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 JUNE 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 June 30, 2010, there were 1,714,842,193 shares outstanding of the Registrant’s $0.10 par value common stock.

BRISTOL-MYERS SQUIBB COMPANY

INDEX TO FORM 10-Q

June 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		32

Item 3.
Quantitative and Qualitative Disclosures About Market Risk		58

Item 4.
Controls and Procedures		58

PART II—OTHER INFORMATION

Item 1.
Legal Proceedings		58

Item 2.
Issuer Purchases of Equity Securities		58

Item 6.
Exhibits		59

Signatures		60

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 June 30,						Six Months Ended June 30,
EARNINGS	2010			2009			2010			2009

Net Sales	$	4,768		$	4,665		$	9,575		$	8,987

Cost of products sold		1,277			1,225			2,583			2,390
Marketing, selling and administrative		894			922			1,794			1,823
Advertising and product promotion		263			298			475			546
Research and development		822			811			1,732			1,719
Provision for restructuring		24			19			35			38
Litigation expense		—			28			—			132
Equity in net income of affiliates		(85	)		(150	)		(182	)		(296	)
Other (income)/expense		(19	)		(10	)		94			(82	)

Total Expenses		3,176			3,143			6,531			6,270


Earnings from Continuing Operations Before Income Taxes		1,592			1,522			3,044			2,717
Provision for income taxes		324			353			675			628

Net Earnings from Continuing Operations		1,268			1,169			2,369			2,089


Discontinued Operations:
Earnings, net of taxes		—			129			—			130
Gain on disposal, net of taxes		—			—			—			—


Net Earnings from Discontinued Operations		—			129			—			130

Net Earnings		1,268			1,298			2,369			2,219

Net Earnings Attributable to Noncontrolling Interest		341			315			699			598

Net Earnings Attributable to Bristol-Myers Squibb Company	$	927		$	983		$	1,670		$	1,621


Amounts Attributable to Bristol-Myers Squibb Company:
Net Earnings from Continuing Operations	$	927		$	880		$	1,670		$	1,529
Net Earnings from Discontinued Operations		—			103			—			92

Net Earnings Attributable to Bristol-Myers Squibb Company	$	927		$	983		$	1,670		$	1,621


Earnings per Common Share from Continuing Operations Attributable to Bristol-Myers Squibb Company:
Basic	$	0.54		$	0.44		$	0.97		$	0.77
Diluted	$	0.53		$	0.44		$	0.96		$	0.77

Earnings per Common Share Attributable to Bristol-Myers Squibb Company:
Basic	$	0.54		$	0.49		$	0.97		$	0.81
Diluted	$	0.53		$	0.49		$	0.96		$	0.81

Dividends declared per common share	$	0.32		$	0.31		$	0.64		$	0.62

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 June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
COMPREHENSIVE INCOME

Net Earnings	$	1,268		$	1,298		$	2,369		$	2,219
Other Comprehensive Income/(Loss):
Foreign currency translation		(6	)		95			(40	)		20
Foreign currency translation on hedge of a net investment		64			(35	)		143			(2	)
Derivatives qualifying as cash flow hedges, net of taxes of $(17) and $15 for the three months ended June 30, 2010 and 2009, respectively; and $(30) and $(2) for the six months ended June 30, 2010 and 2009, respectively		40			(31	)		69			3
Derivatives qualifying as cash flow hedges reclassified to net earnings, net of taxes of $2 and $7 for the three months ended June 30, 2010 and 2009, respectively; and $(3) and $14 for the six months ended June 30, 2010 and 2009, respectively		(4	)		(21	)		6			(41	)
Pension and postretirement benefits, net of taxes of $4 and $(160) for the three months ended June 30, 2010 and 2009, respectively; and $4 and $(220) for the six months ended June 30, 2010 and 2009, respectively		(12	)		295			(12	)		405
Pension and postretirement benefits reclassified to net earnings, net of taxes of $(11) and $(20) for the three months ended June 30, 2010 and 2009, respectively; and $(23) and $(37) for the six months ended June 30, 2010 and 2009, respectively		26			35			43			65
Available for sale securities, net of taxes of $(2) and $(4) for the three months ended June 30, 2010 and 2009, respectively; and $(1) and $(5) for the six months ended June 30, 2010 and 2009, respectively		17			12			32			14

Total Other Comprehensive Income/(Loss)		125			350			241			464


Comprehensive Income		1,393			1,648			2,610			2,683

Comprehensive Income Attributable to Noncontrolling Interest		341			317			699			603

Comprehensive Income Attributable to Bristol-Myers Squibb Company	$	1,052		$	1,331		$	1,911		$	2,080


RETAINED EARNINGS

Retained Earnings at January 1							$	30,760		$	22,549
Net Earnings Attributable to Bristol-Myers Squibb Company								1,670			1,621
Cash dividends declared								(1,108	)		(1,234	)

Retained Earnings at June 30							$	31,322		$	22,936

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)


	June 30, 2010			December 31, 2009
ASSETS

Current Assets:
Cash and cash equivalents	$	5,918		$	7,683
Marketable securities		1,536			831
Receivables		3,172			3,164
Inventories		1,265			1,413
Deferred income taxes		796			611
Prepaid expenses		296			256

Total Current Assets		12,983			13,958

Property, plant and equipment		4,745			5,055
Goodwill		5,218			5,218
Other intangible assets, net		2,763			2,865
Deferred income taxes		1,331			1,636
Marketable securities		2,795			1,369
Other assets		1,216			907

Total Assets	$	31,051		$	31,008


LIABILITIES

Current Liabilities:
Short-term borrowings	$	290		$	231
Accounts payable		1,681			1,711
Accrued expenses		2,386			2,785
Deferred income		275			237
Accrued rebates and returns		671			622
U.S. and foreign income taxes payable		49			175
Dividends payable		556			552

Total Current Liabilities		5,908			6,313

Pension, postretirement and postemployment liabilities		1,248			1,658
Deferred income		915			949
U.S. and foreign income taxes payable		749			751
Other liabilities		409			422
Long-term debt		6,248			6,130

Total Liabilities		15,477			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 5,366 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		3,697			3,768
Accumulated other comprehensive loss		(2,300	)		(2,541	)
Retained earnings		31,322			30,760
Less cost of treasury stock — 491 million common shares in both 2010 and 2009		(17,271	)		(17,364	)

Total Bristol-Myers Squibb Company Shareholders’ Equity		15,668			14,843
Noncontrolling interest		(94	)		(58	)

Total Equity		15,574			14,785

Total Liabilities and Equity	$	31,051		$	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)


	Six Months Ended June 30,
	2010			2009
Cash Flows From Operating Activities:
Net earnings	$	2,369		$	2,219
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings attributable to noncontrolling interest		(699	)		(598	)
Depreciation		246			231
Amortization		132			113
Impairment of manufacturing operations		200			—
Deferred income taxes		97			112
Stock-based compensation		96			88
Other gains		(15	)		(78	)
Changes in operating assets and liabilities:
Receivables		(54	)		64
Inventories		12			(10	)
Deferred income		9			75
Accounts payable		54			266
U.S. and foreign income taxes payable		(195	)		61
Changes in other operating assets and liabilities		(739	)		(1,295	)

Net Cash Provided by Operating Activities		1,513			1,248

Cash Flows From Investing Activities:
Proceeds from sale and maturities of marketable securities		1,481			810
Purchases of marketable securities		(3,587	)		(1,913	)
Additions to property, plant and equipment and capitalized software		(210	)		(365	)
Proceeds from sale of businesses, property, plant and equipment and other investments		35			104

Net Cash Used in Investing Activities		(2,281	)		(1,364	)

Cash Flows From Financing Activities:
Short-term debt borrowings/(repayments)		61			(30	)
Long-term debt borrowings		6			—
Long-term debt repayments		—			(67	)
Interest rate swap termination		98			191
Dividends paid		(1,103	)		(1,231	)
Issuances of common stock and excess tax benefits from share-based arrangements		122			—
Common stock repurchases		(165	)		—
Proceeds from Mead Johnson initial public offering		—			782

Net Cash (Used in)/Provided by Financing Activities		(981	)		(355	)

Effect of Exchange Rates on Cash and Cash Equivalents		(16	)		2

Decrease in Cash and Cash Equivalents		(1,765	)		(469	)
Cash and Cash Equivalents at Beginning of Period		7,683			7,976

Cash and Cash Equivalents at End of Period	$	5,918		$	7,507

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 June 30, 2010 and December 31, 2009, the results of operations for the three and six months ended June 30, 2010 and June 30, 2009, and cash flows for the six months ended June 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 six months ended June 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 entities 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 June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
Territory covering the Americas and Australia:
Net sales	$	1,828	$	1,725	$	3,706	$	3,330
Discovery royalty expense		327		299		661		576
Noncontrolling interest – pre-tax		500		424		1,020		815
Profit distributions to sanofi		567		391		1,053		813

Territory covering Europe and Asia:
Equity in net income of affiliates		88		154		188		301
Profit distributions to the Company		85		115		154		242

Other:
Net sales comarketing countries and other		106		127		208		259
Other income – irbesartan license fee		8		8		16		16
Other income – supply activities and development and opt-out royalties		9		10		31		21

					June 30, 2010		December 31, 2009
Investment in affiliates – territory covering Europe and Asia					$	43	$	10
Deferred income – irbesartan license fee						75		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 June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	500	$	772	$	1,048	$	1,527
Gross profit		244		388		488		767
Net income		193		295		387		584

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 and January 1, 2012 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 June 30,					Six Months Ended June 30,
Dollars in Millions	2010			2009		2010			2009
ABILIFY* net sales, including amortization of extension payment	$	633		$	643	$	1,250		$	1,232
Oncology Products collaboration fees		32			—		62			—
Otsuka’s reimbursement – operating expense		(23	)		—		(48	)		—
Amortization expense – extension payments		16			16		32			16
Amortization expense – milestone payments		2			2		4			4

						June 30, 2010			December 31, 2009
Intangible assets:
Extension payment						$	319		$	351
Milestone payments							13			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 June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	172	$	173	$	338	$	337
Distribution fees		67		67		132		131
Amortization expense – milestone payments		9		10		19		19
Other income – Japan commercialization fee		11		5		19		10

					June 30, 2010		December 31, 2009
Intangible asset – milestone payments					$	304	$	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 June 30,						Six Months Ended June 30,
Dollars in Millions	2010			2009			2010			2009
Net sales	$	255		$	206		$	505		$	388
Equity in net loss of affiliates		(3	)		(3	)		(6	)		(5	)

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 sterategy and share development and commercialization costs and profits and losses equally. 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 deferred and 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 June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
Net sales	$	28	$	—	$	38	$	—
Amortization income – milestone payments		7		3		13		6

					June 30, 2010		December 31, 2009
Deferred income – milestone payments					$	305	$	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 its other collaborations for three small molecule IND’s for codevelopment and copromotion.

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. 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 June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
PLAVIX*	$	1,627	$	1,539	$	3,293	$	2,974
AVAPRO/AVALIDE		307		313		621		615
REYATAZ		357		331		730		653
SUSTIVA Franchise (total revenue)		331		312		666		604
BARACLUDE		223		179		439		331
ERBITUX*		172		173		338		337
SPRYCEL		132		107		263		195
IXEMPRA		29		29		58		53
ABILIFY*		633		643		1,250		1,232
ORENCIA		178		148		347		272
ONGLYZA		28		—		38		—
Other		751		891		1,532		1,721

Net sales	$	4,768	$	4,665	$	9,575	$	8,987

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 June 30,						Six Months Ended June 30,
Dollars in Millions	2010			2009			2010			2009
BioPharmaceuticals segment income	$	1,180		$	1,217		$	2,413		$	2,287

Reconciling items:
Downsizing and streamlining of worldwide operations		(24	)		(17	)		(35	)		(32	)
Impairment of manufacturing operations		(15	)		—			(215	)		—
Accelerated depreciation, asset impairment and other shutdown costs		(27	)		(26	)		(58	)		(56	)
Pension settlements/curtailments		(5	)		(25	)		(5	)		(25	)
Process standardization implementation costs		(6	)		(25	)		(19	)		(45	)
Gain on sale of product lines, businesses and assets		—			11			—			55
Litigation charges		—			(28	)		—			(132	)
Upfront licensing and milestone payments		(17	)		(29	)		(72	)		(174	)
Debt buyback and swap terminations		—			11			—			11
Product liability		—			—			—			(3	)
Noncontrolling interest		506			433			1,035			831

Earnings from continuing operations before income taxes	$	1,592		$	1,522		$	3,044		$	2,717

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 June 30,						Six Months Ended June 30,
Dollars in Millions	2010			2009			2010			2009
Employee termination benefits	$	27		$	19		$	37		$	32
Other exit costs		(3	)		—			(2	)		6

Provision for restructuring, net		24			19			35			38
Impairment of manufacturing operations		15			—			215			—
Accelerated depreciation, asset impairment and other shutdown costs		27			24			58			50
Pension plan curtailment charge		5			25			5			25
Process standardization implementation costs		6			25			19			45

Total cost		77			93			332			158
Gain on sale of product lines, businesses and assets		—			(11	)		—			(55	)

Net charges	$	77		$	82		$	332		$	103

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 260 and 140 for the three months ended June 30, 2010 and 2009, respectively, and approximately 480 and 355 for the six months ended June 30, 2010 and 2009, respectively.

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


	Six Months Ended June 30, 2010									Six Months Ended June 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		31			3			34			32			6			38
Changes in estimates		6			(5	)		1			—			—			—

Provision for restructuring, net		37			(2	)		35			32			6			38
Charges in discontinued operations		—			—			—			9			—			9
Foreign currency translation		(6	)		—			(6	)		—			—			—
Spending		(62	)		(7	)		(69	)		(75	)		(4	)		(79	)

Liability at June 30	$	126		$	7		$	133		$	154		$	23		$	177

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 $215 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 $15 million of other working capital adjustments and transaction related fees recorded upon closing in the second quarter. 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 six months ended June 30, 2009.


Dollars in Millions	Three Months Ended June 30, 2009		Six Months Ended June 30, 2009
Net sales	$	719	$	1,412


Earnings before income taxes	$	219	$	408
Provision for income taxes⁽¹⁾		90		278

Net earnings from discontinued operations		129		130

Less net earnings from discontinued operations attributable to noncontrolling interest		26		38


Net earnings from discontinued operations attributable to Bristol-Myers Squibb Company	$	103	$	92

(1)	Provision for income taxes include $130 million for the six months ended June 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 June 30,						Six Months Ended June 30,
Amounts in Millions, Except Per Share Data	2010			2009			2010			2009
EPS Numerator – Basic:
Income from Continuing Operations Attributable to BMS	$	927		$	880		$	1,670		$	1,529
Earnings attributable to unvested restricted shares		(3	)		(5	)		(7	)		(8	)

Income from Continuing Operations Attributable to BMS common shareholders’		924			875			1,663			1,521
Net Earnings from Discontinued Operations Attributable to BMS⁽¹⁾		—			102			—			91

EPS Numerator – Basic	$	924		$	977		$	1,663		$	1,612


EPS Denominator – Basic:
Average Common Shares Outstanding		1,718			1,980			1,717			1,979


EPS – Basic:
Continuing Operations	$	0.54		$	0.44		$	0.97		$	0.77
Discontinued Operations		—			0.05			—			0.04

Net Earnings	$	0.54		$	0.49		$	0.97		$	0.81


EPS Numerator – Diluted:
Income from Continuing Operations Attributable to BMS	$	927		$	880		$	1,670		$	1,529
Earnings attributable to unvested restricted shares		(3	)		(5	)		(7	)		(8	)

Income from Continuing Operations Attributable to BMS common shareholders’		924			875			1,663			1,521
Net Earnings from Discontinued Operations Attributable to BMS⁽¹⁾		—			102			—			91

EPS Numerator – Diluted	$	924		$	977		$	1,663		$	1,612


EPS Denominator – Diluted:
Average Common Shares Outstanding		1,718			1,980			1,717			1,979
Contingently convertible debt common stock equivalents		1			1			1			1
Incremental shares attributable to share-based compensation plans		9			2			9			2

Average Common Shares Outstanding and Common Share Equivalents		1,728			1,983			1,727			1,982


EPS – Diluted:
Continuing Operations	$	0.53		$	0.44		$	0.96		$	0.77
Discontinued Operations		—			0.05			—			0.04

Net Earnings	$	0.53		$	0.49		$	0.96		$	0.81

(1) Net Earnings from Discontinued Operations for EPS Calculation:
Net Earnings from Discontinued Operations Attributable to BMS	$	—		$	103		$	—		$	92
Earnings attributable to unvested restricted shares		—			(1	)		—			(1	)

Net Earnings from Discontinued Operations Attributable to BMS for EPS Calculation	$	—		$	102		$	—		$	91


Anti-dilutive weighted-average equivalent shares:
Stock incentive plans		64			138			66			132

Total anti-dilutive shares		64			138			66			132

Note 7. INCOME TAXES

The effective income tax rate on earnings from continuing operations before income taxes was 20.4% and 22.2% for the three and six months ended June 30, 2010 compared to 23.2% and 23.1% for the three and six months ended June 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 decrease in the effective income tax rate in the three months ended June 30, 2010, was due to:

•

A $66 million tax benefit in the second quarter of 2010 for the re-measurement of a U.S. contingent tax matter related to 2004.

•

An out-of-period tax adjustment of $59 million 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 was partially offset by a reversal of a $17 million understatement of tax expense in the first quarter of 2010. These adjustments are not material to any current or prior periods nor are they expected to be material for the year ended December 31, 2010.

Partially offset by:

•

A favorable impact on the prior year rate from the research and development tax credit and deferral of income under the controlled foreign corporation “look-through” rules both of which expired on December 31, 2009.

•

A $40 million tax benefit in the second quarter of 2009 related to the final settlement of certain state audits.

In addition to the factors described above, the effective income tax rate in the six months ended June 30, 2010, included an unfavorable impact from a $21 million charge resulting 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 tax 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 June 30, 2010 will decrease in the range of approximately $175 million to $205 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:


	June 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. Treasury Bills	$	653	$	—	$	—	$	653	$	—	$	—	$	—	$	—
U.S. Government Agency Securities		602		—		—		602		225		—		—		225
Equity Securities		5		—		—		5		11		—		—		11
Prime Money Market Funds		—		4,089		—		4,089		—		5,807		—		5,807
Corporate Debt Securities		—		1,614		—		1,614		—		837		—		837
Commercial Paper		—		998		—		998		—		518		—		518
FDIC Insured Debt Securities		—		359		—		359		—		252		—		252
U.S. Treasury Money Market Funds		—		9		—		9		—		218		—		218
U.S. Government Agency Money Market Funds		—		—		—		—		—		24		—		24
Floating Rate Securities (FRS)		—		—		47		47		—		—		91		91
Auction Rate Securities (ARS)		—		—		90		90		—		—		88		88

Total available for sale assets		1,260		7,069		137		8,466		236		7,656		179		8,071


Derivatives:
Interest Rate Swap Derivatives		—		392		—		392		—		165		—		165
Foreign Currency Forward Derivatives		—		110		—		110		—		21		—		21

Total derivative assets		—		502		—		502		—		186		—		186


Total assets at fair value	$	1,260	$	7,571	$	137	$	8,968	$	236	$	7,842	$	179	$	8,257


Derivatives:
Foreign Currency Forward Derivatives	$	—	$	15	$	—	$	15	$	—	$	31	$	—	$	31
Natural Gas Contracts		—		2		—		2		—		1		—		1
Interest Rate Swap Derivatives		—		—		—		—		—		5		—		5

Total derivative liabilities		—		17		—		17		—		37		—		37

Total liabilities at fair value	$	—	$	17	$	—	$	17	$	—	$	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. Short-term maturities of the foreign currency forward derivatives are less than two years; therefore, counterparty credit risk is not 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 analysis 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 six months ended June 30, 2010, $55 million principal at par was received for FRS.

Note 9. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents were $5,918 million at June 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:


	June 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	$	780	$	—	$	—		$	780	$	501	$	—	$	—		$	501
Commercial Paper		185		—		—			185		205		—		—			205
U.S. Treasury Bills		250		—		—			250		—		—		—			—
Corporate debt securities		266		4		—			270		—		—		—			—
FDIC insured debt securities		51		—		—			51		—		—		—			—
U.S. government agency securities		—		—		—			—		125		—		—			125

Total current	$	1,532	$	4	$	—		$	1,536	$	831	$	—	$	—		$	831

Non-current marketable securities:
Corporate debt securities	$	1,335	$	18	$	(9	)	$	1,344	$	834	$	5	$	(2	)	$	837
U.S. government agency securities		600		2		—			602		100		—		—			100
U.S. Treasury Bills		399		4		—			403		—		—		—			—
FDIC insured debt securities		304		4		—			308		252		—		—			252
Auction rate securities		80		10		—			90		80		8		—			88
Floating rate securities⁽¹⁾		58		—		(11	)		47		113		—		(22	)		91
Other		1		—		—			1		1		—		—			1

Total non-current	$	2,777	$	38	$	(20	)	$	2,795	$	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 June 30, 2010.

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


Dollars in Millions	1 to 5 Years		Over 10 Years		Total
Available for sale:
Corporate debt securities	$	1,344	$	—	$	1,344
U.S. government agency securities		602		—		602
U.S. Treasury Bills		403		—		403
FDIC insured debt securities		308		—		308
Floating rate securities		47		—		47
Auction rate securities		—		90		90
Other		1		—		1

Total available for sale	$	2,705	$	90	$	2,795

Note 10. RECEIVABLES

Receivables include:


Dollars in Millions	June 30 2010		December 31, 2009
Trade receivables	$	1,896	$	2,000
Less allowances		91		103

Net trade receivables		1,805		1,897
Alliance partners receivables		950		870
Income tax refund claims		190		103
Miscellaneous receivables		227		294

Receivables	$	3,172	$	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 $1,029 million and $730 million at June 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 $447 million and $104 million for the six months ended June 30, 2010 and 2009, respectively. In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 50% and 47% of total trade receivables at June 30, 2010 and December 31, 2009, respectively.

In the second quarter of 2010, the government of Greece announced that they intend 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 three months ended June 30, 2010 and has been included in other (income)/expense.

Note 11. INVENTORIES

Inventories include:


Dollars in Millions	June 30, 2010		December 31, 2009
Finished goods	$	545	$	580
Work in process		446		630
Raw and packaging materials		274		203

Inventories	$	1,265	$	1,413

Inventories expected to remain on-hand beyond one year were $242 million and $249 million at June 30, 2010 and December 31, 2009, respectively, and were included in non-current other assets. In addition, $148 million of these inventories (plus $37 million of additional purchase obligations) currently cannot be sold in the U.S. 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 $57 million and $49 million at June 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	June 30, 2010		December 31, 2009
Land	$	135	$	142
Buildings		4,300		4,350
Machinery, equipment and fixtures		3,103		3,563
Construction in progress		690		840

Gross property, plant and equipment		8,228		8,895
Less accumulated depreciation		3,483		3,840

Property, plant and equipment	$	4,745	$	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
Employee stock compensation plans	—	(2	)		58			4

Balance at June 30, 2009	2,205	224		$	(10,508	)	$	3,703


Balance at January 1, 2010	2,205	491		$	(17,364	)	$	3,768
Stock repurchase program	—	7			(173	)		—
Employee stock compensation plans	—	(7	)		266			(71	)

Balance at June 30, 2010	2,205	491		$	(17,271	)	$	3,697

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)		18			(38	)		470			14			464

Balance at June 30, 2009	$	(406	)	$	(24	)	$	(1,788	)	$	(37	)	$	(2,255	)


Balance at January 1, 2010	$	(343	)	$	(30	)	$	(2,158	)	$	(10	)	$	(2,541	)
Other comprehensive income/(loss)		103			75			31			32			241

Balance at June 30, 2010	$	(240	)	$	45		$	(2,127	)	$	22		$	(2,300	)

The reconciliation of noncontrolling interest was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
Dollars in Millions	2010			2009			2010			2009
Balance at beginning of period	$	(16	)	$	(208	)	$	(58	)	$	(33	)
Mead Johnson initial public offering		—			—			—			(160	)
Net earnings attributable to noncontrolling interest		505			456			1,033			864
Other comprehensive income attributable to noncontrolling interest		—			2			—			5
Distributions		(583	)		(410	)		(1,069	)		(836	)

Balance at June 30	$	(94	)	$	(160	)	$	(94	)	$	(160	)

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 $165 million and $144 million for the three months ended June 30, 2010 and 2009, respectively, and $336 million and $271 million for the six months ended June 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. Net earnings attributable to noncontrolling interest included in discontinued operations was $26 million and $38 million in the three and six months ended June 30, 2009, respectively.

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 months ended June 30, 2010, the Company repurchased 7.3 million shares at the average price of approximately $23.75 per share and an aggregate cost of $173 million.

Note 14. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES

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


	Three Months Ended June 30,												Six Months Ended June 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	$	11		$	48		$	2		$	2		$	22		$	107		$	4		$	3
Interest cost on projected benefit obligation		86			89			8			10			173			193			15			19
Expected return on plan assets		(112	)		(107	)		(6	)		(5	)		(225	)		(233	)		(12	)		(10	)
Amortization of prior service cost/(benefit)		—			1			(1	)		(1	)		—			4			(2	)		(2	)
Amortization of net actuarial loss		24			28			3			2			48			70			6			5

Net periodic benefit cost		9			59			6			8			18			141			11			15
Settlements		5			—			—			—			5			—			—			—
Curtailments and special termination benefits		6			25			—			—			9			25			—			—

Total net periodic benefit cost	$	20		$	84		$	6		$	8		$	32		$	166		$	11		$	15


Continuing operations	$	20		$	82		$	6		$	8		$	32		$	161		$	11		$	14
Discontinued operations		—			2			—			—			—			5			—			1

Total net periodic benefit cost	$	20		$	84		$	6		$	8		$	32		$	166		$	11		$	15

Contributions to the U.S. pension plans are expected to approximate $330 million during 2010, of which $315 million was contributed in the six months ended June 30, 2010. Contributions to the international plans are expected to range from $85 million to $100 million in 2010, of which $48 million was contributed in the six months ended June 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 $14 million for the three months ended June 30, 2010 and 2009, respectively, and $95 million and $27 million for the six months ended June 30, 2010 and 2009, respectively.

Note 15. EMPLOYEE STOCK BENEFIT PLANS

Stock-based compensation expense was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions	2010		2009		2010		2009
Stock options	$	14	$	18	$	27	$	36
Restricted stock		23		19		46		35
Long-term performance awards		12		8		23		17

Total stock-based compensation expense	$	49	$	45	$	96	$	88


Continuing operations	$	49	$	42	$	96	$	82
Discontinued operations		—		3		—		6

Total stock-based compensation expense	$	49	$	45	$	96	$	88


Deferred tax benefit related to stock-based compensation expense:
Continuing operations	$	16	$	14	$	31	$	27
Discontinued operations		—		1		—		2

Total deferred tax benefit related to stock-based compensation expense	$	16	$	15	$	31	$	29

In the six months ended June 30, 2010, 3.1 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 six months ended June 30, 2010 was $24.73, $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 June 30, 2010 were as follows:


Dollars in Millions	Stock Options		Restricted Stock		Long-Term Performance Awards
Unrecognized compensation cost	$	60	$	209	$	40
Expected weighted-average period of compensation cost to be recognized		2.1 years		2.1 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 two years.

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 not significant during the three and six months ended June 30, 2010. 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 gain of $9 million and $11 million during the three and six months ended June 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:


	Six Months Ended June 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		99			3			—			2			—			—			99			5
Cash flow hedges reclassified to cost of products sold/interest expense (effective portion)		9			(55	)		—			—			—			—			9			(55	)
Change in deferred taxes		(33	)		13			—			(1	)		—			—			(33	)		12

Net carrying amount at June 30	$	64		$	(4	)	$	(1	)	$	(1	)	$	(18	)	$	(19	)	$	45		$	(24	)

Hedge of Net Investment

Non-U.S. dollar borrowings, primarily the €500 Million Notes due 2016 and €500 Million Notes due 2021, ($1.2 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 June 30, 2010, €294 million ($363 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:


	Six Months Ended June 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		202			(2	)
Gain recognized in other (income)/expense, net (overhedged portion)		(59	)		—

Net carrying amount at June 30	$	(26	)	$	(133	)

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 June 30,						Six Months Ended June 30,
Dollars in Millions	2010			2009			2010			2009
Recognized in interest expense	$	(33	)	$	(29	)	$	(72	)	$	(53	)
Amortization of basis adjustment from swap terminations recognized in interest expense		(8	)		(7	)		(15	)		(12	)

Total	$	(41	)	$	(36	)	$	(87	)	$	(65	)

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	June 30, 2010			December 31, 2009
Principal value	$	5,425		$	5,622
Adjustments to Principal Value:
Fair value of interest rate swaps		392			160
Unamortized basis adjustment from swap terminations		460			377
Unamortized bond discounts		(29	)		(29	)

Total	$	6,248		$	6,130

Total interest expense, including interest on long-term debt and interest rate swaps, amounted to $32 million and $42 million for the three months ended June 30, 2010 and 2009, respectively, and $65 million and $94 million for the six months ended June 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.

In the first quarter of 2010, 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 gain and $3 million gain for the three and six months ended June 30, 2010, respectively, and was not significant for 2009.

The following table summarizes the fair value of outstanding derivatives:


		June 30, 2010				December 31, 2009					June 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	$	3,152	$	392	$	3,134	$	165	Accrued expenses	$	—	$	—		$	597	$	(5	)
Foreign currency forward contracts	Other assets		807		106		780		21	Accrued expenses		424		(15	)		731		(31	)
Hedge of net investments			—		—		—		—	Long-term debt		874		(874	)		1,256		(1,256	)
Natural gas contracts			—		—		—		—	Accrued expenses		*		(2	)		*		(1	)

Subtotal					498				186					(891	)				(1,293	)

Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other assets		114		4		—		—	Accrued expenses		—		—			—		—

Total Derivatives				$	502			$	186				$	(891	)			$	(1,293	)

* The notional value of natural gas contracts was 1 million and 2 million decatherms at June 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. The Company’s summary judgment motion remains pending.

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.

It is not possible at this time reasonably to assess the outcome of the PLAVIX* patent litigations or the timing of any renewed generic competition for PLAVIX* from Apotex or additional generic competition for PLAVIX* from other third-party generic pharmaceutical companies. Loss of market exclusivity for PLAVIX* and/or sustained generic competition would be material to the Company’s sales of PLAVIX*, results of operations and cash flows, and could be material to the Company’s financial condition and liquidity. Additionally, it is not possible at this time reasonably to assess the amount of damages that could be recovered by the Company and Apotex’s ability to pay such damages in the event the Company prevails in the patent litigation.

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 mandatory authorization. This matter is currently pending.

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*. The lawsuits are currently pending in the U.S. District Court for the District of New Jersey and a trial is scheduled to begin in August 2010. The 30-month stay under the Hatch-Waxman Act is believed to expire in November 2010. Accordingly, 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*. Teva sent Gilead a Paragraph IV certification letter challenging two of the fifteen Orange Book listed patents for ATRIPLA*. ATRIPLA* is the product of a joint venture between the Company and Gilead. 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*. At this time, the Company’s patent rights covering efavirenz composition of matter and method of use have not been challenged. 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 aNDAs to manufacture and market generic versions of all four dosage forms REYATAZ (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 we believe triggered an automatic 30-month stay of approval of Teva’s aNDA. Subsequent patent infringement lawsuits were filed. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.

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. Plaintiff has appealed the District Court’s decision to the U.S. Court of Appeals for the Second Circuit.

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. The Company is currently scheduled to go to trial in August 2010 in the Commonwealth Court of Pennsylvania.

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 currently scheduled to occur in July 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, alleging that manufacturers did not provide proper discounts to covered entities. Discovery in this matter is ongoing. In May 2009, the U.S. District Court for the Northern District of California denied plaintiff’s motion, without prejudice, to certify the class.

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 June 30, 2010, the companies were defendants in 23 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 June 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. 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 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 $65 million at June 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. An objector to the settlement has filed a motion asking the Court to reconsider its approval of the settlement.

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 on a global basis.

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 six months ended June 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. In addition, Medicaid rebates have also been extended to drugs used in risk-based Medicaid managed care plans beginning in March 2010.

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Beginning later in 2010, we will extend discounts 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 including Medicare, Medicaid, Department of Veterans Affairs, Department of Defense and TriCare. This fee is expected to be classified either as a reduction to net sales or as an operating expense pending further guidance from authoritative bodies.

The new healthcare law also provides clarity about the process for approval of generic biologic products in the U.S. Our biologic products will receive 12 years of data exclusivity, with a potential six-month pediatric extension, before a generic company can enter the market. After we have marketed a biologic product for 4 years, a generic 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 $72 million and $128 million and pre-tax income by $55 million and $104 million in the three and six months ended June 30, 2010, respectively. Quarterly rebates are expected to increase substantially throughout 2010 as a result of additional discounts for the Medicaid managed care plans and 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*, in less than two years, 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”. We did not enter into any new licensing or acquisition transactions in the second quarter of 2010.

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. For instance, in the second quarter we divested our manufacturing operations in Latina, Italy. 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 are also moving towards a culture of continuous improvement to enhance efficiency, effectiveness and competitiveness.

Financial Highlights

The following table is a summary of operating activity:


	Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions, except per share data	2010		2009		2010		2009
Net Sales	$	4,768	$	4,665	$	9,575	$	8,987

Segment Income		1,180		1,217		2,413		2,287

Net Earnings from Continuing Operations Attributable to BMS		927		880		1,670		1,529
Net Earnings from Discontinued Operations Attributable to BMS		—		103		—		92
Net Earnings Attributable to BMS		927		983		1,670		1,621

Diluted Earnings Per Share from Continuing Operations Attributable to BMS		0.53		0.44		0.96		0.77
Non-GAAP Diluted Earnings Per Share from Continuing Operations Attributable to BMS		0.54		0.48		1.10		0.90

Cash, Cash Equivalents and Marketable Securities						10,249		9,103

Net sales increased 2% for the three months ended June 30, 2010 and increased 7% for the six months ended June 30, 2010 as increased U.S. sales of PLAVIX* and other key products were offset by decreases in mature brand sales and the impact of healthcare reform during both periods.

Segment income decreased 3% for the three months ended June 30, 2010 and increased 6% for the six months ended June 30, 2010. Both periods benefitted from increased sales as well as reduced advertising and product promotion spending, and were negatively impacted by increased noncontrolling interest due to higher profitability attributed to PLAVIX* in the U.S., reduced equity income of affiliates due to decreases in international PLAVIX* net sales from generic competition and increased investment to support our late stage pipeline, recent acquisitions and collaborations.

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

Diluted earnings per share (EPS) from continuing operations increased 20% and 25% for the three and six months ended June 30, 2010, respectively, primarily due to the reduction in the outstanding number of shares from the Mead Johnson split-off.

Our 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. Our non-GAAP diluted EPS from continuing operations increased 13% and 22% for the three and six months ended June 30, 2010, respectively, after adjusting for specified items of $17 million and $86 million during the three months ended June 30, 2010 and 2009, respectively, and $241 million and $266 million during the six months ended June 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 amounted to $1.5 billion during the six months ended June 30, 2010. Primary nonoperating uses of cash, cash equivalents and marketable securities included dividend payments of $1.1 billion, common stock repurchases of $165 million and capital expenditures of $210 million.

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. Our late-stage development programs, which are our investigational compounds that are in Phase III clinical development and our marketed products that are in Phase III development for additional indications or formulations, represent 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. The following are the recent significant developments relating to our marketed products and our late-stage pipeline.

ONGLYZA – 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 June 2010, the Company and AstraZeneca announced results from a 52-week Phase IIIb study in adults with type 2 diabetes who had inadequate glycemic control on metformin therapy plus diet and exercise. The study found that the addition of ONGLYZA 5 mg to existing metformin therapy achieved the primary objective of demonstrating non-inferiority compared to the addition of titrated glipizide (sulphonylurea) to existing metformin therapy in reducing glycosylated hemoglobin levels. The study also found that treatment with ONGLYZA 5 mg plus metformin resulted in a statistically significant lower proportion of subjects reporting hypoglycemic events and statistically significant weight loss compared to titrated glipizide plus metformin. ONGLYZA 5 mg plus metformin also resulted in a significantly smaller rise per week in HbA1c from week 24 to week 52 compared to titrated glipizide plus metformin.

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In June 2010, the Company and AstraZeneca announced results from a 76-week Phase III study of ONGLYZA as initial combination therapy with metformin, which produced long-term glycemic improvements (as measured by HbA1c levels) in treatment-naïve adults with type 2 diabetes mellitus inadequately controlled on diet and exercise compared to treatment with an investigational 10 mg dose of ONGLYZA or metformin alone. The study also demonstrated that a higher number of patients were able to achieve the American Diabetes Association recommended glycosylated hemoglobin level target of less than 7% with ONGLYZA and metformin as initial combination therapy, compared to monotherapy of either treatment at week 76.

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 June 2010, findings from a 24-week Phase III clinical study were published that demonstrated that dapagliflozin, administered as monotherapy, achieved statistically significant mean reductions at 5 mg and 10 mg doses once daily in the primary endpoint of glycosylated hemoglobin levels in treatment-naïve adult patients with newly diagnosed type 2 diabetes, compared to placebo.

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In June 2010, results from a 24-week Phase III clinical study were presented that demonstrated that the addition of dapagliflozin achieved reductions in the primary endpoint, glycosylated hemoglobin level, in inadequately controlled type 2 diabetes patients who were treated with insulin (with or without oral anti-diabetes medications (OADS)), compared to placebo plus insulin (with or without OADS). The study also demonstrated that dapagliflozin achieved reductions in the secondary endpoints that evaluated the change in total body weight from baseline, change in baseline from in mean daily insulin dose and change from baseline in fasting plasma glucose.

ORENCIA – a fusion protein indicated for rheumatoid arthritis

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In July 2010, the European Commission approved a new indication for ORENCIA, in combination with methotrexate (MTX), for the treatment of moderate to severe rheumatoid arthritis in adult patients who have responded inadequately to previous therapy with one or more disease-modifying anti-rheumatic drugs including MTX or a TNF-alpha inhibitor.

SPRYCEL – 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 July 2010, the U.S. Food and Drug Administration (FDA) accepted for priority review the sNDA for SPRYCEL for the treatment of adult patients with newly diagnosed chronic myeloid leukemia in chronic phase. The Prescription Drug User Fee Act (PDUFA) date, the date by which action from the FDA is expected, is October 28, 2010.

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In April 2010, the Type II Variation submission for SPRYCEL for the treatment of adult patients with newly diagnosed chronic myeloid leukemia in chronic phase was validated by the European Medicines Agency.

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In June 2010, the Company and Otsuka announced Phase III study results in which SPRYCEL 100 mg once daily demonstrated a superior rate of confirmed complete cytogenetic response compared to GLEEVEC*. The study showed that 77 percent of SPRYCEL patients versus 66 percent of GLEEVEC* patients achieved confirmed complete cytogenetic response rates by 12 months.

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In June 2010, the Company and Otsuka announced four year follow-up results from a Phase III randomized, open-label, dose-optimization study of SPRYCEL in chronic-phase chronic myeloid leukemia patients resistant or intolerant to GLEEVEC*. At four years, for all patients administered SPRYCEL 100 mg once daily, overall survival was 82% (95% CI: 76%-88%) and progression-free survival was 66% (95% CI: 57%-74%). The four-year safety data from this study are consistent with the previously reported safety profile of SPRYCEL 100 mg once daily.

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 June 2010, the Company and Pfizer announced that the Phase III AVERROES clinical trial of apixaban in patients with atrial fibrillation is closing early due to clear evidence of efficacy. An interim analysis by the Independent Data Monitoring Committee showed a clinically important reduction in stroke and systematic embolism in patients with atrial fibrillation considered intolerant of or unsuitable for warfarin therapy who received apixaban as compared to aspirin. This interim analysis also demonstrated an acceptable safety profile for apixaban compared to aspirin.

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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In May 2010, the FDA issued a complete response letter regarding the Biologics License Application for belatacept in kidney transplant. While no new clinical studies have been requested, the complete response letter requests 36 month data from the ongoing Phase III studies to further evaluate the long-term effects of belatacept. The Biologics License Application submitted for belatacept included 24 month data from the Phase III studies. Other requests raised in the letter primarily relate to information to support the manufacturing of belatacept and the proposed risk evaluation and mitigation strategy (REMS). We are working with the FDA to provide the data as soon as they are available and we expect to be able to provide a response to the FDA by the fourth quarter of this year.

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In May 2010, belatacept was the subject of eight clinical presentations related to kidney transplantation at the American Transplant Congress.

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

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In May 2010, the ipilimumab Marketing Authorization Application for metastatic melanoma in pre-treated patients was validated by the European Medicines Agency.

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In June 2010, the Company announced positive results from a Phase III randomized double blind study of ipilimumab which demonstrated that overall survival was significantly extended in patients with previously-treated metastatic melanoma who received ipilimumab. The results were statistically significant for patients receiving ipilimumab alone or ipilimumab in combination with a gp100 peptide vaccine when compared to those patients who received the control therapy of gp100 alone. Forty-four to 46 percent of patients treated with ipilimumab were alive at one year compared to 25 percent of patients treated with the control arm. At two years, 22 to 24 percent of patients treated with ipilimumab were alive compared to 14 percent of patients treated with the control arm.

•

In May 2010, the Company announced positive results from a randomized Phase II study evaluating ipilimumab in combination with standard chemotherapy in previously untreated patients with advanced non-small cell lung cancer. The study, known as 041, met the predefined criteria for significant improvement (p-value of <0.1) in immune-related progression-free survival, the primary endpoint, over chemotherapy alone. An additional analysis of progression-free survival, assessed using the traditional modified World Health Organization criteria, also reached statistical significance in one of the two dosing schedules that combined ipilimumab with standard chemotherapy.

XL184 – In June 2010, the Company terminated its development collaboration with Exelixis, Inc. (Exelixis) for the experimental cancer drug XL184 with all rights returning to Exelixis.

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 June 30, 2009, see “—Discontinued Operations” below.

Our results of continuing operations were as follows:


	Three Months Ended June 30,
Dollars in Millions	2010			2009			% Change
Net Sales	$	4,768		$	4,665		2	%
Earnings from Continuing Operations before Income Taxes	$	1,592		$	1,522		5	%
% of net sales		33.4	%		32.6	%
Provision for Income Taxes	$	324		$	353		(8	)%
Effective tax rate		20.4	%		23.2	%
Net Earnings from Continuing Operations	$	1,268		$	1,169		8	%
% of net sales		26.6	%		25.1	%
Attributable to Noncontrolling Interest	$	341		$	289		18	%
% of net sales		7.2	%		6.2	%
Attributable to Bristol-Myers Squibb Company	$	927		$	880		5	%
% of net sales		19.4	%		18.9	%

Net Sales

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


	Three Months Ended June 30,						2010 vs. 2009
	Net Sales						Analysis of % Change
Dollars in Millions	2010		2009		Total Change		Volume		Price		Foreign Exchange
U.S.	$	3,105	$	2,974	4	%	1	%	3	%	—
Non-U.S.		1,663		1,691	(2	)%	—		(3	)%	1	%

Total	$	4,768	$	4,665	2	%	1	%	1	%	—

Various key U.S. products contributed to the growth in net sales. PLAVIX* represented 48% of total U.S. net sales and contributed 79% of total growth in U.S. net sales.

International net sales decreased 2%, including a 1% favorable foreign exchange impact. Three months ended June 30, 2010 net sales were negatively impacted by mature brands divested in prior periods; a 10% reduction in PLAVIX* net sales (including a 5% favorable foreign exchange impact) due to generic competition in comarketing countries; and increased pricing pressures in certain European countries. Offsetting these decreases were increases in various key products, including BARACLUDE (29%), ABILIFY* (14%), the HIV portfolio (4%) (which includes REYATAZ and the SUSTIVA Franchise), SPRYCEL (22%) and ORENCIA (28%). Our reported international net sales do not include copromotion sales reported by our alliance partner sanofi-aventis (sanofi) for PLAVIX* and AVAPRO*/AVALIDE*.

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 June 30,
Dollars in Millions	2010			2009
Gross Sales	$	5,287		$	5,061
Gross-to-Net Sales Adjustments
Prime Vendor Charge-Backs		(132	)		(129	)
Cash Discounts		(68	)		(63	)
Managed Healthcare Rebates and Other Contract Discounts		(124	)		(114	)
Medicaid Rebates		(118	)		(35	)
Sales Returns		(12	)		(13	)
Other Adjustments		(65	)		(42	)

Total Gross-to-Net Sales Adjustments		(519	)		(396	)

Net Sales	$	4,768		$	4,665

Gross-to-net sales adjustments as a percentage of gross sales were 9.8% in 2010 and 7.8% in 2009 and are typically correlated with gross sales trends, changes in sales mix and contractual and legislative discounts and rebates.

The enactment of healthcare reform in March 2010 impacted the Medicaid rebates adjustment for the three months ended June 30, 2010 due to the increase in the minimum Medicaid rebate on drug sales from 15.1% to 23.1% retroactive to January 1, 2010 and the extension of the Medicaid rebate rate to drugs sold to risk-based Medicaid managed care organizations. The 2009 Medicaid rebates were impacted by the Center for Medicare and Medicaid Services policy group’s approval of the Company’s revised calculations for determining Medicaid rebates for the three year period 2002 through 2004, resulting in a $34 million reduction in the Medicaid liability at June 30, 2009. Expected future increases to gross-to-net sales adjustments related to healthcare reform are further discussed in “—Executive Summary—Healthcare Reform” above.

Net sales of key products represented 84% and 81% of total net sales in the second quarter of 2010 and 2009, respectively. The following table details U.S. and international net sales by key product, the percentage change from the prior period and the foreign exchange impact when compared to the prior period. Commentary detailing the reasons for significant variances is provided below:


	Three Months Ended June 30,
Dollars in Millions	2010		2009		% Change	% Change Attributable to Foreign Exchange
Cardiovascular
PLAVIX*
U.S.	$	1,496	$	1,393	7%	—
Non-U.S.		131		146	(10)%	5%
Total		1,627		1,539	6%	1%
AVAPRO/AVALIDE
U.S.		170		179	(5)%	—
Non-U.S.		137		134	2%	3%
Total		307		313	(2)%	1%
Virology
REYATAZ
U.S.		185		169	9%	—
Non-U.S.		172		162	6%	(2)%
Total		357		331	8%	(1)%
SUSTIVA Franchise (total revenue)
U.S.		213		194	10%	—
Non-U.S.		118		118	—	(4)%
Total		331		312	6%	(1)%
BARACLUDE
U.S.		42		39	8%	—
Non-U.S.		181		140	29%	3%
Total		223		179	25%	2%
Oncology
ERBITUX*
U.S.		168		171	(2)%	—
Non-U.S.		4		2	100%	9%
Total		172		173	(1)%	—
SPRYCEL
U.S.		42		33	27%	—
Non-U.S.		90		74	22%	—
Total		132		107	23%	—
IXEMPRA
U.S.		26		26	—	—
Non-U.S.		3		3	—	4%
Total		29		29	—	—
Neuroscience
ABILIFY*
U.S.		491		518	(5)%	—
Non-U.S.		142		125	14%	(2)%
Total		633		643	(2)%	(1)%
Immunoscience
ORENCIA
U.S.		137		116	18%	—
Non-U.S.		41		32	28%	—
Total		178		148	20%	—
Metabolics
ONGLYZA
U.S.		23		—	N/A	N/A
Non-U.S.		5		—	N/A	N/A
Total		28		—	N/A	N/A

PLAVIX^* — a platelet aggregation inhibitor that is part of our alliance with sanofi

•

U.S. net sales increased primarily due to higher average net selling prices. Estimated total U.S. prescription demand decreased 1%.

•

International net sales continue to be negatively impacted by the launch of generic clopidogrel products in comarketing countries. The impact was partially offset by favorable foreign exchange. We expect continued erosion of PLAVIX* net sales in the EU, which will impact both our international net sales and our equity in net income of affiliates.

•

See “Item 1. Financial Statements—Note 17. Legal Proceedings and Contingencies—PLAVIX* Litigation,” for further discussion on PLAVIX* exclusivity litigation in both the U.S. and EU.

AVAPRO*/AVALIDE* (known in the EU as APROVEL*/KARVEA*) — an angiotensin II receptor blocker for the treatment of hypertension and diabetic nephropathy that is also part of the sanofi alliance

•

U.S. net sales decreased primarily due to a 17% reduction in estimated total U.S. prescription demand partially offset by higher average net selling prices.

•

International net sales increased primarily due to favorable foreign exchange.

REYATAZ — a protease inhibitor for the treatment of HIV

•

U.S. net sales increased primarily due to higher estimated total U.S. prescription demand of 6%.

•

International net sales increased primarily due to higher demand across most international markets.

SUSTIVA Franchise — a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV, which includes SUSTIVA (efavirenz), an antiretroviral drug, and bulk efavirenz, which is also included in the combination therapy, ATRIPLA* (efavirenz 600mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg), a product sold through a joint venture with Gilead Sciences, Inc. (Gilead)

•

U.S. net sales increased primarily due to higher demand as well as higher average net selling prices. Estimated total U.S. prescription demand increased 10%.

BARACLUDE — an oral antiviral agent for the treatment of chronic hepatitis B

•

Sold primarily in international markets, net sales increased mainly due to continued higher demand.

•

U.S. net sales increased primarily due to higher estimated U.S. prescription demand of 15%.

ERBITUX* — a monoclonal antibody designed to exclusively target and block the Epidermal Growth Factor Receptor, which is expressed on the surface of certain cancer cells in multiple tumor types as well as normal cells and is currently indicated for use against colorectal cancer and head and neck cancer. ERBITUX* is part of our strategic alliance with Lilly

•

Sold almost exclusively in the U.S., net sales remained relatively flat.

SPRYCEL — an oral inhibitor of multiple tyrosine kinases, 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

•

U.S. net sales increased primarily due to increased demand and higher average net selling prices. Estimated total U.S. demand increased 7%.

•

International net sales increased primarily due to higher demand.

IXEMPRA — a microtubule inhibitor for the treatment of patients with metastatic or locally advanced breast cancer and is part of our strategic alliance with Otsuka

•

Worldwide net sales remained flat.

ABILIFY* — an antipsychotic agent for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder and is part of the Company’s strategic alliance with Otsuka

•

U.S. net sales decreased primarily due to the reduction in our contractual share of net sales recognized from 65% to 58% and increased Medicaid rebates from healthcare reform. The decrease was partially offset by higher average net selling prices and increased overall demand. Estimated total U.S. prescription demand increased 5%.

•

International net sales increased primarily due to increased prescription demand.

ORENCIA — a fusion protein indicated for rheumatoid arthritis

•

U.S. net sales increased due to demand and higher average selling prices.

•

International net sales increased primarily due to higher demand.

ONGLYZA — a once-daily oral tablet for the treatment of type 2 diabetes

•

ONGLYZA was launched in various countries after the second quarter of 2009.

The estimated U.S. prescription change data provided throughout this report includes information only from the retail and mail order channels and does not reflect product demand within other channels such as hospitals, home health care, clinics, federal facilities including VA hospitals, and long-term care, among others. The data is provided by Wolters Kluwer Health (WK), except for SPRYCEL, and based on the Source Prescription Audit which is a product of WK's own recordkeeping and projection processes. As such, the data is subject to the inherent limitations of estimates based on sampling and may include a margin of error.

The change in SPRYCEL demand is calculated based upon tablets sold though retail and mail order channels based upon data obtained from the IMS Health (IMS) National Sales Perspectives Audit, which is a product of IMS’s own recordkeeping and projection processes. As such, the data is subject to the inherent limitations of estimates based on sampling and may include a margin of error.

We continuously seek to improve the quality of our estimates of prescription change amounts and ultimate patient/consumer demand by reviewing the calculation methodologies employed, and analyzing internal and third-party data. We expect to continue to review and refine our methodologies and processes for calculation of these estimates and will monitor the quality of our own and third parties’ data used in such calculations.

We calculated the estimated total U.S. prescription change on a weighted-average basis to reflect the fact that mail order prescriptions include a higher average volume of product supplied per dispensed prescription, compared to retail prescriptions. Mail order prescriptions typically reflect a 90-day prescription whereas retail prescriptions typically reflect a 30-day prescription. The calculation is derived by multiplying mail order prescription data by a factor that approximates three and adding to this the retail prescriptions. We believe that a calculation of estimated total U.S. prescription change based on this weighted-average approach provides a superior estimate of total prescription demand, with respect to the retail and mail order channels. We use this methodology for our internal demand reporting.

Estimated End-User Demand

The following table sets forth for each of our key products sold in the U.S. for the three months ended June 30, 2010 compared to the same period in the prior year: (i) total U.S. net sales for the period; (ii) change in reported U.S. net sales for the period; (iii) estimated total U.S. prescription change for the retail and mail order channels calculated by us based on third-party data on a weighted-average basis and (iv) months of inventory on hand in the wholesale distribution channel.


					Three Months Ended June 30,					At June 30,
	Total U.S. Net Sales				% Change in U.S. Net Sales		% Change in U.S. Total Prescriptions			Months on Hand
Dollars in Millions	2010		2009		2010	2009	2010	2009		2010	2009
PLAVIX*	$	1,496	$	1,393	7%	15%	(1)%	3%		0.4	0.4
AVAPRO/AVALIDE		170		179	(5)%	(3)%	(17)%	(10)%		0.4	0.4
REYATAZ		185		169	9%	6%	6%	7%		0.4	0.5
SUSTIVA Franchise ^(a)		213		194	10%	13%	10%	9%		0.4	0.5
BARACLUDE		42		39	8%	11%	15%	12%		0.5	0.5
ERBITUX*^(b)		168		171	(2)%	(11)%	N/A	N/A		0.4	0.4
SPRYCEL		42		33	27%	57%	7%	8%		0.7	0.8
IXEMPRA^(b)		26		26	—	—	N/A	N/A		0.5	0.6
ABILIFY*		491		518	(5)%	29%	5%	29%		0.4	0.4
ORENCIA^(b)		137		116	18%	33%	N/A	N/A		0.4	0.4
ONGLYZA^(c)		23		—	N/A	N/A	N/A	N/A	<

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