$	157		$	16		$	173		$	188		$	21		$	209

Charges		40			15			55			78			9			87
Changes in estimates		—			(5	)		(5	)		2			—			2

Provision for restructuring, net		40			10			50			80			9			89
Charges in discontinued operations		—			—			—			12			—			12
Foreign currency translation		(4	)		—			(4	)		—			—			—
Spending		(87	)		(6	)		(93	)		(115	)		(7	)		(122	)

Liability at September 30	$	106		$	20		$	126		$	165		$	23		$	188

In connection with the continued optimization of the manufacturing network, the operations in Latina, Italy were sold to International Chemical Investors, SE (ICI) on May 31, 2010 resulting in a $218 million loss. The loss consisted of a $200 million impairment charge recorded in the first quarter of 2010 attributed to the write-down of assets to fair value less cost of sale when the assets met the held for sale criteria and $18 million of other working capital adjustments and transaction related fees. An €18 million ($22 million) 6% subordinated promissory note payable in installments by May 2017 was received as consideration. Additional charges may be required pertaining to the Company’s obligation to fund a portion of ICI’s future restructuring costs up to €19 million ($23 million).

As part of the transaction, a one year supply agreement was entered into with ICI in which the Company will be the non-exclusive supplier of certain products to ICI. Also, a three year tolling and manufacturing agreement, which can be extended for an additional two years, was entered into with ICI in which the Company will supply certain raw material products to be processed and finished at the Latina facility and then distributed by the Company in various markets.

Note 5. DISCONTINUED OPERATIONS

Mead Johnson Nutrition Company Split-off

In February 2009, Mead Johnson Nutrition Company (Mead Johnson) completed an initial public offering (IPO) in which the Company received $782 million and retained an 83.1% interest in Mead Johnson. On December 23, 2009, the split-off of the remaining interest in Mead Johnson was completed in exchange for 269 million shares of the Company’s common stock. The results of the Mead Johnson business are included in discontinued operations for the three and nine months ended September 30, 2009.


Dollars in Millions	Three Months Ended September 30, 2009		Nine Months Ended September 30, 2009
Net sales	$	699	$	2,111


Earnings before income taxes	$	159	$	567
Provision for income taxes⁽¹⁾		68		346

Net earnings from discontinued operations		91		221

Less net earnings from discontinued operations attributable to noncontrolling interest		17		55


Net earnings from discontinued operations attributable to Bristol-Myers Squibb Company	$	74	$	166

(1)	Provision for income taxes include $130 million for the nine months ended September 30, 2009 of taxes incurred from the transfer of various international business units to Mead Johnson prior to the IPO.

Transitional Relationships with Discontinued Operations

Subsequent to the split-off, cash flows and income associated with the Mead Johnson business continued to be generated relating to activities that are transitional in nature and generally result from agreements that are intended to facilitate the orderly transfer of business operations. The agreements include, among others, services for accounting, customer service, distribution and manufacturing and generally expire no later than 18 months from the date of the split-off. The income generated from these transitional activities is included in other (income)/expense and is not expected to be material to the future results of operations or cash flows.

Note 6. EARNINGS PER SHARE


	Three Months Ended September 30,						Nine Months Ended September 30,
Amounts in Millions, Except Per Share Data	2010			2009			2010			2009
EPS Numerator – Basic:
Income from Continuing Operations Attributable to BMS	$	949		$	892		$	2,619		$	2,421
Earnings attributable to unvested restricted shares		(4	)		(5	)		(11	)		(13	)

Income from Continuing Operations Attributable to BMS common shareholders’		945			887			2,608			2,408
Net Earnings from Discontinued Operations Attributable to BMS⁽¹⁾		—			74			—			165

EPS Numerator – Basic	$	945		$	961		$	2,608		$	2,573


EPS Denominator – Basic:
Average Common Shares Outstanding		1,712			1,980			1,715			1,979


EPS – Basic:
Continuing Operations	$	0.55		$	0.45		$	1.52		$	1.22
Discontinued Operations		—			0.04			—			0.08

Net Earnings	$	0.55		$	0.49		$	1.52		$	1.30


EPS Numerator – Diluted:
Income from Continuing Operations Attributable to BMS	$	949		$	892		$	2,619		$	2,421
Earnings attributable to unvested restricted shares		(4	)		(5	)		(11	)		(13	)

Income from Continuing Operations Attributable to BMS common shareholders’		945			887			2,608			2,408
Net Earnings from Discontinued Operations Attributable to BMS⁽¹⁾		—			74			—			165

EPS Numerator – Diluted	$	945		$	961		$	2,608		$	2,573


EPS Denominator – Diluted:
Average Common Shares Outstanding		1,712			1,980			1,715			1,979
Contingently convertible debt common stock equivalents		1			1			1			1
Incremental shares attributable to share-based compensation plans		13			3			10			2

Average Common Shares Outstanding and Common Share Equivalents		1,726			1,984			1,726			1,982


EPS – Diluted:
Continuing Operations	$	0.55		$	0.45		$	1.51		$	1.21
Discontinued Operations		—			0.03			—			0.09

Net Earnings	$	0.55		$	0.48		$	1.51		$	1.30

(1) Net Earnings from Discontinued Operations for EPS Calculation:
Net Earnings from Discontinued Operations Attributable to BMS	$	—		$	74		$	—		$	166
Earnings attributable to unvested restricted shares		—			—			—			(1	)

Net Earnings from Discontinued Operations Attributable to BMS for EPS Calculation	$	—		$	74		$	—		$	165


Anti-dilutive weighted-average equivalent shares:
Stock incentive plans		48			117			64			121

Total anti-dilutive shares		48			117			64			121

Note 7. INCOME TAXES

The effective income tax rate on earnings from continuing operations before income taxes was 19.3% and 21.2% for the three and nine months ended September 30, 2010 compared to 23.4% and 23.2% for the three and nine months ended September 30, 2009. The effective tax rate is lower than the U.S. statutory rate of 35% primarily due to the permanent reinvestment of offshore earnings from certain manufacturing operations.

The lower effective income tax rate in the three months ended September 30, 2010, was due to:

•

Certain favorable discrete tax adjustments of $54 million in 2010 related to prior years, including an $85 million tax benefit resulting from the effective settlement of U.S. and international uncertain tax positions offset by a $30 million tax charge upon finalizing the 2009 U.S. tax return.

•

A favorable earnings mix between high and low tax jurisdictions.

Partially offset by:

•

Certain favorable discrete tax adjustments of $78 million in 2009 related to prior years, including an additional benefit of $67 million upon finalizing the 2008 U.S. tax return.

•

A favorable impact on the prior year rate from the research and development tax credit which expired on December 31, 2009.

The lower effective income tax rate in the nine months ended September 30, 2010, was due to:

•

Certain favorable discrete tax adjustments of $140 million in 2010, primarily resulting from the effective settlements of U.S. and international uncertain tax positions.

•

An out-of-period tax adjustment of $59 million in 2010 related to previously unrecognized net deferred tax assets primarily attributed to deferred profits for financial reporting purposes related to certain alliances as of December 31, 2009. This adjustment is not material to any current or prior periods nor is it expected to be material for the year ended December 31, 2010.

•

A favorable earnings mix between high and low tax jurisdictions.

Partially offset by:

•

Certain favorable discrete tax adjustments of $116 million in 2009 related to prior years, including an additional benefit of $67 million from the completion of the 2008 U.S. tax return and a $40 million tax benefit resulting from the final settlement of certain state audits.

•

A favorable impact on the prior year rate from the research and development tax credit which expired on December 31, 2009.

•

A $21 million charge in the first quarter of 2010 from the reduction of deferred tax assets due to the enactment of healthcare reform. The deferred tax charge was required as a result of the elimination of the deductibility of retiree healthcare payments to the extent of tax-free Medicare Part D subsidies that are received. The change in deductibility is effective January 1, 2013.

U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries as these undistributed earnings have been invested or are expected to be permanently reinvested offshore. If, in the future, these earnings are repatriated to the U.S., or if such earnings are determined to be remitted in the foreseeable future, additional tax provisions would be required. Reforms to the international tax laws have been proposed that if adopted may increase taxes and reduce the results of operations and cash flows. Future income tax rates are also expected to be negatively impacted by healthcare reform including the enactment of an annual non-tax deductible pharmaceutical fee beginning in 2011 payable to the government.

The Company is currently under examination by a number of tax authorities which have proposed adjustments to taxes for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. The Company estimates that it is reasonably possible that the total amount of unrecognized tax benefits at September 30, 2010 will decrease in the range of approximately $125 million to $155 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits, primarily settlement related, will involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. The Company also anticipates that it is reasonably possible that new issues will be raised by tax authorities which may require increases to the balance of unrecognized tax benefits; however, an estimate of such increases cannot reasonably be made at this time. The Company believes that it has adequately provided for all open tax years by tax jurisdiction.

Note 8. FAIR VALUE MEASUREMENT

The fair value of financial assets and liabilities are classified in one of the following three categories:


	September 30, 2010								December 31, 2009
Dollars in Millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Available for Sale:
U.S. Government Agency Securities	$	502		—	$	—	$	502	$	225	$	—	$	—	$	225
U.S. Treasury Bills		405	$	—		—		405		—		—		—		—
Equity Securities		5		—		—		5		11		—		—		11
Prime Money Market Funds		—		5,888		—		5,888		—		5,807		—		5,807
Corporate Debt Securities		—		1,696		—		1,696		—		837		—		837
FDIC Insured Debt Securities		—		358		—		358		—		252		—		252
Commercial Paper		—		324		—		324		—		518		—		518
U.S. Treasury Money Market Funds		—		4		—		4		—		218		—		218
U.S. Government Agency Money Market Funds		—		—		—		—		—		24		—		24
Auction Rate Securities (ARS)		—		—		90		90		—		—		88		88
Floating Rate Securities (FRS)		—		—		33		33		—		—		91		91

Total available for sale assets		912		8,270		123		9,305		236		7,656		179		8,071


Derivatives:
Interest Rate Swap Derivatives		—		519		—		519		—		165		—		165
Foreign Currency Forward Derivatives		—		22		—		22		—		21		—		21

Total derivative assets		—		541		—		541		—		186		—		186


Total assets at fair value	$	912	$	8,811	$	123	$	9,846	$	236	$	7,842	$	179	$	8,257


Derivatives:
Foreign Currency Forward Derivatives	$	—	$	49	$	—	$	49	$	—	$	31	$	—	$	31
Natural Gas Contracts		—		1		—		1		—		1		—		1
Interest Rate Swap Derivatives		—		—		—		—		—		5		—		5

Total derivative liabilities		—		50		—		50		—		37		—		37

Total liabilities at fair value	$	—	$	50	$	—	$	50	$	—	$	37	$	—	$	37

For financial assets and liabilities that utilize Level 1 and Level 2 inputs, direct and indirect observable price quotes are utilized, including LIBOR and EURIBOR yield curves, foreign exchange forward prices, NYMEX futures pricing and common stock price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities:

•

U.S. Treasury Bills, U.S. Government Agency Securities and U.S. Government Agency Money Market Funds – valued at the quoted market price from observable pricing sources at the reporting date.

•

Equity Securities – valued using quoted stock prices from New York Stock Exchange or National Association of Securities Dealers Automated Quotation System at the reporting date.

•

Prime Money Market Funds – net asset value of $1 per share.

•

Corporate Debt Securities and Commercial Paper – valued at the quoted market price from observable pricing sources at the reporting date.

•

FDIC Insured Debt Securities – valued at the quoted market price from observable pricing sources at the reporting date.

•

U.S. Treasury Money Market Funds – valued at the quoted market price from observable pricing sources at the reporting date.

•

Interest rate swap derivative assets and liabilities – valued using LIBOR and EURIBOR yield curves, less credit valuation adjustments, at the reporting date. Counterparties to these contracts are highly-rated financial institutions, none of which experienced any significant downgrades since January 1, 2010. Valuations may fluctuate considerably from period-to-period due to volatility in underlying interest rates, driven by market conditions and the duration of the swap. In addition, credit valuation adjustment volatility may have a significant impact on the valuation of interest rate swaps due to changes in counterparty credit ratings and credit default swap spreads.

•

Foreign currency forward derivative assets and liabilities – valued using quoted forward foreign exchange prices at the reporting date. Counterparties to these contracts are highly-rated financial institutions, none of which experienced any significant downgrades since January 1, 2010. Valuations may fluctuate considerably from period-to-period due to volatility in the underlying foreign currencies. A majority of foreign currency forward derivatives mature within two years and counterparty credit risk is not considered significant.

Valuation models are utilized that rely exclusively on Level 3 inputs due to the lack of observable market quotes for the ARS and FRS portfolio. These inputs are based on expected cash flow streams and collateral values including assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity. The fair value of ARS was determined using internally developed valuations that were based in part on indicative bids received on the underlying assets of the securities and other evidence of fair value. Due to the current lack of an active market for FRS and the general lack of transparency into their underlying assets, other qualitative analyses are relied upon to value FRS including discussion with brokers and fund managers, default risk underlying the security and overall capital market liquidity. During the nine months ended September 30, 2010, $73 million principal at par was received for FRS.

Note 9. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents were $7,581 million at September 30, 2010 and $7,683 million at December 31, 2009 and consisted of prime money market funds, government agency securities and treasury securities. Cash equivalents primarily consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value.

The following table summarizes current and non-current marketable securities, accounted for as “available for sale” debt securities and equity securities:


	September 30, 2010									December 31, 2009
Dollars in Millions	Amortized Cost Basis		Unrealized Gain in Accumulated OCI		Unrealized Loss in Accumulated OCI			Fair Value		Amortized Cost Basis		Unrealized Gain in Accumulated OCI		Unrealized Loss in Accumulated OCI			Fair Value
Current marketable securities:
Certificates of deposit	$	210	$	—	$	—		$	210	$	501	$	—	$	—		$	501
Commercial Paper		45		—		—			45		205		—		—			205
Corporate debt securities		471		2		—			473		—		—		—			—
FDIC insured debt securities		50		—		—			50		—		—		—			—
U.S. government agency securities		—		—		—			—		125		—		—			125

Total current	$	776	$	2	$	—		$	778	$	831	$	—	$	—		$	831

Non-current marketable securities:
Corporate debt securities	$	1,192	$	32	$	(1	)	$	1,223	$	834	$	5	$	(2	)	$	837
U.S. government agency securities		500		2		—			502		100		—		—			100
U.S. Treasury Bills		400		5		—			405		—		—		—			—
FDIC insured debt securities		304		4		—			308		252		—		—			252
Auction rate securities		80		10		—			90		80		8		—			88
Floating rate securities⁽¹⁾		40		—		(7	)		33		113		—		(22	)		91
Other		1		—		—			1		1		—		—			1

Total non-current	$	2,517	$	53	$	(8	)	$	2,562	$	1,380	$	13	$	(24	)	$	1,369

Other assets:
Equity securities	$	5	$	—	$	—		$	5	$	11	$	—	$	—		$	11

(1)	All FRS have been in an unrealized loss position for 12 months or more at September 30, 2010.

The contractual maturities of non-current “available for sale” debt securities at September 30, 2010 were as follows:


Dollars in Millions	1 to 5 Years		Over 10 Years		Total
Available for sale:
Corporate debt securities	$	1,223	$	—	$	1,223
U.S. government agency securities		502		—		502
U.S. Treasury Bills		405		—		405
FDIC insured debt securities		308		—		308
Floating rate securities		33		—		33
Auction rate securities		—		90		90
Other		1		—		1

Total available for sale	$	2,472	$	90	$	2,562

Note 10. RECEIVABLES

Receivables include:


Dollars in Millions	September 30, 2010		December 31, 2009
Trade receivables	$	2,063	$	2,000
Less allowances		98		103

Net trade receivables		1,965		1,897
Alliance partners receivables		881		870
Prepaid and refundable income taxes		175		103
Miscellaneous receivables		264		294

Receivables	$	3,285	$	3,164

Receivables are netted with deferred income related to alliance partners until recognition of income. As a result, alliance partner receivables and deferred income were reduced by $899 million and $730 million at September 30, 2010 and December 31, 2009, respectively. For additional information regarding alliance partners, see “—Note 2. Alliances and Collaborations.” Non-U.S. receivables sold on a nonrecourse basis were $674 million and $343 million for the nine months ended September 30, 2010 and 2009, respectively. In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 49% and 47% of total trade receivables at September 30, 2010 and December 31, 2009, respectively.

In the second quarter of 2010, the government of Greece announced that it intends to convert certain past due receivables from government run hospitals into non-interest bearing notes to be paid over one to three year periods. As a result, receivables of €41 million ($51 million) were reclassified to other long-term assets. A $9 million charge attributed to the imputed discount on the expected non-interest bearing loans over the expected collection period was recognized in the second quarter of 2010 and has been included in other (income)/expense.

Note 11. INVENTORIES

Inventories include:


Dollars in Millions	September 30, 2010		December 31, 2009
Finished goods	$	461	$	580
Work in process		635		630
Raw and packaging materials		273		203

Inventories	$	1,369	$	1,413

Inventories expected to remain on-hand beyond one year were $208 million and $249 million at September 30, 2010 and December 31, 2009, respectively, and were included in non-current other assets. In addition, $44 million of these inventories currently cannot be sold until the U.S. Food and Drug Administration (FDA) approves a manufacturing process change. Inventories also include capitalized costs related to production of products for programs in Phase III development subject to final FDA approval of $64 million and $49 million at September 30, 2010 and December 31, 2009, respectively. The status of the regulatory approval process and the probability of future sales were considered in assessing the recoverability of these costs.

Note 12. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment includes:


Dollars in Millions	September 30, 2010		December 31, 2009
Land	$	135	$	142
Buildings		4,312		4,350
Machinery, equipment and fixtures		3,124		3,563
Construction in progress		714		840

Gross property, plant and equipment		8,285		8,895
Less accumulated depreciation		3,562		3,840

Property, plant and equipment	$	4,723	$	5,055

Note 13. EQUITY

Changes in common shares, treasury stock and capital in excess of par value of stock were as follows:


Dollars and Shares in Millions	Common Shares Issued		Treasury Stock			Cost of Treasury Stock			Capital in Excess of Par Value of Stock
Balance at January 1, 2009		2,205		226		$	(10,566	)	$	2,757
Mead Johnson initial public offering		—		—			—			942
Adjustments to the Mead Johnson net asset transfer		—		—			—			(7	)
Employee stock compensation plans		—		(2	)		62			41

Balance at September 30, 2009		2,205		224		$	(10,504	)	$	3,733


Balance at January 1, 2010		2,205		491		$	(17,364	)	$	3,768
Stock repurchase program		—		15			(362	)		—
Employee stock compensation plans		—		(12	)		428			(107	)

Balance at September 30, 2010		2,205		494		$	(17,298	)	$	3,661

The accumulated balances related to each component of other comprehensive income/(loss) (OCI), net of taxes, were as follows:


Dollars in Millions	Foreign Currency Translation			Derivatives Qualifying as Effective Hedges			Pension and Other Postretirement Benefits			Available for Sale Securities			Accumulated Other Comprehensive Income/(Loss)
Balance at January 1, 2009	$	(424	)	$	14		$	(2,258	)	$	(51	)	$	(2,719	)
Other comprehensive income/(loss)		64			(80	)		482			35			501

Balance at September 30, 2009	$	(360	)	$	(66	)	$	(1,776	)	$	(16	)	$	(2,218	)


Balance at January 1, 2010	$	(343	)	$	(30	)	$	(2,158	)	$	(10	)	$	(2,541	)
Other comprehensive income/(loss)		106			(1	)		45			57			207

Balance at September 30, 2010	$	(237	)	$	(31	)	$	(2,113	)	$	47		$	(2,334	)

The reconciliation of noncontrolling interest was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in Millions	2010			2009			2010			2009
Balance at beginning of period	$	(94	)	$	(160	)	$	(58	)	$	(33	)
Mead Johnson initial public offering		—			—			—			(160	)
Adjustments to the Mead Johnson net asset transfer		—			7			—			7
Net earnings attributable to noncontrolling interest		525			467			1,558			1,331
Other comprehensive income attributable to noncontrolling interest		—			2			—			7
Distributions		(544	)		(463	)		(1,613	)		(1,299	)

Balance at September 30	$	(113	)	$	(147	)	$	(113	)	$	(147	)

Noncontrolling interest is primarily related to the partnerships with sanofi for the territory covering the Americas for net sales of PLAVIX*. Net earnings attributable to noncontrolling interest are presented net of taxes of $173 million and $141 million for the three months ended September 30, 2010 and 2009, respectively, and $509 million and $412 million for the nine months ended September 30, 2010 and 2009, respectively, in the consolidated statements of earnings with a corresponding increase to the provision for income taxes. Distribution of the partnership profits to sanofi and sanofi's funding of ongoing partnership operations occur on a routine basis and are included within operating activities in the consolidated statements of cash flows. The above activity includes the pre-tax income and distributions related to these partnerships.

Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method.

In May 2010, the Board of Directors authorized the repurchase of up to $3.0 billion of common stock. Repurchases may be made either in the open market or through private transactions, including under repurchase plans established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The stock repurchase program does not have an expiration date but is expected to take place over the next few years. It may be suspended or discontinued at any time. During the three and nine months ended September 30, 2010, the Company repurchased 7.2 million and 14.5 million shares, respectively, at the average price of approximately $26.06 per share and $24.91 per share, respectively, and an aggregate cost of $189 million and $362 million, respectively.

Note 14. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES

The net periodic benefit cost of defined benefit pension and postretirement benefit plans includes:


	Three Months Ended September 30,												Nine Months Ended September 30,
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
Dollars in Millions	2010			2009			2010			2009			2010			2009			2010			2009
Service cost — benefits earned during the period	$	10		$	28		$	1		$	2		$	32		$	135		$	5		$	5
Interest cost on projected benefit obligation		87			92			8			9			260			285			23			28
Expected return on plan assets		(112	)		(105	)		(6	)		(5	)		(337	)		(338	)		(18	)		(15	)
Amortization of prior service cost/(benefit)		—			—			—			(1	)		—			4			(2	)		(3	)
Amortization of net actuarial loss		23			15			1			2			71			85			7			7

Net periodic benefit cost		8			30			4			7			26			171			15			22
Settlements		2			—			—			—			7			—			—			—
Curtailments and special termination benefits		—			—			—			—			9			25			—			—

Total net periodic benefit cost	$	10		$	30		$	4		$	7		$	42		$	196		$	15		$	22


Continuing operations	$	10		$	30		$	4		$	6		$	42		$	191		$	15		$	20
Discontinued operations		—			—			—			1			—			5			—			2

Total net periodic benefit cost	$	10		$	30		$	4		$	7		$	42		$	196		$	15		$	22

Contributions to the U.S. pension plans are expected to approximate $330 million during 2010, of which $320 million was contributed in the nine months ended September 30, 2010. Contributions to the international plans are expected to range from $85 million to $100 million in 2010, of which $58 million was contributed in the nine months ended September 30, 2010.

In connection with the amendments of the U.S. Retirement Income Plan and several other plans, the crediting of future benefits relating to service was eliminated effective December 31, 2009. In addition, actuarial gains and losses are amortized over the expected weighted-average remaining lives of the participants (32 years). Net periodic benefit costs are reduced as a result of these changes. Pension settlement charges resulting in an acceleration of previously deferred actuarial losses might be required in future periods if lump sum payments for individual plans exceed the sum of the related plan's service cost and interest cost.

Certain enhancements were made to the defined contribution plans in the U.S. and Puerto Rico allowing for increased matching and additional Company contributions effective January 1, 2010. The expense attributed to these plans was $44 million and $12 million for the three months ended September 30, 2010 and 2009, respectively, and $139 million and $39 million for the nine months ended September 30, 2010 and 2009, respectively.

Note 15. EMPLOYEE STOCK BENEFIT PLANS

Stock-based compensation expense was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions	2010		2009		2010		2009
Stock options	$	14	$	18	$	41	$	54
Restricted stock		24		20		70		55
Long-term performance awards		9		4		32		21

Total stock-based compensation expense	$	47	$	42	$	143	$	130


Continuing operations	$	47	$	38	$	143	$	120
Discontinued operations		—		4		—		10

Total stock-based compensation expense	$	47	$	42	$	143	$	130


Deferred tax benefit related to stock-based compensation expense:
Continuing operations	$	16	$	12	$	47	$	39
Discontinued operations		—		1		—		3

Total deferred tax benefit related to stock-based compensation expense	$	16	$	13	$	47	$	42

In the nine months ended September 30, 2010, 3.2 million restricted stock units, 1.4 million market share units and 1.7 million long-term performance share units were granted. The weighted-average grant date fair value for restricted stock units, market share units and long-term performance share units granted during the nine months ended September 30, 2010 was $24.75, $24.69 and $23.65, respectively.

Restricted stock units vest ratably over a four year period. Market share units vest ratably over a four year period based on share price performance. The fair value of market share units was estimated on the date of grant using a model applying multiple input variables that determine the probability of satisfying market conditions. Long-term performance share units are determined based on the achievement of annual performance goals, but are not vested until the end of the three year period.

Total compensation costs related to nonvested awards not yet recognized and the weighted-average period over which such awards are expected to be recognized at September 30, 2010 were as follows:


Dollars in Millions	Stock Options		Restricted Stock		Long-Term Performance Awards
Unrecognized compensation cost	$	49	$	185	$	28
Expected weighted-average period of compensation cost to be recognized		1.9 years		2.0 years		1.5 years

Note 16. FINANCIAL INSTRUMENTS

Financial instruments include cash and cash equivalents, marketable securities, receivables, accounts payable, debt instruments and derivatives. Due to their short term maturity, the carrying amount of receivables and accounts payable approximate fair value. For further information about cash, cash equivalents and marketable securities, see “—Note 9. Cash, Cash Equivalents and Marketable Securities.”

There is exposure to market risk due to changes in currency exchange rates and interest rates. As a result, certain derivative financial instruments are used when available on a cost-effective basis to hedge the underlying economic exposure. These instruments qualify as cash flow, net investment and fair value hedges upon meeting certain criteria, including effectiveness of offsetting hedged exposures. Changes in fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. All financial instruments, including derivatives, are subject to counterparty credit risk which is considered as part of the overall fair value measurement. Derivative financial instruments are not used for trading purposes.

Foreign currency forward contracts are used to manage cash flow exposures. The primary net foreign currency exposures hedged are the Euro, Japanese yen, Canadian dollar, British pound, Australian dollar and Mexican peso. Fixed-to-floating interest rate swaps are used as part of the interest rate risk management strategy. These swaps generally qualify for fair-value hedge accounting treatment. Certain net asset changes due to foreign exchange volatility are generally hedged through non-U.S. dollar borrowings which qualify as a net investment hedge.

Qualifying Hedges

Cash Flow Hedges

Foreign Currency Forward Contracts — Foreign currency forward contracts are utilized to hedge forecasted intercompany and other transactions for certain foreign currencies. These contracts are designated as foreign currency cash flow hedges when appropriate. The effective portion of changes in fair value for the designated foreign currency hedges is temporarily reported in accumulated OCI and recognized in earnings when the hedged item affects earnings. The net deferred gains on foreign currency forward contracts qualifying for cash flow hedge accounting are expected to be reclassified to earnings within the next 28 months.

Effectiveness is assessed at the inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is included in current period earnings. The impact of hedge ineffectiveness on earnings was a pre-tax gain of $2 million and $3 million during the three and nine months ended September 30, 2010, respectively, which was recognized in other (income)/expense. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. Discontinued foreign currency forward hedges resulted in a pre-tax loss of $8 million and a pre-tax gain of $3 million during the three and nine months ended September 30, 2010, respectively, which was recognized in other (income)/expense.

Interest Rate Contracts — Terminated swaps that qualify as cash flow hedges are recognized in accumulated OCI and amortized to earnings over the remaining life of the debt when the hedged debt remains outstanding.

The impact on OCI and earnings from derivative instruments qualifying as cash flow hedges was as follows:


	Nine Months Ended September 30,
	Foreign Currency Forward Contracts						Natural Gas Contracts						Forward Starting Swaps						Total Impact
Dollars in Millions	2010			2009			2010			2009			2010			2009			2010			2009
Net carrying amount at January 1	$	(11	)	$	35		$	(1	)	$	(2	)	$	(18	)	$	(19	)	$	(30	)	$	14
Cash flow hedges deferred in OCI		8			(52	)		—			2			—			—			8			(50	)
Cash flow hedges reclassified to cost of products sold/interest expense (effective portion)		(12	)		(63	)		—			—			—			—			(12	)		(63	)
Change in deferred taxes		3			34			—			(1	)		—			—			3			33

Net carrying amount at September 30	$	(12	)	$	(46	)	$	(1	)	$	(1	)	$	(18	)	$	(19	)	$	(31	)	$	(66	)

Hedge of Net Investment

Non-U.S. dollar borrowings, primarily the €500 Million Notes due 2016 and €500 Million Notes due 2021, ($1.3 billion total), are used to hedge the foreign currency exposures of the net investment in certain foreign affiliates. These borrowings are designated as a hedge of a net investment. At September 30, 2010, €294 million ($396 million) of the Notes due 2016 have been dedesignated.

The impact on OCI and earnings from non-derivative debt designated net investment hedges was as follows:


	Nine Months Ended September 30,
	Net Investment Hedges
Dollars in Millions	2010			2009
Net carrying amount at January 1	$	(169	)	$	(131	)
Change in spot value of non-derivative debt designated as a hedge		90			(72	)
(Gain)/loss recognized in other (income)/expense, net (overhedged portion)		(26	)		9

Net carrying amount at September 30	$	(105	)	$	(194	)

Fair Value Hedges

Interest Rate Contracts — Derivative instruments are used as part of an interest rate risk management strategy, principally fixed-to-floating interest rate swaps that are designated as fair-value hedges.

The swaps and underlying debt for the benchmark risk being hedged are recorded at fair value. Swaps are intended to create an appropriate balance of fixed and floating rate debt. The basis adjustment to debt with qualifying fair value hedging relationships is amortized to earnings as an adjustment to interest expense over the remaining life of the debt when the underlying swap is terminated prior to maturity.

In May 2010, fixed-to-floating interest rate swap agreements of $237 million notional amount and €500 million notional amount were terminated generating total proceeds of $116 million which included accrued interest of $18 million and a basis adjustment of $98 million which was deferred and will be amortized to interest expense over the remaining life of the underlying debt.

In January 2010, fixed-to-floating interest rate swaps were executed to convert $332 million of the 6.80% Debentures due 2026 and $147 million of the 7.15% Debentures due 2023 from fixed rate debt to variable rate debt. These swaps qualified as a fair value hedge for each debt instrument.

The impact on earnings from interest rate swaps that qualified as fair value hedges was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in Millions	2010			2009			2010			2009
Recognized in interest expense	$	(29	)	$	(32	)	$	(101	)	$	(85	)
Amortization of basis adjustment from swap terminations recognized in interest expense		(9	)		(6	)		(24	)		(18	)

Total	$	(38	)	$	(38	)	$	(125	)	$	(103	)

The impact on long-term debt from interest rate swaps that qualify as fair value hedges and other items were as follows:


Dollars in Millions	September 30, 2010			December 31, 2009
Principal value	$	5,537		$	5,622
Adjustments to Principal Value:
Fair value of interest rate swaps		519			160
Unamortized basis adjustment from swap terminations		451			377
Unamortized bond discounts		(28	)		(29	)

Total	$	6,479		$	6,130

Total interest expense, including interest on long-term debt and interest rate swaps, amounted to $38 million and $47 million for the three months ended September 30, 2010 and 2009, respectively, and $103 million and $141 million for the nine months ended September 30, 2010 and 2009, respectively.

Non-Qualifying Foreign Exchange Contracts

Foreign currency forward contracts are used to offset exposure to foreign currency-denominated monetary assets, liabilities and earnings. The primary objective of these contracts is to protect the U.S. dollar value of foreign currency-denominated monetary assets, liabilities and earnings from the effects of volatility in foreign exchange rates that might occur prior to their receipt or settlement in U.S. dollars. These contracts are not designated as hedges and are adjusted to fair value through other (income)/expense as they occur, and substantially offset the change in fair value of the underlying foreign currency denominated monetary asset, liability or earnings.

Foreign currency forward contracts were used to hedge anticipated earnings denominated in Australian and Canadian dollars throughout 2010. These contracts are not designated as qualifying hedges, and therefore, gains or losses on these derivatives will be recognized in earnings in other (income)/expense as they occur. The effect of non-qualifying hedges was a $6 million and $3 million loss for the three and nine months ended September 30, 2010, respectively, and was not significant for 2009.

The following table summarizes the fair value of outstanding derivatives:


			September 30, 2010				December 31, 2009					September 30, 2010					December 31, 2009
Dollars in Millions	Balance Sheet Location		Notional		Fair Value		Notional		Fair Value		Balance Sheet Location	Notional		Fair Value			Notional		Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts		Other assets	$	3,207	$	519	$	3,134	$	165	Accrued expenses	$	—	$	—		$	597	$	(5	)
Foreign currency forward contracts		Other assets		511		22		780		21	Accrued expenses		845		(47	)		731		(31	)
Hedge of net investments				—		—		—		—	Long-term debt		953		(953	)		1,256		(1,256	)
Natural gas contracts				—		—		—		—	Accrued expenses		*		(1	)		*		(1	)

Subtotal						541				186					(1,001	)				(1,293	)

Derivatives not designated as hedging instruments:
Foreign currency forward contracts		Other assets		—		—		—		—	Accrued expenses		67		(2	)		—		—

Total Derivatives					$	541			$	186				$	(1,003	)			$	(1,293	)

*	The notional value of natural gas contracts was 1 million and 2 million decatherms at September 30, 2010 and December 31, 2009, respectively.

The derivative financial instruments present certain market and counterparty risks; however, concentration of counterparty risk is mitigated by using banks worldwide with Standard & Poor's and Moody's long-term debt ratings of A or higher. In addition, only conventional derivative financial instruments are utilized. The consolidated financial statements would not be materially impacted if any counterparties failed to perform according to the terms of its agreement. Currently, collateral or any other form of securitization is not required to be furnished by the counterparties to derivative financial instruments.

For a discussion on the fair value of financial instruments, see “—Note 8. Fair Value Measurement.”

Note 17. LEGAL PROCEEDINGS AND CONTINGENCIES

Various lawsuits, claims, government investigations and other legal proceedings are pending involving the Company and certain of its subsidiaries. The Company recognizes accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve, among other things, antitrust, securities, patent infringement, pricing, sales and marketing practices, environmental, commercial, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. The most significant of these matters are described below.

Although the Company believes it has substantial defenses in these matters, there can be no assurance that there will not be an increase in the scope of pending matters or that any future lawsuits, claims, government investigations or other legal proceedings will not be material.

INTELLECTUAL PROPERTY

PLAVIX* Litigation

PLAVIX* is currently the Company’s largest product ranked by net sales. The PLAVIX* patents are subject to a number of challenges in the U.S., including the litigation with Apotex Inc. and Apotex Corp. (Apotex) described below, and in other less significant markets for the product. The Company and its product partner, sanofi, (the Companies) intend to vigorously pursue enforcement of their patent rights in PLAVIX*.

PLAVIX* Litigation – U.S.

Patent Infringement Litigation against Apotex and Related Matters

As previously disclosed, the Company’s U.S. territory partnership under its alliance with sanofi is a plaintiff in a pending patent infringement lawsuit instituted in the United States District Court for the Southern District of New York (District Court) entitled Sanofi-Synthelabo, Sanofi-Synthelabo, Inc. and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Apotex. The suit is based on U.S. Patent No. 4,847,265 (the ‘265 Patent), a composition of matter patent, which discloses and claims, among other things, the hydrogen sulfate salt of clopidogrel, a medicine made available in the U.S. by the Companies as PLAVIX*. Also, as previously reported, the District Court upheld the validity and enforceability of the ‘265 Patent, maintaining the main patent

protection for PLAVIX* in the U.S. until November 2011. The District Court also ruled that Apotex’s generic clopidogrel bisulfate product infringed the ‘265 Patent and permanently enjoined Apotex from engaging in any activity that infringes the ‘265 Patent, including marketing its generic product in the U.S. until after the patent expires.

Apotex appealed the District Court’s decision and on December 12, 2008, the United States Court of Appeals for the Federal Circuit (Circuit Court) affirmed the District Court’s ruling sustaining the validity of the ‘265 Patent. Apotex filed a petition with the Circuit Court for a rehearing en banc, and in March 2009, the Circuit Court denied Apotex’s petition. The case has been remanded to the District Court for further proceedings relating to damages. In July 2009, Apotex filed a petition for writ of certiorari with the U.S. Supreme Court requesting the Supreme Court to review the Circuit Court’s decision. In November 2009, the U.S. Supreme Court denied the petition, declining to review the Circuit Court’s decision. In December 2009, the Company filed a motion in the District Court for summary judgment on damages, and in January 2010, Apotex filed a motion seeking a stay of the ongoing damages proceedings pending the outcome of the reexamination of the PLAVIX* patent by the U.S. Patent and Trademark Office (PTO) described below. In April 2010, the District Court denied Apotex’s motion to stay the proceedings. In October 2010, the District Court granted the Companies’ summary judgment motion and awarded $442 million in damages plus costs and interest. The District Court’s decision is subject to appeal by Apotex and it is not possible at this time to reasonably assess Apotex’s ability to pay the Companies this damages award.

As previously disclosed, the Company’s U.S. territory partnership under its alliance with sanofi is also a plaintiff in five additional patent infringement lawsuits against Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, LTD (Dr. Reddy’s), Teva Pharmaceuticals USA, Inc. (Teva), Cobalt Pharmaceuticals Inc. (Cobalt), Watson Pharmaceuticals, Inc. and Watson Laboratories, Inc. (Watson) and Sun Pharmaceuticals (Sun). The lawsuits against Dr. Reddy’s, Teva and Cobalt relate to the ‘265 Patent. In May 2009, Dr Reddy’s signed a consent judgment in favor of sanofi and BMS conceding the validity and infringement of the ‘265 Patent. As previously reported, the patent infringement actions against Teva and Cobalt were stayed pending resolution of the Apotex litigation, and the parties to those actions agreed to be bound by the outcome of the litigation against Apotex. Consequently, on July 12, 2007, the District Court entered judgments against Cobalt and Teva and permanently enjoined Cobalt and Teva from engaging in any activity that infringes the ‘265 Patent until after the Patent expires. Cobalt and Teva each filed an appeal. In July 2009, the Circuit Court issued a mandate in the Teva appeal binding Teva to the decision in the Apotex litigation. In August 2009, Cobalt consented to entry of judgment in its appeal agreeing to be bound by Circuit Court’s decision in the Apotex litigation. The lawsuit against Watson, filed in October 2004, was based on U.S. Patent No. 6,429,210 (the ‘210 Patent), which discloses and claims a particular crystalline or polymorph form of the hydrogen sulfate salt of clopidogrel, which is marketed as PLAVIX*. In December 2005, the Court permitted Watson to pursue its declaratory judgment counterclaim with respect to U.S. Patent No. 6,504,030. In January 2006, the Court approved the parties’ stipulation to stay this case pending the outcome of the trial in the Apotex matter. On May 1, 2009, BMS and Watson entered into a stipulation to dismiss the case. In April 2007, Pharmastar filed a request for inter partes reexamination of the ‘210 Patent at the PTO. The PTO granted this request in July of 2007 and in July 2009, the PTO vacated the reexamination proceeding. The lawsuit against Sun, filed on July 11, 2008, is based on infringement of the ‘265 Patent and the ‘210 Patent. With respect to the ‘265 Patent, Sun has agreed to be bound by the outcome of the Apotex litigation. Each of Dr. Reddy’s, Teva, Cobalt, Watson and Sun have filed an aNDA with the FDA, and, with respect to Dr. Reddy’s, Teva, Cobalt and Watson all exclusivity periods and statutory stay periods under the Hatch-Waxman Act have expired. Accordingly, final approval by the FDA would provide each company authorization to distribute a generic clopidogrel bisulfate product in the U.S., subject to various legal remedies for which the Companies may apply including injunctive relief and damages.

On June 1, 2009, Apotex filed a request for ex parte reexamination of the ‘265 Patent at the PTO and in August 2009, the PTO agreed to reexamine the patent. In December 2009, the PTO issued a non-final office action rejecting several claims covering PLAVIX* including the claim that was previously upheld in the litigation against Apotex referred to above. Sanofi responded to the office action in February 2010. The PTO has issued an ex parte Reexamination Certificate withdrawing the rejections in the non-final office action and confirming patentability of all the claims of the ‘265 Patent. Apotex has filed a second request for ex parte reexamination of the ‘265 Patent and in June 2010, the PTO denied Apotex’s request to reexamine the patent again.

Additionally, on November 13, 2008, Apotex filed a lawsuit in New Jersey Superior Court entitled, Apotex Inc., et al. v. sanofi-aventis, et al., seeking payment of $60 million, plus interest, related to the break-up of the proposed settlement agreement.

PLAVIX* Litigation – International

PLAVIX* – Australia

As previously disclosed, sanofi was notified that, in August 2007, GenRx Proprietary Limited (GenRx) obtained regulatory approval of an application for clopidogrel bisulfate 75mg tablets in Australia. GenRx, formerly a subsidiary of Apotex, has since changed its name to Apotex. In August 2007, Apotex filed an application in the Federal Court of Australia seeking revocation of sanofi’s Australian Patent No. 597784 (Case No. NSD 1639 of 2007). Sanofi filed counterclaims of infringement and sought an

injunction. On September 21, 2007, the Australian court granted sanofi’s injunction. A subsidiary of the Company was subsequently added as a party to the proceedings. In February 2008, a second company, Spirit Pharmaceuticals Pty. Ltd., also filed a revocation suit against the same patent. This case was consolidated with the Apotex case and a trial occurred in April 2008. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts were valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and claim directed to clopidogrel and its pharmaceutically acceptable salts were invalid. The Company and sanofi filed notices of appeal in the Full Court of the Federal Court of Australia (Full Court) appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims which have stayed the Federal Court’s ruling. Apotex filed a notice of appeal appealing the holding of validity of the clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate claims. A hearing on the appeals occurred in February 2009. On September 29, 2009, the Full Federal Court of Australia held all of the claims of Patent No. 597784 invalid. In November 2009, the Company and sanofi applied to the High Court of Australia (High Court) for special leave to appeal the judgment of the Full Court. In March 2010, the High Court denied the Company and sanofi’s request to hear the appeal of the Full Court decision. The case has been remanded to the Federal Court for further proceedings related to damages. It is expected the amount of damages will not be material to the Company.

PLAVIX* – EU

As previously disclosed, in 2007, YES Pharmaceutical Development Services GmbH (YES Pharmaceutical) filed an application for marketing authorization in Germany for an alternate salt form of clopidogrel. This application relied on data from studies that were originally conducted by sanofi and BMS for PLAVIX* and were still the subject of data protection in the EU. Sanofi and BMS have filed an action against YES Pharmaceutical and its partners in the administrative court in Cologne objecting to the marketing authorization. This matter is currently pending, although these specific marketing authorizations now have been withdrawn from the market.

PLAVIX* – Canada (Apotex, Inc.)

On April 22, 2009, Apotex filed an impeachment action against sanofi in the Federal Court of Canada alleging that sanofi’s Canadian Patent No. 1,336,777 (the ‘777 Patent) is invalid. The ‘777 Patent covers clopidogrel bisulfate and was the patent at issue in the prohibition action in Canada previously disclosed in which the Canadian Federal Court of Ottawa rejected Apotex’s challenge to the ‘777 Patent, held that the asserted claims are novel, not obvious and infringed, and granted sanofi’s application for an order of prohibition against the Minister of Health and Apotex, precluding approval of Apotex’s Abbreviated New Drug Submission until the patent expires in 2012, which decision was affirmed on appeal by both the Federal Court of Appeal and the Supreme Court of Canada. On June 8, 2009, sanofi filed its defense to the impeachment action and filed a suit against Apotex for infringement of the ‘777 Patent.

OTHER INTELLECTUAL PROPERTY LITIGATION

ABILIFY*

As previously disclosed, Otsuka has filed patent infringement actions against Teva, Barr Pharmaceuticals, Inc. (Barr), Sandoz Inc. (Sandoz), Synthon Laboratories, Inc (Synthon), Sun Pharmaceuticals (Sun), Zydus Pharmaceuticals USA, Inc., and Apotex relating to U.S. Patent No. 5,006,528, which covers aripiprazole and expires in April 2015 (including the additional six-month pediatric exclusivity period). Aripiprazole is comarketed by the Company and Otsuka in the U.S. as ABILIFY*. A non-jury trial in the U.S. District Court for the District of New Jersey (NJ District Court) was completed in August 2010 and post-trial motions are currently pending with the NJ District Court. The 30-month stay under the Hatch-Waxman Act expires on November 15, 2010. A decision is expected by that time. Final approval by the FDA would provide each generic company authorization to distribute a generic aripiprazole product in the U.S., subject to various legal remedies for which Otsuka may apply including injunctive relief and damages.

It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company. If, however, a generic company were to launch "at risk" or if Otsuka were not to prevail in these lawsuits, generic competition would likely result in substantial decreases in the sales of ABILIFY* in the U.S., which would have a material adverse effect on the results of operations and cash flows and could be material to financial condition.

ATRIPLA*

In April 2009, Teva filed an aNDA to manufacture and market a generic version of ATRIPLA*. ATRIPLA* is a single tablet three-drug regimen combining the Company’s SUSTIVA and Gilead’s TRUVADA*. As of this time, the Company’s patent rights covering SUSTIVA’s composition of matter and method of use have not been challenged. Teva sent Gilead a Paragraph IV

certification letter challenging two of the fifteen Orange Book listed patents for ATRIPLA*. In May 2009, Gilead filed a patent infringement action against Teva in the U.S. District Court for the Southern District of New York (SDNY). In January 2010, the Company received a notice that Teva amended its aNDA and is challenging eight additional Orange Book listed patents for ATRIPLA*. In March 2010, the Company and Merck, Sharp & Dohme Corp. filed a patent infringement action against Teva also in the SDNY relating to two U.S. Patents which claim crystalline or polymorph forms of efavirenz. In March 2010, Gilead filed two patent infringement actions against Teva in the SDNY relating to six Orange Book listed patents for ATRIPLA*. Discovery in these matters is ongoing. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.

REYATAZ

Teva has filed an aNDA to manufacture and market generic versions of all four REYATAZ dosage forms (100, 150, 200 and 300 mg). The Company received a Paragraph IV certification letter from Teva challenging the two Orange Book listed patents for REYATAZ. In December 2009, the Company and Novartis Pharmaceutical Corporation (Novartis) filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware (Delaware District Court) against Teva for infringement of the two listed patents covering REYATAZ, which should trigger an automatic 30-month stay of approval of Teva’s aNDA. Subsequent patent infringement lawsuits were filed. Discovery in these matters is ongoing. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.

BARACLUDE

In August 2010, Teva filed an aNDA to manufacture and market generic versions of BARACLUDE. The Company received a Paragraph IV certification letter from Teva challenging the one Orange Book listed patent for BARACLUDE. In September 2010, the Company filed a patent infringement lawsuit in the Delaware District Court against Teva for infringement of the listed patent covering BARACLUDE, which should trigger an automatic 30-month stay of approval of Teva’s aNDA. It is not possible at this time to reasonably assess the outcome of this lawsuit or its impact on the Company.

SPRYCEL

In September 2010, Apotex filed an aNDA to manufacture and market generic versions of SPRYCEL. The Company received a Paragraph IV certification letter from Apotex challenging the four Orange Book listed patents for SPRYCEL, including the composition of matter patent. The Company is currently reviewing the certification letter.

GENERAL COMMERCIAL LITIGATION

Clayworth Litigation

As previously disclosed, the Company, together with a number of other pharmaceutical manufacturers, was named as a defendant in an action filed in California State Superior Court in Oakland, James Clayworth et al. v. Bristol-Myers Squibb Company, et al., alleging that the defendants conspired to fix the prices of pharmaceuticals by agreeing to charge more for their drugs in the U.S. than they charge outside the U.S., particularly Canada, and asserting claims under California’s Cartwright Act and unfair competition law. The plaintiffs sought trebled monetary damages, injunctive relief and other relief. In December 2006, the Court granted the Company and the other manufacturers’ motion for summary judgment based on the pass-on defense, and judgment was then entered in favor of defendants. In July 2008, judgment in favor of defendants was affirmed by the California Court of Appeals. In July 2010, the California Supreme Court reversed the Court of Appeal’s judgment and the matter will be remanded to the Superior Court for further proceedings. It is not possible at this time reasonably to assess the outcome of this lawsuit or its impact on the Company in the event plaintiffs are successful on appeal.

RxUSA Wholesale Litigation

As previously disclosed, in July 2006, a complaint was filed by drug wholesaler RxUSA Wholesale, Inc. in the U.S. District Court for the Eastern District of New York against the Company, 15 other drug manufacturers, five drug wholesalers, two officers of defendant McKesson and a wholesale distribution industry trade group, RxUSA Wholesale, Inc. v. Alcon Labs., Inc., et al. The complaint alleges violations of Federal and New York antitrust laws, as well as various other laws. Plaintiff claims that defendants allegedly engaged in anti-competitive acts that resulted in the exclusion of plaintiff from the relevant market and seeks $586 million in damages before any trebling, and other relief. In September 2009, the District Court granted the Company’s and other defendants’ motions to dismiss. In August 2010, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s dismissal of this matter.

ANTITRUST LITIGATION

As previously disclosed, 18 lawsuits comprised of both individual suits and purported class actions have been filed against the Company in U.S. District Court, Southern District of Ohio, Western Division, by various plaintiffs, including pharmacy chains (individually and as assignees, in whole or in part, of certain wholesalers), various health and welfare benefit plans/funds and individual residents of various states. These lawsuits allege, among other things, that the purported settlement with Apotex of the patent infringement litigation violated the Sherman Act and related laws. Plaintiffs are seeking, among other things, permanent injunctive relief barring the Apotex settlement and/or monetary damages. The putative class actions filed on behalf of direct purchasers have been consolidated under the caption In re: Plavix Direct Purchaser Antitrust Litigation, and the putative class actions filed on behalf of indirect purchasers have been consolidated under the caption In re: Plavix Indirect Purchaser Antitrust Litigation. Amended complaints were filed on October 19, 2007. Defendants filed a consolidated motion to dismiss in December 2007. In March 2010, the District Court granted the defendants’ motion to dismiss with respect to all the direct purchaser claims. The motion to dismiss with respect to the indirect purchasers claims remains pending. In April 2010, the direct purchaser plaintiffs filed a motion for reconsideration with the District Court. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.

PRICING, SALES AND PROMOTIONAL PRACTICES LITIGATION AND INVESTIGATIONS

ABILIFY* State Attorneys General Investigation

In March 2009, the Company received a letter from the Delaware Attorney General’s Office advising of a multi-state coalition investigating whether certain ABILIFY* marketing practices violated those states’ consumer protection statutes. It is not possible at this time to reasonably assess the outcome of this investigation or its potential impact on the Company.

AWP Litigation

As previously disclosed, the Company, together with a number of other pharmaceutical manufacturers, has been a defendant in a number of private class actions as well as suits brought by the attorneys general of various states. In these actions, plaintiffs allege that defendants caused the Average Wholesale Prices (AWPs) of their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The Company remains a defendant in four state attorneys general suits pending in state courts around the country. Beginning in August 2010, the Company was the defendant in a trial in the Commonwealth Court of Pennsylvania (Commonwealth Court), brought by the Commonwealth of Pennsylvania. In September 2010, the jury issued a verdict for the Company, finding that the Company was not liable for fraudulent or negligent misrepresentation; however, the Commonwealth Court Judge issued a decision on a Pennsylvania consumer protection claim that did not go to the jury, finding the Company liable for $27.6 million and enjoining the Company from contributing to the provision of inflated AWPs. The Company has moved to vacate the decision and the Commonwealth has moved for a judgment notwithstanding the verdict or, in the alternative, for a new trial. These motions are currently pending before the Commonwealth Court.

As previously reported, one set of class actions were consolidated in the U.S. District Court for the District of Massachusetts (AWP MDL). In August 2009, the District Court granted preliminary approval of a proposed settlement of the AWP MDL plaintiffs’ claims against the Company for $19 million, plus half the costs of class notice up to a maximum payment of $1 million. A final approval hearing is scheduled to occur in November 2010.

California 340B Litigation

As previously disclosed, in August 2005, the County of Santa Clara filed a purported class action against the Company and numerous other pharmaceutical manufacturers on behalf of itself and a putative class of other cities and counties in California, as well as the covered entities that purchased drugs pursuant to the 340B drug discount program (340B Entities), alleging that manufacturers did not provide proper discounts to 340B Entities. In May 2009, the U.S. District Court for the Northern District of California (District Court) denied plaintiff’s motion, without prejudice, to certify the class. In September 2010, the U.S. Supreme Court granted certiorari on the issue of whether 340B Entities have standing to sue. The District Court had previously dismissed the case after finding that 340B Entities did not have standing, but the U.S. Court of Appeals for the Ninth Circuit reversed the District Court. The District Court Judge has stayed the case pending a decision by the U.S. Supreme Court.

It is not possible at this time to reasonably assess the outcome of this lawsuit, or its potential impact on the Company.

PRODUCT LIABILITY LITIGATION

The Company is a party to various product liability lawsuits. As previously disclosed, in addition to lawsuits, the Company also faces unfiled claims involving its products.

PLAVIX*

As previously disclosed, the Company and certain affiliates of sanofi are defendants in a number of individual lawsuits claiming personal injury allegedly sustained after using PLAVIX*, most of which appear before the United States District Court for the District of New Jersey (NJ District Court). As of September 30, 2010, the companies were defendants in over 20 actions before the NJ District Court and have executed tolling agreements with respect to unfiled claims by potential additional plaintiffs. It is not possible at this time to reasonably assess the outcomes of these lawsuits or their potential impact on the Company.

Hormone Replacement Therapy

The Company is one of a number of defendants in a mass-tort litigation in which plaintiffs allege, among other things, that various hormone therapy products, including hormone therapy products formerly manufactured by the Company (ESTRACE*, Estradiol, DELESTROGEN* and OVCON*) cause breast cancer, stroke, blood clots, cardiac and other injuries in women, that the defendants were aware of these risks and failed to warn consumers. As of September 30, 2010, the Company was a defendant in over 300 lawsuits filed on behalf of approximately 500 plaintiffs in federal and state courts throughout the U.S. The Company has entered into a settlement in principle to resolve the claims of 80 plaintiffs. All of the Company’s hormone therapy products were sold to other companies between January 2000 and August 2001. It is not possible at this time reasonably to assess the outcome of the remaining lawsuits in which the Company is a party or their impact on the Company.

ENVIRONMENTAL PROCEEDINGS

As previously reported, the Company is a party to several environmental proceedings and other matters, and is responsible under various state, federal and foreign laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), for certain costs of investigating and/or remediating contamination resulting from past industrial activity at the Company’s current or former sites or at waste disposal or reprocessing facilities operated by third-parties.

CERCLA Matters

With respect to CERCLA matters for which the Company is responsible under various state, federal and foreign laws, the Company typically estimates potential costs based on information obtained from the U.S. Environmental Protection Agency, or counterpart state or foreign agency and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, with other “potentially responsible parties,” and the Company accrues liabilities when they are probable and reasonably estimable. The Company estimated its share of future costs for these sites to be $66 million at September 30, 2010, which represents the sum of best estimates or, where no best estimate can reasonably be made, estimates of the minimal probable amount among a range of such costs (without taking into account any potential recoveries from other parties).

New Brunswick Facility – Environmental & Personal Injury Lawsuits

As previously disclosed, in May 2008, over 100 lawsuits were filed against the Company in Superior Court, Middlesex County, NJ, by or on behalf of current and former residents of New Brunswick, NJ who live or have lived adjacent to the Company’s New Brunswick facility. The complaints allege various personal injuries and property damage resulting from alleged soil and groundwater contamination on their property stemming from historical operations at the New Brunswick facility. In October 2008, the New Jersey Supreme Court granted Mass Tort status to these cases and transferred them to the New Jersey Superior Court in Atlantic County for centralized case management purposes. The Company intends to defend itself vigorously in this litigation. It is not possible at this time to reasonably assess the outcome of these lawsuits, or the potential impact on the Company.

North Brunswick Township Board of Education

As previously disclosed, in October 2003, the Company was contacted by counsel representing the North Brunswick, NJ Board of Education (BOE) regarding a site where waste materials from E.R. Squibb and Sons may have been disposed from the 1940’s through the 1960’s. Fill material containing industrial waste and heavy metals in excess of residential standards was discovered during an expansion project at the North Brunswick Township High School, as well as at a number of neighboring residential properties and adjacent public park areas. In January 2004, the New Jersey Department of Environmental Protection (NJDEP) sent the Company and others an information request letter about possible waste disposal at the site, to which the Company responded in March 2004. The BOE and the Township, as the current owners of the school property and the park, are conducting and jointly

financing soil remediation work and ground water investigation work under a work plan approved by NJDEP, and have asked the Company to contribute to the cost. The Company is actively monitoring the clean-up project, including its costs. To date, neither the school board nor the Township has asserted any claim against the Company. Instead, the Company and the local entities have negotiated an agreement to attempt to resolve the matter by informal means, including mediation and binding allocation as necessary. A central component of the agreement is the provision by the Company of interim funding to help defray cleanup costs and assure the work is not interrupted. The Company transmitted interim funding payments in December 2007 and November 2009. The parties commenced mediation in late 2008; however, those efforts were not successful and the parties have moved to a binding allocation process. In addition, in September 2009, the Township and BOE filed suits against several other parties alleged to have contributed waste materials to the site.

OTHER PROCEEDINGS

SEC Germany Investigation

As previously disclosed, in October 2004, the SEC notified the Company that it was conducting an informal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. In October 2006, the SEC informed the Company that its inquiry had become formal. The SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved. The Company understands the inquiry concerns potential violations of the Foreign Corrupt Practices Act. The Company is cooperating with the SEC.

Medarex Shareholder Litigation

On July 22, 2009, the Company and Medarex announced the signing of a merger agreement providing for the acquisition of Medarex by the Company, through a tender offer, for $16.00 per share in cash. Following that announcement, certain Medarex shareholders filed similar lawsuits in state and federal court relating to this transaction against Medarex, the members of Medarex’s board of directors, and the Company.

Following the consolidation of the state court actions, on August 20, 2009, the parties entered into a memorandum of understanding (MOU), pursuant to which the parties reached an agreement in principle to settle all of the state and federal actions. Pursuant to the agreements in the MOU, among other things, Medarex made certain supplemental disclosures during the tender offer period. The parties also agreed to present to the Superior Court of New Jersey, Mercer County (NJ Superior Court) a Stipulation of Settlement and any other documentation as may be required in order to obtain approval by the court of the settlement and the dismissal of the actions upon the terms set forth in the MOU. In July 2010, the proposed settlement was approved by the NJ Superior Court and a Final Judgment was entered on July 16, 2010. Several motions for reconsideration have been filed asking the Court to reconsider its approval of the settlement.

King Pharmaceuticals, Inc.

In November 2009, King Pharmaceuticals, Inc. (King) and affiliated entities filed suit against ZymoGenetics, Inc. (ZymoGenetics), now a wholly owned subsidiary of the Company (see “—Note 18. Subsequent Events”), in the United States District Court for the Eastern District of Tennessee. King alleges that the Company has engaged in unfair competition, false advertising, trademark infringement, and related claims under federal law and Tennessee state law. King seeks various forms of relief, including damages and injunctive relief precluding the Company from making certain representations regarding King’s products and the Company’s RECOTHROM product. King also filed motions with the District Court seeking temporary restraining orders and preliminary injunctive relief. In December 2009, the judge denied King’s motions for preliminary injunction, but the lawsuit continues. Trial in the case is currently projected to take place in the fourth quarter of 2011. The Company has not recorded a liability related to this suit.

Note 18. SUBSEQUENT EVENTS

Acquisition of ZymoGenetics, Inc.

BMS acquired 100% of the outstanding shares of common stock of ZymoGenetics, Inc. (ZymoGenetics) in October 2010 for an aggregate purchase price of approximately $885 million.

ZymoGenetics is a biopharmaceutical company focused on developing and commercializing therapeutic protein-based products for the treatment of human diseases. The companies have collaborated on the development of pegylated-interferon lambda, a novel interferon currently in Phase IIb development for the treatment of Hepatitis C infection. The acquisition provides the Company with full rights to develop and commercialize pegylated-interferon lambda and also brings proven capabilities with therapeutic proteins and revenue from RECOTHROM, an FDA approved specialty surgical biologic.

The Company is currently in the process of valuing the assets acquired and liabilities assumed in the business combination.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS, the Company, we, our or us) is a global biopharmaceutical company, consisting of global pharmaceutical/biotechnology and international consumer medicines businesses, whose mission is to discover, develop and deliver innovative medicines that help patients prevail over serious diseases. We license, manufacture, market, distribute and sell pharmaceutical products.

We completed the split-off of Mead Johnson Nutritional Company (Mead Johnson) in December 2009 in which we exchanged all of our shares of Mead Johnson for 269 million outstanding shares of our common stock. As such, the results of the Mead Johnson business for the three and nine months ended September 30, 2009 are now included in net earnings from discontinued operations.

Healthcare Reform

U.S. Healthcare Reform Legislation

The Patient Protection and Affordable Care Act (HR 3590) and a reconciliation bill containing a package of changes to the healthcare bill were signed into law during March 2010. The new legislation makes extensive changes to the current system of healthcare insurance and benefits intended to broaden coverage and reduce costs. These bills significantly change how Americans receive healthcare coverage and how they pay for it. They also have a significant impact on companies, in particular those companies in the pharmaceutical industry and other healthcare related industries, including BMS.

We have experienced and will continue to experience additional financial costs and certain other changes to our business as the new healthcare law is implemented. The following are the most significant changes that will affect our Company:

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Retroactive to January 1, 2010, minimum rebates on our Medicaid drug sales have increased from 15.1 percent to 23.1 percent. Medicaid rebates have also been extended to drugs used in risk-based Medicaid managed care plans beginning in March 2010. In addition, we will extend discounts retroactive to January 1, 2010 to certain critical access hospitals, cancer hospitals and other covered entities as required by the expansion of the 340B Drug Pricing Program under the Public Health Services Act.

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Beginning in 2011, we will provide a 50 percent discount on our brand-name drugs to patients who fall within the Medicare Part D coverage gap, also referred to as the “Donut Hole.”

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Beginning in 2011, we will pay an annual non-tax deductible fee to the federal government based on an allocation of our market share of branded prior year sales to certain government programs and agencies including Medicare, Medicaid, Department of Veterans Affairs, Department of Defense and TriCare. This fee is expected to be classified as an operating expense.

The new healthcare law also provides clarity about the process for approval of biosimilar biologic products in the U.S. Our qualifying biologic products will receive 12 years of data exclusivity, with a potential six-month pediatric extension, before a biosimilar company can enter the market. After we have marketed a biologic product for four years, a biosimilar manufacturer may challenge one or more of the patents for that product.

Higher rebates to Medicaid and Medicaid managed care plans reduced our net sales by $77 million and $205 million and pre-tax income by $60 million and $164 million in the three and nine months ended September 30, 2010, respectively. Quarterly rebates may increase in the fourth quarter of 2010 as a result of additional discounts for the Medicaid managed care plans and expanded 340B program. With the addition of the new Medicare Part D “Donut Hole” discounts and annual pharmaceutical company fee in 2011, we expect the negative impact of healthcare reform in 2011 to be approximately twice the impact expected in 2010. The aggregate financial impact of healthcare reform over the next few years depends on a number of factors, including but not limited to pending implementation guidance, potential changes in sales volume eligible for the new rebates, discounts or fees, and the impact of cost sharing arrangements with certain alliance partners. A positive impact on our net sales from the expected increase in the number of people with healthcare coverage could potentially occur in the future, but is not expected until 2014 at the earliest.

We also recognized a one-time tax charge of $21 million in the first quarter of 2010 due to the elimination of the tax deductibility of a portion of our retiree healthcare costs.

Strategy

Over the past few years, we have transformed our Company into a focused biopharmaceutical company, a transformation that encompasses all areas of our business and operations. With the expected loss of exclusivity in the U.S. for our largest product, PLAVIX* (clopidogrel bisulfate), in November 2011, after which time we expect a rapid, precipitous decline in PLAVIX* net sales and a reduction in net income and operating cash flow, we are focused on building a foundation for the future. We plan to achieve this foundation by continuing to support and grow our currently marketed products, advancing our late-stage pipeline, managing our costs, and maintaining and improving our financial strength with a strong balance sheet. We are also focusing on emerging markets with the intent of developing and commercializing innovative products in key high-growth markets tailoring the approach to each market. We also remain focused on our acquisition and licensing strategy known as the “string-of-pearls.” In October 2010, we acquired ZymoGenetics, Inc. (ZymoGenetics) upon completion of a two-step merger process after a cash tender offer to purchase all outstanding shares of its common stock. The aggregate purchase price was approximately $885 million. In October 2010, we also entered into two new licensing arrangements with Exelixis, Inc. (Exelixis) subject to regulatory approval.

As part of our strategy to manage costs, we continue to execute our productivity transformation initiative (PTI), through which we expect to realize $2.5 billion in annual cost savings and cost avoidance by the end of 2012 based on previous strategic plans for future years. To achieve this, we are reducing general and administrative operations by simplifying, standardizing and outsourcing certain processes and services, rationalizing our mature brands portfolio, consolidating our global manufacturing network while eliminating complexity and enhancing profitability, simplifying our geographic footprint and implementing a more efficient go-to-market model. We expect to realize approximately 90% of the PTI cost savings and cost avoidance on an annualized run-rate basis by the end of 2010. Because the expected $2.5 billion of annual cost savings and avoidance is based on previous strategic plans for future years and because our progress is measured on an annualized run-rate basis, the amount of cost savings and avoidance does not correlate directly with our results of operations. Approximately 60% of the expected $2.5 billion in annual cost savings and cost avoidance relates to marketing, selling and administrative expenses, 20-25% relates to costs of products sold, and 15-20% relates to research and development expenses. In addition to the PTI, we continue to review our cost structure with the intent to create a modernized, efficient and robust balance between building competitive advantages, securing innovative products and planning for the future.

Highlights

The following table is a summary of operating activity:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in Millions, except per share data	2010		2009		2010		2009
Net Sales	$	4,798	$	4,788	$	14,373	$	13,775

Segment Income		1,186		1,195		3,599		3,482

Net Earnings from Continuing Operations Attributable to BMS		949		892		2,619		2,421
Net Earnings from Discontinued Operations Attributable to BMS		—		74		—		166
Net Earnings Attributable to BMS		949		966		2,619		2,587

Diluted Earnings Per Share from Continuing Operations Attributable to BMS		0.55		0.45		1.51		1.21
Non-GAAP Diluted Earnings Per Share from Continuing Operations Attributable to BMS		0.59		0.47		1.69		1.38

Cash, Cash Equivalents and Marketable Securities at September 30						10,921		7,871

Net sales remained relatively flat for the three months ended September 30, 2010 and increased 4% for the nine months ended September 30, 2010. Increased sales of PLAVIX* in the U.S. and BARACLUDE (entecavir) internationally as well as worldwide growth in various key products were offset by decreases in mature brand and other product sales and the impact of U.S. healthcare reform. We are beginning to see an impact from increased pricing pressures in Europe.

Segment income decreased 1% for the three months ended September 30, 2010 and increased 3% for the nine months ended September 30, 2010. The three month period was impacted by reduced equity income of affiliates due to decreased international PLAVIX* net sales from generic competition which more than offset reduced advertising and marketing spending to coincide with certain key brands’ product life cycles. For the nine month period, net sales growth and reduced advertising and marketing spending more than offset the negative impact from reduced equity income.

Net earnings from continuing operations attributable to BMS were impacted by segment results and specified items. Both the three and nine months ended September 30, 2010 benefitted from a lower effective tax rate than in prior periods.

Diluted earnings per share (EPS) from continuing operations increased 22% and 25% for the three and nine months ended September 30, 2010, respectively, primarily due to the reduction in the outstanding number of shares from the Mead Johnson split-off.

Non-GAAP financial measures, including non-GAAP earnings from continuing operations and related EPS information, are adjusted to exclude certain costs, expenses, gains and losses and other specified items. Non-GAAP diluted EPS from continuing operations increased 26% and 22% for both the three and nine months ended September 30, 2010, respectively, after adjusting for specified items of $68 million and $52 million during the three months ended September 30, 2010 and 2009, respectively, and $309 million and $318 million during the nine months ended September 30, 2010 and 2009, respectively. For a detailed listing of all specified items and further information and reconciliations of non-GAAP financial measures, see “—Specified Items” and “—Non-GAAP Financial Measures” below.

Cash flows from operating activities totaled $2.9 billion during the nine months ended September 30, 2010. Primary nonoperating uses of cash, cash equivalents and marketable securities included dividend payments of $1.7 billion, common stock repurchases of $353 million and capital expenditures of $299 million.

We have received a warning letter from the U.S. Food and Drug Administration (FDA) regarding our manufacturing facility in Manati, Puerto Rico. The warning letter focuses on certain Good Manufacturing Practice (GMP) processes and practices that the FDA identified during an inspection that are to be improved or remediated. It does not require any recall of product or inventory holds and we do not expect this to interrupt production of marketed products or investigational supplies. We have provided a response to the FDA warning letter including the actions we are taking, and expect that the Manati facility will be inspection-ready by the end of the year. If we are unable to adequately improve or remediate the GMP issues identified to the FDA’s satisfaction, we could face additional inspectional observations from the FDA requiring remediation and other potential negative consequences. In addition, the FDA has advised us that these GMP issues must be resolved prior to its granting approval of our pending Biologics License Application (BLA) for NULOJIX (belatacept). Any delay in the timing of when we expect the Manati facility to be inspection-ready could further delay a decision by the FDA on the BLA for NULOJIX. Please see “Part II—Other Information—Item 1A. Risk Factors” for more information.

Product and Pipeline Developments

The Company manages its research and development (R&D) programs on a portfolio basis, investing resources in each stage of research and development from early discovery through late-stage development. The Company continually evaluates its portfolio of R&D assets to ensure that there is an appropriate balance of early-stage and late-stage programs to support the future growth of the Company. We consider our R&D programs that have entered into Phase III development to be significant, as these programs constitute our late-stage development pipeline. These Phase III development programs include both investigational compounds in Phase III development for initial indications and marketed products that are in Phase III development for additional indications or formulations. Spending on these programs represents approximately 30-40% of our annual R&D expenses. No individual investigational compound or marketed product represented 10% or more of our R&D expenses in any of the last three years. While we do not expect all of our late-stage development programs to make it to market, our late-stage development programs are the R&D programs that could potentially have an impact on our revenue and earnings within the next few years. The following are the recent significant developments in our marketed products and our late-stage pipeline:

BARACLUDE (entecavir) – an oral antiviral agent for the treatment of chronic hepatitis B

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In October 2010, the FDA approved the supplemental New Drug Application of BARACLUDE for the treatment of chronic hepatitis B in adult patients with decompensated liver disease.

ONGLYZA (saxagliptin) – a once-daily oral tablet for the treatment of type 2 diabetes that is part of our strategic alliance with AstraZeneca PLC (AstraZeneca)

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In July 2010, the Marketing Authorization Application (MAA) for a fixed dose combination of ONGLYZA and metformin HCL extended-release tablets as a once-daily treatment for adults with type 2 diabetes was validated by the European Medicines Agency.

ORENCIA (abatacept) – a fusion protein indicated for rheumatoid arthritis

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In July 2010, the Japanese Ministry of Health, Labour and Welfare approved the Japanese New Drug Application for ORENCIA for the treatment of adults with rheumatoid arthritis who have had an inadequate response to existing treatment.

SPRYCEL (dasatinib) – an oral inhibitor of multiple tyrosine kinases indicated for the treatment of adults with chronic, accelerated, or myeloid or lymphoid blast phase chronic myeloid leukemia with resistance or intolerance to prior therapy, including GLEEVEC* (imatinib meslylate), which is part of our strategic alliance with Otsuka Pharmaceutical Co., Ltd. (Otsuka).

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In October 2010, the Company received a positive opinion from the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) for SPRYCEL for the treatment of adult patients with newly diagnosed chronic myeloid leukemia.

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In July 2010, the Company submitted for review in Japan the supplemental New Drug Application for SPRYCEL for the treatment of adult patients with newly diagnosed chronic myeloid leukemia.

Ipilimumab – a monoclonal antibody currently in Phase III development for the treatment of metastatic melanoma. It is also being studied for other indications including lung cancer as well as adjuvant melanoma and hormone-refractory prostate cancer.

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In August 2010, the FDA accepted for filing and review the Biologics License Application (BLA) for ipilimumab for the treatment of adult patients with advanced melanoma who have been previously treated. The application has been granted a priority review designation by the FDA with a stated action date of December 25, 2010.

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The FDA’s Oncology Drug Advisory Committee will review the BLA for ipilimumab on December 2, 2010.

ELIQUIS* (apixaban) – an oral Factor Xa inhibitor in Phase III development for the prevention of venous thromboembolic disorders, the treatment of acute coronary syndrome and stroke prevention in atrial fibrillation that is part of our strategic alliance with Pfizer, Inc. (Pfizer)

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In August 2010, the positive preliminary data from the AVERROES trial were presented at the European Society of Cardiology congress in Stockholm, Sweden. The preliminary data demonstrated that apixaban significantly reduced the relative risk of a composite stroke or systematic embolism by 54 percent without a significant increase in major bleeding, fatal bleeding and intracranial bleeding compared with aspirin in patients who were expected or demonstrated to be unsuitable for warfarin treatment. Minor bleeding was significantly increased.

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After evaluating the preliminary data from the AVERROES trial, and after discussions with the FDA about the atrial fibrillation registrational program for apixaban, we and our alliance partner Pfizer have submitted the first module of an NDA in the U.S. for apixaban for an indication in the AVERROES patient population. The FDA has agreed to accept this NDA on a rolling basis. We expect to complete our NDA submission in the first quarter of 2011.

Dapagliflozin – an oral compound in Phase III development for the treatment of diabetes that is part of our strategic alliance with AstraZeneca

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In September 2010, the Company and AstraZeneca announced results from a randomized, double blind Phase III clinical study of dapagliflozin at the 46^th European Association for the Study of Diabetes (EASD) Annual Meeting which demonstrated that the addition of dapagliflozin to glimepiride (a sulphonylurea) therapy produced significant reductions in glycosylated hemoglobin levels (HbA1c) in adult patients with type 2 diabetes compared to glimepiride alone. The study also demonstrated that dapagliflozin plus glimepiride achieved reductions in the secondary efficacy endpoints of change in total body weight, oral glucose tolerance test (OGTT) and fasting plasma glucose (FPG) levels from baseline at week 24 compared to placebo plus glimepiride. More people taking dapagliflozin and glimepiride were able to achieve a target HbA1c of less than 7% compared to patients taking glimepiride alone. Also, drug-related adverse affects were reported at a similar rate between treatment groups, but signs, symptoms and other reports suggestive of genital tract infections, but not urinary tract infections, were more frequently reported in dapagliflozin treated subjects.

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In September 2010, the Company and AstraZeneca also announced at the EASD results from a randomized, double-blind Phase III clinical study in adults with type 2 diabetes inadequately controlled on metformin therapy alone. The study demonstrated dapagliflozin was non-inferior compared to glipizide in improving HbA1c when added to existing metformin therapy during a 52-week treatment period. The study also demonstrated that dapagliflozin plus metformin achieved significant reductions in key efficacy secondary endpoints: reduction in total body weight from baseline, compared with a weight gain on glipizide plus metformin therapy and a reduced number of patients reporting one or more hypoglycemic events. Also, frequencies of adverse events, serious adverse events and study discontinuations were comparable across treatment groups, but signs, symptoms and other reports suggestive of urinary tract or genital infections were more common in dapagliflozin treated subjects.

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We have assessed the cardiovascular risk for dapagliflozin in accordance with FDA’s guidance for diabetes drug candidates and we believe the analysis supports submission in the U.S. We are planning to file regulatory submissions for dapagliflozin in both the U.S. and the European Union (EU) later this year or early next year.

NULOJIX (belatacept) – a fusion protein with novel immunosuppressive activity targeted at prevention of solid organ transplant rejection. The FDA accepted for filing and review our submission of a biologic license application for belatacept in September 2009.

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We have submitted a response to the FDA’s complete response letter regarding the BLA for NULOJIX. The FDA has advised us that we must resolve the GMP issues raised in the FDA’s recent warning letter regarding our manufacturing facility in Manati, Puerto Rico prior to its granting approval of our pending BLA for NULOJIX. We currently expect that our Manati facility will be inspection-ready by the end of the year and that the Prescription Drug User Fee Act (PDUFA) date for FDA action on the BLA on NULOJIX will be in the second quarter of 2011. See “Part II—Other Information—Item 1A. Risk Factors” for more information.

Three Months Results of Operations

Our results of continuing operations exclude the results of the Mead Johnson business prior to its split-off in December 2009. This business has been segregated from continuing operations and included in discontinued operations for the three months ended September 30, 2009, see “—Discontinued Operations” below.

Our results of continuing operations were as follows:


	Three Months Ended September 30,
Dollars in Millions	2010			2009			% Change
Net Sales	$	4,798		$	4,788			—
Earnings from Continuing Operations before Income Taxes	$	1,614		$	1,565			3	%
% of net sales		33.6	%		32.7	%
Provision for Income Taxes	$	312		$	366			(15	)%
Effective tax rate		19.3	%		23.4	%
Net Earnings from Continuing Operations	$	1,302		$	1,199			9	%
% of net sales		27.1	%		25.0	%
Attributable to Noncontrolling Interest	$	353		$	307			15	%
% of net sales		7.3	%		6.4	%
Attributable to Bristol-Myers Squibb Company	$	949		$	892			6	%
% of net sales		19.8	%		18.6	%

Net Sales

The composition of the change in net sales was as follows:


	Three Months Ended September 30,				2010 vs. 2009
	Net Sales				Analysis of % Change
Dollars in Millions	2010		2009		Total Change			Volume			Price			Foreign Exchange
U.S.	$	3,135	$	3,012		4	%		1	%		3	%		—
Non-U.S.		1,663		1,776		(6	)%		—			(3	)%		(3	)%

Total	$	4,798	$	4,788		—			1	%		—			(1	)%

While various key U.S. products contributed to the growth in net sales, the increase was primarily driven by increased sales of PLAVIX* which represented 49% of total U.S. net sales. U.S. net sales increases were offset by the impact of healthcare reform and decreased sales of ABILIFY* (aripiprazole), which were negatively impacted by the reduction in our contractual share of net sales recognized from 65% to 58%.

International net sales decreased 6%, including a 3% unfavorable foreign exchange impact. Net sales for the three months ended September 30, 2010 were negatively impacted by mature brands divested in prior periods; a 16% reduction in PLAVIX* net sales primarily due to generic competition in comarketing countries; and increased pricing pressures in certain European countries.

In general, our business is not seasonal. For information on U.S. pharmaceutical prescriber demand, reference is made to the table within “—Estimated End-User Demand” below, which sets forth a comparison of changes in net sales to the estimated total prescription growth (for both retail and mail order customers) for certain of our key pharmaceuticals and new products. The U.S. and non-U.S. net sales are categorized based upon the location of the customer.

We recognize revenue net of various sales adjustments to arrive at net sales as reported in the consolidated statements of earnings. These adjustments are referred to as gross-to-net sales adjustments. The reconciliation of our gross sales to net sales by each significant category of gross-to-net sales adjustments was as follows:


	Three Months Ended September 30,
Dollars in Millions	2010			2009
Gross Sales	$	5,360		$	5,220
Gross-to-Net Sales Adjustments
Prime Vendor Charge-Backs		(159	)		(131	)
Cash Discounts		(68	)		(64	)
Managed Healthcare Rebates and Other Contract Discounts		(131

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