BMY-2014.06.30-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
 
 
¨
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, 2014, there were 1,657,904,666 shares outstanding of the Registrant’s $0.10 par value common stock.

 



BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
JUNE 30, 2014
 
 
 
PART I—FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II—OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 




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
2014
 
2013
 
2014
 
2013
Net product sales
$
2,770

 
$
3,024

 
$
5,577

 
$
5,981

Alliance and other revenues
1,119

 
1,024

 
2,123

 
1,898

Total Revenues
$
3,889

 
$
4,048

 
$
7,700

 
$
7,879

 
 
 
 
 
 
 
 
Cost of products sold
991

 
1,108

 
1,959

 
2,171

Marketing, selling and administrative
951

 
1,042

 
1,908

 
2,036

Advertising and product promotion
187

 
218

 
350

 
407

Research and development
1,416

 
951

 
2,362

 
1,881

Other (income)/expense
(104
)
 
199

 
(312
)
 
180

Total Expenses
3,441

 
3,518

 
6,267

 
6,675

 
 
 
 
 
 
 
 
Earnings Before Income Taxes
448

 
530

 
1,433

 
1,204

Provision for Income Taxes
114

 
—

 
163

 
51

Net Earnings
334

 
530

 
1,270

 
1,153

Net Earnings/(Loss) Attributable to Noncontrolling Interest
1

 
(6
)
 
—

 
8

Net Earnings Attributable to BMS
$
333

 
$
536

 
$
1,270

 
$
1,145

 
 
 
 
 
 
 
 
Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.33

 
$
0.77

 
$
0.70

Diluted
$
0.20

 
$
0.32

 
$
0.76

 
$
0.69

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.36

 
$
0.35

 
$
0.72

 
$
0.70

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

3



BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in Millions
(UNAUDITED)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
COMPREHENSIVE INCOME
2014
 
2013
 
2014
 
2013
Net Earnings
$
334

 
$
530

 
$
1,270

 
$
1,153

Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges
(5
)
 
(3
)
 
(8
)
 
38

Pension and postretirement benefits
13

 
697

 
(101
)
 
724

Available for sale securities
13

 
(50
)
 
15

 
(46
)
Foreign currency translation
21

 
(33
)
 
10

 
(34
)
Other Comprehensive Income/(Loss)
42

 
611

 
(84
)
 
682

 
 
 
 
 
 
 
 
Comprehensive Income
376

 
1,141

 
1,186

 
1,835

Comprehensive Income/(Loss) Attributable to Noncontrolling Interest
1

 
(6
)
 
—

 
8

Comprehensive Income Attributable to BMS
$
375

 
$
1,147

 
$
1,186

 
$
1,827

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

4



BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Share and Per Share Data(UNAUDITED) 
ASSETS
June 30,
2014
 
December 31,
2013
Current Assets:
 
 
 
Cash and cash equivalents
$
4,282

 
$
3,586

Marketable securities
2,893

 
939

Receivables
3,315

 
3,360

Inventories
1,666

 
1,498

Deferred income taxes
1,356

 
1,701

Prepaid expenses and other
512

 
412

Assets held-for-sale
38

 
7,420

Total Current Assets
14,062

 
18,916

Property, plant and equipment
4,438

 
4,579

Goodwill
7,046

 
7,096

Other intangible assets
1,843

 
2,318

Deferred income taxes
875

 
508

Marketable securities
3,876


3,747

Other assets
1,363

 
1,428

Total Assets
$
33,503

 
$
38,592

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
Short-term borrowings and current portion of long-term debt
$
365

 
$
359

Accounts payable
2,405

 
2,559

Accrued expenses
2,204

 
2,152

Deferred income
1,090

 
756

Accrued rebates and returns
909

 
889

Income taxes payable
204

 
160

Dividends payable
621

 
634

Liabilities related to assets held-for-sale
—

 
4,931

Total Current Liabilities
7,798

 
12,440

Pension, postretirement and postemployment liabilities
681

 
718

Deferred income
1,042

 
769

Income taxes payable
545

 
750

Deferred income taxes
62

 
73

Other liabilities
624

 
625

Long-term debt
7,372

 
7,981

Total Liabilities
18,124

 
23,356

 
 
 
 
Commitments and contingencies (Note 19)

 

 
 
 
 
EQUITY
 
 
 
 
 
 
 
Bristol-Myers Squibb Company Shareholders’ Equity:
 
 
 
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; issued
 
 
 
and outstanding 4,237 in 2014 and 4,369 in 2013, 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 2014
 
 
 
and 2013
221

 
221

Capital in excess of par value of stock
1,479

 
1,922

Accumulated other comprehensive loss
(2,225
)
 
(2,141
)
Retained earnings
33,026

 
32,952

Less cost of treasury stock – 550 million common shares in 2014 and 559 million in 2013
(17,174
)
 
(17,800
)
Total Bristol-Myers Squibb Company Shareholders’ Equity
15,327

 
15,154

Noncontrolling interest
52

 
82

Total Equity
15,379

 
15,236

Total Liabilities and Equity
$
33,503

 
$
38,592

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

5



BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(UNAUDITED)

 
Six Months Ended June 30,
 
2014
 
2013
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
1,270

 
$
1,153

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Net earnings attributable to noncontrolling interest
—

 
(8
)
Depreciation and amortization, net
252

 
402

Deferred income taxes
36

 
(335
)
Stock-based compensation
99

 
95

Impairment charges
358

 
4

Other
(118
)
 
(11
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(31
)
 
(404
)
Inventories
(157
)
 
(173
)
Accounts payable
(112
)
 
203

Deferred income
423

 
619

Income taxes payable
(191
)
 
(31
)
Other
(156
)
 
(432
)
Net Cash Provided by Operating Activities
1,673

 
1,082

Cash Flows From Investing Activities:
 
 
 
Proceeds from sale and maturities of marketable securities
938

 
1,278

Purchases of marketable securities
(3,008
)
 
(850
)
Additions to property, plant and equipment and capitalized software
(228
)
 
(213
)
Proceeds from sale of business
3,159

 
—

Other investing activities
(160
)
 
3

Net Cash Provided by Investing Activities
701

 
218

Cash Flows From Financing Activities:
 
 
 
Short-term debt borrowings, net
5

 
(79
)
Proceeds from issuance of long-term debt
—

 
12

Repayments of long-term debt
(676
)
 
—

Interest rate swap contract terminations
(4
)
 
—

Issuances of common stock
200

 
443

Repurchases of common stock
—

 
(380
)
Dividends
(1,203
)
 
(1,155
)
Net Cash Used in Financing Activities
(1,678
)
 
(1,159
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
24

Increase in Cash and Cash Equivalents
696

 
165

Cash and Cash Equivalents at Beginning of Period
3,586

 
1,656

Cash and Cash Equivalents at End of Period
$
4,282

 
$
1,821

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

6




Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED 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 (SEC) 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, 2014 and December 31, 2013, and the results of operations for the three and six months ended June 30, 2014 and 2013, and cash flows for the six months ended June 30, 2014 and 2013. All intercompany balances and transactions have been eliminated. 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, 2013 included in the Annual Report on Form 10-K (2013 Form 10-K).

Certain prior period amounts were reclassified to conform to the current period presentation. Net product sales and alliance and other revenues previously presented in the aggregate as net sales in the consolidated statements of earnings are now presented separately.

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. The most significant assumptions are employed in estimates used in determining the fair value and potential impairment of intangible assets; sales rebate and return accruals; legal contingencies; income taxes; estimated selling prices used in multiple element arrangements; and pension and postretirement benefits. Actual results may differ from estimated results.

In April 2014, the Financial Accounting Standards Board (FASB) issued amended guidance on the use and presentation of discontinued operations in an entity's consolidated financial statements. The new guidance restricts the presentation of discontinued operations to business circumstances when the disposal of business operations represents a strategic shift that has or will have a major effect on an entity's operations and financial results. The guidance becomes effective on January 1, 2015. Adoption is on a prospective basis.

In May 2014, the FASB issued a new standard related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2017. Early adoption is not permitted. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application. The Company is assessing the potential impact of the new standard on financial reporting and has not yet selected a transition method.

Note 2. BUSINESS SEGMENT INFORMATION

BMS operates in a single segment 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 supply chain organization are utilized and responsible for the development and delivery of products to the market. Regional commercial organizations distribute and sell the products. The business is also supported by global corporate staff functions. Segment information is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods.

Product revenues were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Virology
 
 
 
 
 
 
 
Baraclude (entecavir)
$
369

 
$
371

 
$
775

 
$
737

Reyataz (atazanavir sulfate)
362

 
431

 
706

 
792

Sustiva (efavirenz) Franchise(a)
361

 
411

 
680

 
798

Oncology
 
 
 
 
 
 
 
Erbitux* (cetuximab)
186

 
171

 
355

 
333

Sprycel (dasatinib)
368

 
312

 
710

 
599

Yervoy (ipilimumab)
321

 
233

 
592

 
462

Neuroscience
 
 
 
 
 
 
 
Abilify* (aripiprazole)(b)
555

 
563

 
1,095

 
1,085

Immunoscience
 
 
 
 
 
 
 
Orencia (abatacept)
402

 
352

 
765

 
672

Cardiovascular
 
 
 
 
 
 
 
Eliquis (apixaban)
171

 
12

 
277

 
34

Diabetes Alliance(c)
27

 
438

 
206

 
796

Mature Products and All Other(d)
767

 
754

 
1,539

 
1,571

Total Revenues
$
3,889

 
$
4,048

 
$
7,700

 
$
7,879

*
Indicates brand names of products which are trademarks not owned or wholly owned by BMS. Specific trademark ownership information can be found at the end of this quarterly report on Form 10-Q.
(a)
Includes alliance and other revenue of $313 million and $346 million for three months ended June 30, 2014 and 2013, respectively, and $585 million and $670 million for the six months ended June 30, 2014 and 2013, respectively.
(b)
Includes alliance and other revenue of $499 million and $454 million for three months ended June 30, 2014 and 2013, respectively, and $940 million and $849 million for the six months ended June 30, 2014 and 2013, respectively.
(c)
Includes Bydureon* (exenatide extended-release for injectable suspension), Byetta* (exenatide), Farxiga*/Xigduo* (dapagliflozin/dapagliflozin and metformin hydrochloride), Onglyza*/Kombiglyze* (saxagliptin/saxagliptin and metformin), Myalept* (metreleptin) and Symlin* (pramlintide acetate).
(d)
Includes Plavix* (clopidogrel bisulfate) revenues of $45 million and $44 million for the three months ended June 30, 2014 and 2013, respectively, and $93 million and $135 million for the six months ended June 30, 2014 and 2013, respectively. Additionally, includes Avapro*/Avalide* (irbesartan/irbesartan-hydrochlorothiazide) revenues of $59 million and $56 million for the three months ended June 30, 2014 and 2013, respectively, and $115 million and $102 million for the six months ended June 30, 2014 and 2013, respectively.

Note 3. ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. We refer to these collaborations as alliances and our partners as alliance partners. Several key products such as Abilify*, Sprycel, Sustiva (Atripla*), Erbitux* and Eliquis, as well as products comprising the diabetes alliance discussed below and certain mature and other brands are included in alliance arrangements.


7



Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Revenues from alliances:
 
 
 
 
 
 
 
Net product sales
$
782

 
$
1,054

 
$
1,677

 
$
2,077

Alliance and other revenues
1,039

 
958

 
1,951

 
1,767

Total Revenues
1,821

 
2,012

 
3,628

 
3,844

 
 
 
 
 
 
 
 
Payments to/(from) alliance partners:
 
 
 
 
 
 
 
Cost of products sold
323

 
338

 
678

 
627

Marketing, selling and administrative
6

 
(27
)
 
3

 
(69
)
Advertising and product promotion
32

 
(7
)
 
67

 
(22
)
Research and development
(4
)
 
(31
)
 
(35
)
 
(55
)
Other (income)/expense
(158
)
 
(100
)
 
(553
)
 
(172
)
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to noncontrolling interest, pre-tax
7

 
(1
)
 
11

 
23


Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
June 30,
2014
 
December 31,
2013
Receivables - from alliance partners
$
1,033

 
$
1,122

Accounts payable - to alliance partners
1,552

 
1,396

Deferred income from alliances(a)
1,958

 
5,089


(a)
Included deferred income classified as liabilities related to assets held-for-sale of $3,671 million at December 31, 2013.

Specific information pertaining to each of our significant alliances is discussed in our 2013 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties, and specific accounting policy elections. Significant developments and updates related to alliances for the first half of 2014 are set forth below.

AstraZeneca

In February 2014, BMS and AstraZeneca terminated their alliance agreements and BMS sold to AstraZeneca substantially all of the diabetes business comprising the alliance. Previously, BMS had an alliance with AstraZeneca consisting of three worldwide codevelopment and commercialization agreements covering (1) Onglyza* and related combination products sold under various names, (2) Farxiga* and related combination products and, (3) beginning in August 2012 after BMS's acquisition of Amylin Pharmaceuticals, Inc. (Amylin), Amylin's portfolio of products including Bydureon*, Byetta*, Symlin* and Myalept*, as well as certain assets owned by Amylin, including a manufacturing facility located in West Chester, Ohio.

The divestiture included the shares of Amylin and the resulting transfer of its Ohio manufacturing facility; the intellectual property related to Onglyza* and Farxiga* (including BMS's interest in the out-licensing agreement for Onglyza* in Japan); and the future purchase of BMS’s manufacturing facility located in Mount Vernon, Indiana in 2015. Substantially all employees dedicated to the diabetes business were transferred to AstraZeneca. The sale of the business has been completed in all jurisdictions except for Onglyza* and Farxiga* in China, pending consent from BMS's joint venture partners. For accounting purposes AstraZeneca is the principal for the end-customer product sales in all markets (except China) beginning February 1, 2014.

In connection with the sale, BMS and AstraZeneca entered into several agreements, including a transitional services agreement, a supply agreement and a development agreement. Under those agreements, BMS is obligated to provide transitional services such as accounting, financial services, customer service, distribution, regulatory, development, information technology and certain other administrative services for various periods in order to facilitate the orderly transfer of the business operations; to supply certain products, including the active product ingredients for Onglyza* and Farxiga* through 2020; and to perform ongoing development activities for certain clinical trial programs through 2016, among other things. The expected annual costs attributed to the development agreement are approximately $227 million in 2014, $127 million in 2015 and $84 million in 2016.


8



Consideration for the transaction includes a $2.7 billion payment at closing; contingent regulatory and sales-based milestone payments of up to $1.4 billion (including $800 million related to approval milestones and $600 million related to sales-based milestones, payable in 2020); royalty payments based on net sales through 2025 and payments up to $225 million if and when certain assets are transferred to AstraZeneca. AstraZeneca will also pay BMS for any required product supply at a price approximating the product cost as well as negotiated transitional service fees.

Royalty rates on net sales are as follows:
 
2014
2015
2016
2017 - 2025
Onglyza* and Farxiga* Worldwide Net Sales up to $500 million
44
%
35
%
27
%
12-25%
Onglyza* and Farxiga* Worldwide Net Sales over $500 million
3
%
7
%
9
%
12-25%
Amylin products U.S. Net Sales
—

2
%
2
%
5-12%

The stock and asset purchase agreement contains multiple elements to be delivered subsequent to the closing of the transaction, including the China diabetes business, the Mount Vernon manufacturing facility, and the activities under the development and supply agreements. Each of these elements was determined to have a standalone value. As a result, a portion of the consideration received at closing was allocated to the undelivered elements using the relative selling price method after determining the best estimated selling price for each element. The remaining amount of consideration was included in the calculation for the gain on sale of the diabetes business. Contingent milestone and royalty payments are similarly allocated among the underlying elements if and when the amounts are determined to be payable to BMS. Amounts allocated to the sale of the business are immediately recognized in the results of operations.  Amounts allocated to the other elements are recognized in the results of operations only to the extent each element has been delivered.

Consideration of $3.6 billion was accounted for in 2014, substantially all in the first quarter (including royalties and $700 million of contingent regulatory milestone payments related to the approval of Farxiga* in both the U.S. and Japan). Approximately $2.9 billion of the consideration was allocated to the sale of the business and the remaining $667 million was allocated to the undelivered elements described above. The gain on sale of the diabetes business was $247 million. The gain was based on the difference between the consideration allocated to the sale of the business (net of transaction fees) and the carrying value of the diabetes business net assets (including a $600 million allocation of goodwill and the reversal of $821 million of net deferred tax liabilities attributed to Amylin). The consideration includes $169 million of earned royalties, of which $138 million was allocated to the sale of the business and included in other income and $31 million was allocated to the undelivered elements.

Consideration allocated to the China business and Mount Vernon manufacturing facility will continue to be deferred until those assets are transferred to AstraZeneca. Consideration allocated to the development and supply agreements will continue to be amortized over the applicable service periods. Amortization of deferred income attributed to the development agreement was included in other income as the sale of these services are not considered part of BMS’s ongoing major or central operations. Revenues attributed to the supply agreement were included in alliance and other revenues.

Consideration for the transaction is presented for cash flow purposes based on the allocation process described above, either as an investing activity if attributed to the sale of the business or related assets or as an operating activity if attributed to the transitional services, supply arrangement or development agreement.

9



Summarized financial information related to the AstraZeneca alliances was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Revenues from AstraZeneca alliances:
 
 
 
 
 
 
 
Net product sales
$
2

 
$
431

 
$
161

 
$
786

Alliance and other revenues
26

 
5

 
45

 
9

Total Revenues
28

 
436

 
206

 
795

 
 
 
 
 
 
 
 
Payments to/(from) AstraZeneca:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Profit sharing
1

 
178

 
77

 
324

Amortization of deferred income
—

 
(74
)
 
—

 
(149
)
 
 
 
 
 
 
 
 
Cost reimbursements to/(from) AstraZeneca recognized in:
 
 
 
 
 
 
 
Cost products sold
—

 
(6
)
 
(9
)
 
(9
)
Marketing, selling and administrative
4

 
(34
)
 
(7
)
 
(71
)
Advertising and product promotion
(1
)
 
(7
)
 
(4
)
 
(18
)
Research and development
(2
)
 
(21
)
 
(9
)
 
(43
)
 
 
 
 
 
 
 
 
Other (income)/expense:
 
 
 
 
 
 
 
Amortization of deferred income
(21
)
 
(8
)
 
(34
)
 
(15
)
Provision for restructuring
—

 
(20
)
 
(2
)
 
(25
)
Royalties
(90
)
 
—

 
(138
)
 
—

Transitional services
(34
)
 
—

 
(65
)
 
—

Gain on sale of business
12

 
—

 
(247
)
 
—

 
 
 
 
 
 
 
 
Selected Alliance Cash Flow information:
 
 
 
 
 
 
 
Deferred income
14

 
—

 
289

 
80

Proceeds from sale of business
99

 
—

 
3,154

 
—

Other investing activities
53

 
—

 
53

 
—

Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
June 30,
2014
 
December 31,
2013
Deferred income attributed to:
 
 
 
Non-refundable upfront, milestone and other licensing receipts(a)
$
—

 
$
3,671

Assets not yet transferred to AstraZeneca
369

 
—

Services not yet performed for AstraZeneca
260

 
—


(a)
Included in liabilities related to assets held-for-sale at December 31, 2013.
Otsuka
BMS's commercialization rights to Abilify* in European Union (EU) countries expired in June 2014.
As described in the 2013 Form 10-K, BMS recognizes revenue for Abilify* in the U.S. based on the expected annual contractual share using a forecast of net sales for the year. The percentage is estimated each quarter and determined to be 33% and 34% for the six months ended June 30, 2014 and 2013, respectively.
Gilead
As described in the 2013 Form 10-K, effective January 1, 2014, following the European loss of exclusivity for Sustiva, the percentage of Atripla* net sales in Europe recognized by BMS is equal to the difference between the average net selling prices of Atripla* and Truvada* (emtricitabine and tenofovir disoproxil fumarate). This alliance will continue until either party terminates the arrangement or the last patent expiration occurs for Atripla*, Truvada* or Sustiva.

10



Pfizer
As described in the 2013 Form 10-K, BMS has an alliance with Pfizer relating to Eliquis. In 2014, BMS received $60 million from Pfizer for milestone payments related to the acceptance of the filing in the U.S. for the treatment of venous thromboembolism indication and the launch of Eliquis in the U.S. for the prevention of deep vein thrombosis in patients who have undergone hip or knee surgery.

Valeant

As described in the 2013 Form 10-K, BMS has an alliance with Valeant for certain mature brands in Europe. In March 2014, Valeant notified BMS that it will exercise its option to acquire the trademarks and intellectual property exclusively related to the products at a price determined based on a multiple of sales (expected to be approximately $60 million). The closing is expected to occur in January 2015. In addition, a $16 million charge was included in other expense to increase the fair value of the option to $34 million.

Reckitt Benckiser Group plc

As described in the 2013 Form 10-K, BMS has an alliance with Reckitt Benckiser Group plc (Reckitt) covering certain BMS over-the-counter products sold primarily in Mexico and Brazil. Reckitt also has an option to acquire all remaining rights in such products for those markets and related inventories at the end of the alliance period (May 2016). In April 2014, the alliance was modified to provide an option to Reckitt to purchase a BMS manufacturing facility located in Mexico primarily dedicated to the products included in the alliance. The options can only be exercised together. Substantially all employees at the facility are expected to be transferred to Reckitt if the option is exercised. A $15 million charge was included in other expense to increase the fair value of the option to $129 million.

Note 4. ACQUISITIONS

In April 2014, BMS acquired all of the outstanding shares of iPierian, Inc. (iPierian), a biotechnology company focused on new treatments for tauopathies, a class of neurodegenerative diseases. The acquisition provides BMS with full rights to IPN007, a preclinical monoclonal antibody to treat progressive supranuclear palsy and other tauopathies. The consideration includes an upfront payment of $175 million, contingent development and regulatory milestone payments up to $550 million and future royalties on net sales if any of the acquired preclinical assets are approved and commercialized. No significant iPierian processes were acquired, therefore the transaction was accounted for as an asset acquisition because iPierian was determined not to be a "business" as that term is defined in ASC 805 - Business Combinations. The upfront payment allocated to IPN007 was $148 million and included in research and development expenses. The remaining $27 million was allocated to deferred tax assets for net operating losses and tax credit carryforwards.

Note 5. ASSETS HELD-FOR-SALE

As discussed in "Note 3. Alliances", BMS sold its diabetes business to AstraZeneca in February 2014 which previously comprised the global alliance with them. See Note 3 for further information on the transaction. The diabetes business was treated as a single disposal group held-for-sale as of December 31, 2013. No write-down was required as the fair value of the business less costs to sell exceeded the related carrying value.

11




The following assets and liabilities of the diabetes business held-for-sale were presented separately from BMS’s other accounts:
Dollars in Millions
 
December 31, 2013
Assets
 
 
Receivables
 
$
83

Inventories
 
163

Deferred income taxes - current
 
125

Prepaid expenses and other
 
20

Property, plant and equipment
 
678

Goodwill
 
550

Other intangible assets
 
5,682

Other assets
 
119

Total assets held-for-sale
 
7,420

 
 
 
Liabilities
 
 
Short-term borrowings and current portion of long-term debt
 
27

Accounts payable
 
30

Accrued expenses
 
148

Deferred income - current
 
352

Accrued rebates and returns
 
81

Deferred income - noncurrent
 
3,319

Deferred income taxes - noncurrent
 
946

Other liabilities
 
28

Total liabilities related to assets held-for-sale
 
$
4,931


Assets held-for-sale were $38 million at June 30, 2014, comprising of inventories not yet transferred to AstraZeneca.

Note 6. OTHER (INCOME)/EXPENSE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Interest expense
$
46

 
$
50

 
$
100

 
$
100

Investment income
(28
)
 
(28
)
 
(51
)
 
(53
)
Provision for restructuring
16

 
173

 
37

 
206

Litigation charges/(recoveries)
(20
)
 
(22
)
 
9

 
(22
)
Equity in net income of affiliates
(33
)
 
(50
)
 
(69
)
 
(86
)
Gain on sale of product lines, businesses and assets
7

 
—

 
(252
)
 
(1
)
Other alliance and licensing income
(144
)
 
(32
)
 
(252
)
 
(89
)
Pension curtailments, settlements and special termination benefits
45

 
101

 
109

 
101

Other
7

 
7

 
57

 
24

Other (income)/expense
$
(104
)
 
$
199

 
$
(312
)
 
$
180


Note 7. RESTRUCTURING

The following is the provision for restructuring:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Employee termination benefits
$
14

 
$
172

 
$
34

 
$
201

Other exit costs
2

 
1

 
3

 
5

Provision for restructuring
$
16

 
$
173

 
$
37

 
$
206


Restructuring charges included termination benefits for workforce reductions of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 220 and 890 for the three months ended June 30, 2014 and 2013, respectively, and approximately 400 and 1,135 for the six months ended June 30, 2014 and 2013, respectively.


12



The following table represents the activity of employee termination and other exit cost liabilities:
Dollars in Millions
2014
 
2013
Liability at January 1
$
102

 
$
167

Charges
40

 
209

Changes in estimates
(3
)
 
(3
)
Provision for restructuring
37

 
206

Foreign currency translation
1

 
1

Spending
(48
)
 
(130
)
Liability at June 30
$
92

 
$
244


Note 8. INCOME TAXES

 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Earnings Before Income Taxes
$
448

 
$
530

 
$
1,433

 
$
1,204

Provision for Income Taxes
114

 
—

 
163

 
51

Effective tax rate
25.4
%
 
—

 
11.4
%
 
4.2
%

Changes in the effective tax rates between the current and prior period primarily resulted from the following items: 
•
The first quarter of 2014 includes a $96 million income tax benefit attributed to the sale of the diabetes business ($81 million for the six months ended June 30, 2014). This tax benefit resulted primarily from the capital loss deduction on the sale of the Amylin shares;
•
The impact of no tax benefit attributable to the $148 million research and development charge resulting from the acquisition of iPierian in the second quarter of 2014;
•
The first quarter of 2013 includes the retroactive reinstatement of the research and development tax credit and look through exception for the full year 2012 ($43 million). The applicable tax legislation for these items was not extended as of June 30, 2014, therefore the research and development tax credit was not considered in the 2014 effective tax rate;
•
All periods were impacted by other discrete tax benefits attributable to restructuring, impairment, pension settlements and other charges.

The effective tax rate is lower than the U.S. statutory rate of 35% primarily attributable to undistributed earnings of certain foreign subsidiaries that have been considered or are expected to be indefinitely reinvested offshore. These undistributed earnings primarily relate to operations in Ireland and Puerto Rico, which operate under favorable tax grants not scheduled to expire prior to 2023. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. Reforms to U.S. tax laws related to foreign earnings have been proposed and if adopted, may increase taxes, which could reduce the results of operations and cash flows.

BMS is currently being audited by a number of tax authorities and significant disputes may arise related to issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. BMS estimates that it is reasonably possible that the total amount of unrecognized tax benefits at June 30, 2014 could decrease in the range of approximately $300 million to $360 million in the next twelve months as a result of the settlement of certain tax audits and other events resulting in the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

Effective January 2014, the Company adopted an update from the FASB that clarified existing guidance on the presentation of unrecognized tax benefits when various qualifying tax benefit carryforwards exist, including when the unrecognized tax benefit should be presented as a reduction to deferred tax assets or as a liability. As a result, non-current deferred tax assets and income tax liabilities were reduced by $236 million.

13



Note 9. EARNINGS PER SHARE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Amounts in Millions, Except Per Share Data
2014
 
2013
 
2014
 
2013
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation
$
333

 
$
536

 
$
1,270

 
$
1,145

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
1,657

 
1,644

 
1,655

 
1,641

Contingently convertible debt common stock equivalents
1

 
1

 
1

 
1

Incremental shares attributable to share-based compensation plans
11

 
15

 
12

 
16

Weighted-average common shares outstanding – diluted
1,669

 
1,660

 
1,668

 
1,658

 
 
 
 
 
 
 
 
Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.33

 
$
0.77

 
$
0.70

Diluted
$
0.20

 
$
0.32

 
$
0.76

 
$
0.69

 
 
 
 
 
 
 
 
Anti-dilutive weighted-average equivalent shares – stock incentive plans
—

 
—

 
—

 
—


Note 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
 
June 30, 2014
 
December 31, 2013
Dollars in Millions
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents - Money market and other securities
$
—

 
$
3,749

 
$
—

 
$
3,749

 
$
—

 
$
3,201

 
$
—

 
$
3,201

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
—

 
1,813

 
—

 
1,813

 
—

 
122

 
—

 
122

Commercial paper
—

 
200

 
—

 
200

 
—

 
—

 
—

 
—

Corporate debt securities
—

 
4,640

 
—

 
4,640

 
—

 
4,432

 
—

 
4,432

Equity funds
—

 
94

 
—

 
94

 
—

 
74

 
—

 
74

Fixed income funds
—

 
10

 
—

 
10

 
—

 
46

 
—

 
46

Auction Rate Securities (ARS)
—

 
—

 
12

 
12

 
—

 
—

 
12

 
12

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
—

 
111

 
—

 
111

 
—

 
64

 
—

 
64

Foreign currency forward contracts
—

 
22

 
—

 
22

 
—

 
50

 
—

 
50

Investments in equity of other companies
53

 
—

 
—

 
53

 
—

 
—

 
—

 
—

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
—

 
(3
)
 
—

 
(3
)
 
—

 
(27
)
 
—

 
(27
)
Foreign currency forward contracts
—

 
(24
)
 
—

 
(24
)
 
—

 
(35
)
 
—

 
(35
)
Written option liabilities(a)
—

 
—

 
(198
)
 
(198
)
 
—

 
—

 
(162
)
 
(162
)
Contingent consideration liability(b)
—

 
—

 
(8
)
 
(8
)
 
—

 
—

 
(8
)
 
(8
)

(a)
Includes $69 million and $18 million in accrued expenses and $129 million and $144 million in other liabilities as of June 30, 2014 and December 31, 2013, respectively.
(b)
The contingent consideration liability is included in other liabilities.

As further described in "Note 10. Financial Instrument and Fair Value Measurement" in our 2013 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3).

14



The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:
 
2014
 
2013
Dollars in Millions
ARS
 
Contingent consideration liability
 
Written option liabilities
 
ARS and FRS(a)
 
Contingent consideration liability
 
Written option liabilities
Fair value at January 1
$
12

 
$
(8
)
 
$
(162
)
 
$
31

 
$
(8
)
 
$
(18
)
Additions from new alliances
—

 
—

 
—

 
—

 
—

 
(144
)
Changes in fair value
—

 
—

 
(36
)
 
—

 
—

 
—

Fair value at June 30
$
12

 
$
(8
)
 
$
(198
)
 
$
31

 
$
(8
)
 
$
(162
)

(a)
FRS: Floating Rate Securities

Available-for-sale Securities

The following table summarizes available-for-sale securities:
 
Dollars in Millions
Amortized
Cost
 
Gross
Unrealized
Gain in
Accumulated
OCI
 
Gross
Unrealized
Loss in
Accumulated
OCI
 
Fair Value
 
 
June 30, 2014
 
 
 
 
 
 
 
 
Certificates of deposit
$
1,813

 
$
—

 
$
—

 
$
1,813

 
Commercial paper
200

 
—

 
—

 
200

 
Corporate debt securities
4,592

 
51

 
(3
)
 
4,640

 
ARS
9

 
3

 
—

 
12

 
Investments in equity of other companies
41

 
18

 
(6
)
 
53

 
Total
$
6,655

 
$
72

 
$
(9
)
 
$
6,718

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
Certificates of deposit
$
122

 
$
—

 
$
—

 
$
122

 
Corporate debt securities
4,401

 
44

 
(13
)
 
4,432

 
ARS
9

 
3

 
—

 
12

 
Total
$
4,532

 
$
47

 
$
(13
)
 
$
4,566


Available-for-sale securities included in current marketable securities were $2,789 million as of June 30, 2014 and $819 million as of December 31, 2013. Non-current available-for-sale corporate debt securities maturing within five years were $3,864 million as of June 30, 2014. ARS maturing beyond 10 years were $12 million as of June 30, 2014. Investments in equity of other companies of $53 million are included in other assets as of June 30, 2014.

Fair Value Option for Financial Assets

The Company invests in equity and fixed income funds that are designed to offset the changes in fair value of certain employee retirement benefits. Investments in equity and fixed income funds are included in current marketable securities and were $94 million and $10 million, respectively, as of June 30, 2014 and $74 million and $46 million, respectively, as of December 31, 2013. Investment income resulting from the change in fair value for the investments in equity and fixed income funds was not significant.

Qualifying Hedges
The following table summarizes the fair value of outstanding derivatives:
 
 
 
June 30, 2014
 
December 31, 2013
Dollars in Millions
Balance Sheet Location
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
Other assets
 
$
1,173

 
$
111

 
$
673

 
$
64

Interest rate swap contracts
Other liabilities
 
1,150

 
(3
)
 
1,950

 
(27
)
Foreign currency forward contracts
Prepaid expenses and other
 
187

 
17

 
301

 
44

Foreign currency forward contracts
Other assets
 
187

 
5

 
100

 
6

Foreign currency forward contracts
Accrued expenses
 
710

 
(22
)
 
704

 
(31
)
Foreign currency forward contracts
Other liabilities
 
109

 
(2
)
 
263

 
(4
)


15



Cash Flow Hedges — Foreign currency forward contracts are primarily utilized to hedge forecasted intercompany inventory purchase transactions in certain foreign currencies. These contracts are designated as cash flow hedges with the effective portion of changes in fair value being temporarily reported in accumulated other comprehensive loss and recognized in earnings when the hedged item affects earnings. The net losses on foreign currency forward contracts are expected to be reclassified to cost of products sold within the next two years. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the Euro ($601 million) and Japanese yen ($319 million) at June 30, 2014.

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. Assessments to determine whether derivatives designated as qualifying hedges are highly effective in offsetting changes in the cash flows of hedged items are performed at inception and on a quarterly basis. Any ineffective portion of the change in fair value is included in current period earnings. The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not significant during the six months ended June 30, 2014 and 2013.

Net Investment Hedges — Non-U.S. dollar borrowings of €541 million ($738 million) are designated to hedge the foreign currency exposures of the net investment in certain foreign affiliates. These borrowings are designated as net investment hedges and recognized in long-term debt. The effective portion of foreign exchange gains or losses on the remeasurement of the debt is recognized in the foreign currency translation component of accumulated other comprehensive loss with the related offset in long-term debt.

Fair Value Hedges — Fixed-to-floating interest rate swap contracts are designated as fair value hedges and are used as part of an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The swaps and underlying debt for the benchmark risk being hedged are recorded at fair value. When the underlying swap is terminated prior to maturity, the fair value basis adjustment to the underlying debt instrument is amortized into earnings as an adjustment to interest expense over the remaining term of the debt.

Fixed-to-floating interest rate swap contracts were executed in 2014 to convert $200 million notional amount from fixed rate to variable rate debt.

Long-term debt and the current portion of long-term debt includes:
Dollars in Millions
June 30,
2014
 
December 31,
2013
Principal Value
$
6,959

 
$
7,593

Adjustments to Principal Value:
 
 
 
Fair value of interest rate swap contracts
108

 
37

Unamortized basis adjustment from interest rate swap contract terminations
365

 
442

Unamortized bond discounts
(60
)
 
(64
)
Total
$
7,372

 
$
8,008

 
 
 
 
Current portion of long-term debt(a)
$
—

 
$
27

Long-term debt
7,372

 
7,981


(a)
Included in liabilities related to assets held-for-sale at December 31, 2013.

The fair value of debt was $8,011 million at June 30, 2014 and $8,487 million at December 31, 2013 and was valued using Level 2 inputs. Interest payments were $89 million and $105 million for the six months ended June 30, 2014 and 2013, respectively, net of amounts related to interest rate swap contracts.

No commercial paper borrowings were outstanding as of June 30, 2014.

The following information pertains to the outstanding 5.45% Notes due 2018 that were redeemed in February 2014:
 
Six Months Ended
Dollars in Millions
June 30, 2014
Principal amount
$
582

Carrying value
633

Debt redemption price
676

Notional amount of interest rate swap contracts terminated
500

Interest rate swap contract termination payments
(4
)
Total loss
45


16



Note 11. RECEIVABLES

Dollars in Millions
June 30,
2014
 
December 31,
2013
Trade receivables
$
1,884

 
$
1,779

Less allowances
(85
)
 
(89
)
Net trade receivables
1,799

 
1,690

Alliance partners receivables
1,033

 
1,122

Prepaid and refundable income taxes
290

 
262

Other
193

 
286

Receivables
$
3,315

 
$
3,360


Non-U.S. receivables sold on a nonrecourse basis were $424 million and $505 million for the six months ended June 30, 2014 and 2013, respectively. In the aggregate, receivables due from our three largest pharmaceutical wholesalers in the U.S. represented 37% and 40% of total trade receivables at June 30, 2014 and December 31, 2013, respectively.

Note 12. INVENTORIES

Dollars in Millions
June 30,
2014
 
December 31,
2013
Finished goods
$
550

 
$
491

Work in process
800

 
757

Raw and packaging materials
316

 
250

Inventories
$
1,666

 
$
1,498


Inventories expected to remain on-hand beyond one year are included in other assets and were $269 million at June 30, 2014 and $351 million at December 31, 2013.

Note 13. PROPERTY, PLANT AND EQUIPMENT

Dollars in Millions
June 30,
2014
 
December 31,
2013
Land
$
110

 
$
109

Buildings
4,806

 
4,748

Machinery, equipment and fixtures
3,773

 
3,699

Construction in progress
247

 
287

Gross property, plant and equipment
8,936

 
8,843

Less accumulated depreciation
(4,498
)
 
(4,264
)
Property, plant and equipment
$
4,438

 
$
4,579


The Mount Vernon, Indiana manufacturing facility's carrying value was approximately $276 million as of June 30, 2014. The facility is expected to be sold in 2015. It was not included in assets held-for-sale for both periods because the assets were not available for immediate sale in their present condition and were not expected to be sold within a year. See "Note 3. Alliances” for further discussion on the sale of the diabetes business.

Depreciation expense was $275 million and $219 million for the six months ended June 30, 2014 and 2013, respectively.


17



Note 14. OTHER INTANGIBLE ASSETS

Dollars in Millions
June 30,
2014
 
December 31,
2013
Licenses
$
1,151

 
$
1,162

Developed technology rights
2,468

 
2,486

Capitalized software
1,258

 
1,240

In-process research and development (IPRD)
205

 
548

Gross other intangible assets
5,082

 
5,436

Less accumulated amortization
(3,239
)
 
(3,118
)
Total other intangible assets
$
1,843

 
$
2,318


A $310 million IPRD impairment charge was recognized in the second quarter of 2014 for peginterferon lambda which is currently in Phase III development for treatment of hepatitis C virus. The full write-off  was  required after assessing the potential commercial viability of the asset and estimating its fair value. The assessment considered the lower likelihood of filing for registration in certain markets after completing revised projections of revenues and expenses. A significant decline from prior projected revenues resulted from the global introduction of oral non-interferon products being used to treat patients with hepatitis C virus and no other alternative uses for the product.

Amortization expense was $151 million and $431 million for the six months ended June 30, 2014 and 2013, respectively.

Note 15. DEFERRED INCOME
Dollars in Millions
June 30,
2014
 
December 31,
2013
Upfront, milestone and other licensing receipts
$
885

 
$
970

Atripla* deferred revenue
461

 
468

Gain on sale-leaseback transactions
57

 
71

Diabetes business divestiture (Undelivered elements)
629

 
—

Other
100

 
16

Total deferred income
$
2,132

 
$
1,525

 
 
 
 
Current portion
$
1,090

 
$
756

Non-current portion
1,042

 
769

Further information pertaining to upfront, milestone and other licensing payments is described in “Note 3. Alliances” in the Company’s 2013 Form 10-K.
Amortization of deferred income was $174 million and $248 million for the six months ended June 30, 2014 and 2013, respectively.

18




Note 16. EQUITY

 
Common Stock
 
Capital in  Excess
of Par Value
of Stock
 
Retained
Earnings
 
Treasury Stock
 
Noncontrolling
Interest
Dollars and Shares in Millions
Shares
 
Par Value
 
Shares
 
Cost
 
Balance at January 1, 2013
2,208

 
$
221

 
$
2,694

 
$
32,733

 
570

 
$
(18,823
)
 
$
15

Net earnings
—

 
—

 
—

 
1,145

 
—

 
—

 
21

Cash dividends declared
—

 
—

 
—

 
(1,163
)
 
—

 
—

 
—

Stock repurchase program
—

 
—

 
—

 
—

 
10

 
(364
)
 
—

Employee stock compensation plans
—

 
—

 
(719
)
 
—

 
(18
)
 
1,167

 
—

Distributions
—

 
—

 
—

 
—

 
—

 
—

 
(34
)
Balance at June 30, 2013
2,208

 
$
221

 
$
1,975

 
$
32,715

 
562

 
$
(18,020
)
 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
2,208

 
$
221

 
$
1,922

 
$
32,952

 
559

 
$
(17,800
)
 
$
82

Net earnings
—

 
—

 
—

 
1,270

 
—

 
—

 
1

Cash dividends declared
—

 
—

 
—

 
(1,196
)
 
—

 
—

 
—

Employee stock compensation plans
—

 
—

 
(427
)
 
—

 
(8
)
 
591

 
—

Debt conversion
—

 
—

 
(16
)
 
—

 
(1
)
 
35

 
—

Distributions
—

 
—

 
—

 
—

 
—

 
—

 
(31
)
Balance at June 30, 2014
2,208

 
$
221

 
$
1,479

 
$
33,026

 
550

 
$
(17,174
)
 
$
52




19



The components of other comprehensive income/(loss) were as follows:
 
2014
 
2013
 
Pretax
 
Tax
 
After tax
 
Pretax
 
Tax
 
After tax
Three months ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:(a)
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses)
$
(14
)
 
$
4

 
$
(10
)
 
$
30

 
$
(10
)
 
$
20

Reclassified to net earnings
7

 
(2
)
 
5

 
(34
)
 
11

 
(23
)
Derivatives qualifying as cash flow hedges
(7
)
 
2

 
(5
)
 
(4
)
 
1

 
(3
)
Pension and postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Actuarial gains/(losses)
(49
)
 
13

 
(36
)
 
935

 
(330
)
 
605

Amortization(b)
27

 
(6
)
 
21

 
38

 
(12
)
 
26

Settlements(c)
45

 
(17
)
 
28

 
101

 
(35
)
 
66

Pension and postretirement benefits
23

 
(10
)
 
13

 
1,074

 
(377
)
 
697