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 ~~SEPTEMBER 30, 2013~~MARCH 31, 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 ~~September 30, 2013~~March 31, 2014, there were ~~1,646,542,902~~1,657,176,162 shares outstanding of the Registrant’s $0.10 par value common stock.

BRISTOL-MYERS SQUIBB COMPANY

INDEX TO FORM 10-Q

~~SEPTEMBER 30, 2013~~MARCH 31, 2014




PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements:
Consolidated Statements of Earnings	3
Consolidated Statements of Comprehensive Income	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	2926

Item 3.
Quantitative and Qualitative Disclosure About Market Risk	4738

Item 4.
Controls and Procedures	4738

PART II—OTHER INFORMATION

Item 1.
Legal Proceedings	4738

Item 1A.
Risk Factors	4738

Item 2.
Issuer Purchases of Equity Securities	4839

Item 6.
Exhibits	4940

Signatures	5041

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF EARNINGS

Dollars and Shares in Millions, Except Per Share Data

(UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
EARNINGS	2013		2012			2013		2012			2014			2013
Net Sales	$	4,065	$	3,736		$	11,944	$	13,430
Net product sales											$	2,807		$	2,957
Alliance and other revenues											1,004			874
Total Revenues											$	3,811		$	3,831

Cost of products sold	1,175		987			3,346		3,535			968			1,063
Marketing, selling and administrative	980		1,071			3,016		3,077			957			994
Advertising and product promotion	194		167			601		585			163			189
Research and development	893		951			2,774		2,822			946			930
Impairment charge for BMS-986094 intangible asset	—		1,830			—		1,830
Other (income)/expense	5		(11		)	185		(246		)	(208		)	(19		)
Total Expenses	3,247		4,995			9,922		11,603			2,826			3,157

Earnings/(Loss) Before Income Taxes	818		(1,259		)	2,022		1,827
Provision for/(benefit from) income taxes	126		(546		)	177		250
Net Earnings/(Loss)	692		(713		)	1,845		1,577
Earnings Before Income Taxes											985			674
Provision for income taxes											49			51
Net Earnings											936			623
Net Earnings/(Loss) Attributable to Noncontrolling Interest	—		(2		)	8		542			(1		)	14
Net Earnings/(Loss) Attributable to BMS	$	692	$	(711	)	$	1,837	$	1,035
Net Earnings Attributable to BMS											$	937		$	609

Earnings/(Loss) per Common Share
Earnings per Common Share
Basic	$	0.42	$	(0.43	)	$	1.12	$	0.62		$	0.57		$	0.37
Diluted	$	0.42	$	(0.43	)	$	1.11	$	0.61		$	0.56		$	0.37

Cash dividends declared per common share	$	0.35	$	0.34		$	1.05	$	1.02		$	0.36		$	0.35

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

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Dollars in Millions

(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
COMPREHENSIVE INCOME 2013 2012 2013 2012
Net Earnings/(Loss) $ 692
$ (713 ) $ 1,845
$ 1,577
Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
Derivatives qualifying as cash flow hedges (31 ) (39 ) 7
(27 )
Pension and postretirement benefits 232
24
956
84
Available for sale securities 14
38
(32 ) 37
Foreign currency translation (7 ) —
(41 ) 7
Other Comprehensive Income/(Loss) 208
23
890
101

Comprehensive Income/(Loss) 900
(690 ) 2,735
1,678
Comprehensive Income/(Loss) Attributable to Noncontrolling Interest —
(2 ) 8
542
Comprehensive Income/(Loss) Attributable to BMS $ 900
$ (688 ) $ 2,727
$ 1,136



	Three Months Ended March 31,
COMPREHENSIVE INCOME	2014			2013
Net Earnings	$	936		$	623
Other Comprehensive Income, net of taxes and reclassifications to earnings:
Derivatives qualifying as cash flow hedges	(3		)	41
Pension and postretirement benefits	(114		)	27
Available for sale securities	2			4
Foreign currency translation	(11		)	(1		)
Other Comprehensive Income	(126		)	71

Comprehensive Income	810			694
Comprehensive Income Attributable to Noncontrolling Interest	(1		)	14
Comprehensive Income Attributable to BMS	$	811		$	680

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)


ASSETS	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Current Assets:
Cash and cash equivalents	$	1,771		$	1,656		$	5,225		$	3,586
Marketable securities	951			1,173			1,834			939
Receivables	3,673			3,083			3,316			3,360
Inventories	1,640			1,657			1,655			1,498
Deferred income taxes	2,036			1,597			1,390			1,701
Prepaid expenses and other	556			355			538			412
Assets held-for-sale							56			7,420
Total Current Assets	10,627			9,521			14,014			18,916
Property, plant and equipment	5,236			5,333			4,485			4,579
Goodwill	7,646			7,635			7,046			7,096
Other intangible assets	8,176			8,778			2,208			2,318
Deferred income taxes	195			203			789			508
Marketable securities	3,623			3,523			3,558			3,747
Other assets	1,301			904			1,324			1,428
Total Assets	$	36,804		$	35,897		$	33,424		$	38,592

LIABILITIES

Current Liabilities:
Short-term borrowings and current portion of long-term debt	$	680		$	826		$	281		$	359
Accounts payable	2,466			2,202			2,502			2,559
Accrued expenses	2,277			2,573			1,997			2,152
Deferred income	1,003			825			1,061			756
Accrued rebates and returns	1,034			1,054			891			889
Income taxes payable	208			193			170			160
Dividends payable	611			606			619			634
Liabilities related to assets held-for-sale							—			4,931
Total Current Liabilities	8,279			8,279			7,521			12,440
Pension, postretirement and postemployment liabilities	773			1,882			690			718
Deferred income	4,198			4,024			1,064			769
Income taxes payable	739			648			557			750
Deferred income taxes	904			383			78			73
Other liabilities	665			475			616			625
Long-term debt	6,532			6,568			7,367			7,981
Total Liabilities	22,090			22,259			17,893			23,356

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 4,445 in 2013 and 5,189 in 2012, 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 2013 and 2012	221			221
and outstanding 4,252 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	1,966			2,694			1,449			1,922
Accumulated other comprehensive loss	(2,312		)	(3,202		)	(2,267		)	(2,141		)
Retained earnings	32,826			32,733			33,291			32,952
Less cost of treasury stock – 561 million common shares in 2013 and 570 million in 2012	(17,975		)	(18,823		)
Less cost of treasury stock – 551 million common shares in 2014 and 559 million in 2013							(17,221		)	(17,800		)
Total Bristol-Myers Squibb Company Shareholders’ Equity	14,726			13,623			15,473			15,154
Noncontrolling interest	(12		)	15			58			82
Total Equity	14,714			13,638			15,531			15,236
Total Liabilities and Equity	$	36,804		$	35,897		$	33,424		$	38,592

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

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(UNAUDITED)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2013			2012			2014			2013
Cash Flows From Operating Activities:
Net earnings	$	1,845		$	1,577		$	936		$	623
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings attributable to noncontrolling interest	(8		)	(542		)
Net (earnings)/loss attributable to noncontrolling interest							1			(14		)
Depreciation and amortization, net	582			482			137			213
Deferred income taxes	(409		)	(737		)	110			(182		)
Stock-based compensation	140			108			49			49
Impairment charges	6			2,118			47			3
Proceeds from Amylin diabetes collaboration	—			3,570
Other	(11		)	21			(214		)	(3		)
Changes in operating assets and liabilities:
Receivables	(563		)	643			(55		)	(318		)
Inventories	(8		)	(135		)	(144		)	(163		)
Accounts payable	301			(321		)	(12		)	(53		)
Deferred income	702			100			327			215
Income taxes payable	128			82			(215		)	77
Other	(570		)	(861		)	(350		)	(875		)
Net Cash Provided by Operating Activities	2,135			6,105
Net Cash Provided by/(Used in) Operating Activities							617			(428		)
Cash Flows From Investing Activities:
Sale and maturities of marketable securities	1,520			4,384
Proceeds from sale and maturities of marketable securities							376			551
Purchases of marketable securities	(1,448		)	(3,501		)	(1,080		)	(278		)
Additions to property, plant and equipment and capitalized software	(337		)	(373		)	(118		)	(115		)
Sale of businesses and other investing activities	8			16
Purchases of businesses, net of cash acquired	—			(7,530		)
Net Cash Used in Investing Activities	(257		)	(7,004		)
Proceeds from sale of business							3,055			—
Other investing activities							(21		)	3
Net Cash Provided by Investing Activities							2,212			161
Cash Flows From Financing Activities:
Short-term borrowings, net	488			20
Short-term debt borrowings, net							(79		)	551
Proceeds from issuance of long-term debt	12			1,950			—			12
Long-term debt repayments	(597		)	(2,108		)
Interest rate swap terminations	—			2
Issuance of common stock	483			397
Common stock repurchases	(433		)	(1,911		)
Repayments of long-term debt							(676		)	—
Interest rate swap contract terminations							(4		)	—
Issuances of common stock							172			270
Repurchases of common stock							—			(297		)
Dividends	(1,732		)	(1,725		)	(605		)	(580		)
Net Cash Used in Financing Activities	(1,779		)	(3,375		)	(1,192		)	(44		)
Effect of Exchange Rates on Cash and Cash Equivalents	16			1			2			10
Increase/(Decrease) in Cash and Cash Equivalents	115			(4,273		)	1,639			(301		)
Cash and Cash Equivalents at Beginning of Period	1,656			5,776			3,586			1,656
Cash and Cash Equivalents at End of Period	$	1,771		$	1,503		$	5,225		$	1,355

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

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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, and the results of operations ~~for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012~~, and cash flows for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013. 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, ~~2012~~2013 included in the Annual Report on Form ~~10-K.~~10-K (2013 Form 10-K).

Certain prior period amounts ~~have been~~were reclassified to conform to the current period presentation. ~~The provision for restructuring, equity in net income of affiliates,~~Net product sales and ~~litigation expense, net,~~alliance and other revenues previously presented ~~separately on~~in the aggregate as net sales in the consolidated statements of earnings are ~~currently~~now presented ~~as components of other (income)/expense.~~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 July 2013, the Financial Accounting Standards Board issued an update 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. This update is required to be adopted for all annual periods and interim reporting periods beginning after December 15, 2013, with early adoption permitted. BMS is currently evaluating the financial statement impact of this guidance.

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.

~~Net sales~~Revenues of ~~key~~ products were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
Dollars in Millions	2013		2012		2013		2012		2014		2013
Virology
Baraclude (entecavir)	$	378	$	346	$	1,115	$	1,028	$	406	$	366
Reyataz (atazanavir sulfate)	375		363		1,167		1,127		344		361
Sustiva (efavirenz) Franchise(a)	389		370		1,187		1,144		319		387
Oncology
Erbitux* (cetuximab)	183		173		516		531		169		162
Sprycel (dasatinib)	316		263		915		738		342		287
Yervoy (ipilimumab)	238		179		700		495		271		229
Neuroscience
Abilify* (aripiprazole)(b)	569		676		1,654		2,008		540		522
Metabolics
Bydureon* (exenatide extended-release for injectable suspension)	87		20		205		20
Byetta* (exenatide)	106		55		295		55
Forxiga (dapagliflozin)	7		N/A		15		N/A
Onglyza/Kombiglyze (saxagliptin/saxagliptin and metformin)	211		178		653		511
Immunoscience
Nulojix (belatacept)	7		3		18		7
Orencia (abatacept)	375		307		1,047		851		363		320
Cardiovascular
Avapro/Avalide (irbesartan/irbesartan-hydrochlorothiazide)	71		95		173		419
Eliquis (apixaban)	41		—		75		1		106		22
Plavix* (clopidogrel bisulfate)	42		64		177		2,498

Mature Products and All Other	670		644		2,032		1,997
Net Sales	$	4,065	$	3,736	$	11,944	$	13,430
Diabetes Alliance^(c)									179		358
Mature Products and All Other^(d)									772		817
Total Revenues									$	3,811	$	3,831



*(a)	~~Indicates brand names~~Includes alliance and other revenue of ~~products which are trademarks not owned or wholly owned by BMS. Specific trademark ownership information can be found at~~$272 million and $324 million for three months ended March 31, 2014 and 2013, respectively.
(b)	Includes alliance and other revenue of $441 million and $395 million for three months ended March 31, 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) and Symlin* (pramlintide acetate).
(d)	Includes Plavix* (clopidogrel bisulfate) revenues of $48 million and Avapro/Avalide (irbesartan/irbesartan-hydrochlorothiazide) revenues of $56 million for the ~~end of this quarterly report on Form 10-Q.~~three months ended March 31, 2014 and $91 million and $46 million for the three months ended March 31, 2013.

Note 3. ALLIANCES ~~AND COLLABORATIONS~~

BMS enters into ~~alliance and~~ collaboration arrangements with third parties for the development and commercialization of certain products. ~~Both~~Although each of these arrangements is unique in nature, both parties are active participants in the ~~alliance~~ 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 ~~marketed~~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.

Payments between ~~collaboration~~alliance partners are accounted for and presented in ~~operating~~the results ~~based on~~of operations after considering the specific nature of the ~~arrangement,~~payment and the underlying activities to which the payments relate. Multiple alliance activities, including ~~its contractual terms,~~ the ~~nature~~transfer of rights, are only separated into individual units of accounting if they have standalone value from other activities that occur over the life of the ~~payments and~~arrangements. In these situations, the ~~applicable accounting guidance. The most common~~arrangement consideration is allocated to the activities ~~between BMS and its collaboration partners~~or rights on a relative selling price basis. If multiple alliance activities or rights do not have standalone value, they are ~~presented in operating results as follows:~~combined into a single unit of accounting.

When BMS is the principal in the end customer sale, 100% of product sales are ~~recognized. Otherwise, only BMS’s~~included in net product sales. When BMS's alliance partner is the principal in the end customer sale, BMS's contractual share of the third-party sales and/or royalty income are included in alliance and other revenue ~~is reported in net sales.~~as the sale of commercial products are considered part of BMS's ongoing major or central operations.

Amounts payable to BMS by alliance partners (who are the principal in the end customer sale) for supply of commercial products are included in alliance and other revenue as the sale of commercial products are considered part of BMS's ongoing major or central operations.

Amounts payable by BMS to alliance partners for profit sharing, royalties and other sales-based fees are included in cost of products sold as incurred.

Cost ~~reimbursement payments~~reimbursements between the parties are recognized as incurred and included in cost of products sold; marketing, selling and administrative expenses; advertising and product promotion ~~expenses,~~expenses; or research and development expenses, ~~as applicable.~~based on the underlying nature of the related activities subject to reimbursement.

Upfront and contingent ~~milestone payments from collaboration partners~~development and approval milestones payable to BMS by alliance partners for investigational compounds and commercial products are ~~typically~~ deferred and amortized over the shorter of the contractual term or the periods in which the related compounds or products are expected to contribute to future cash flows. The amortization is presented consistent with the nature of the payment under the arrangement. For example, amounts received for investigational compounds are presented in other (income)/expense as the activities being performed at that time are not related to the sale of commercial products that are part of BMS’s ongoing major or central operations; amounts received for commercial products are presented in alliance and other revenue as the sale of commercial products are considered part of BMS’s ongoing major or central operations (except for the AstraZeneca PLC (AstraZeneca) alliance pertaining to the Amylin products).

Upfront ~~payments for approved products~~ and contingent approval ~~milestone payments from~~milestones payable by BMS to ~~collaboration~~alliance partners for commercial products are capitalized and amortized over the shorter of the contractual term or the periods in which the related products are expected to contribute to future cash flows. The amortization is included in cost of products sold.

Upfront and contingent ~~milestone payments from~~milestones payable by BMS to ~~collaboration~~alliance partners prior to regulatory approval are expensed as incurred and included in research and development expenses.

~~Payments from BMS to collaboration partners for profit sharing, royalties and other sales-based fees are included in cost of products sold as incurred.~~

Equity in net income of affiliates is included in other (income)/expense.

All payments between BMS and its ~~collaboration~~alliance partners are presented in cash flows from operating ~~activities.~~

~~Each of our collaboration arrangements is unique in nature and specific information pertaining to each of our significant collaborations is discussed~~activities, except as otherwise described below. ~~See the~~ ~~2012~~ ~~Annual Report on Form 10-K for a more complete description of the below agreements, including termination provisions.~~

~~Otsuka~~

~~BMS has a worldwide commercialization agreement, excluding certain Asian countries, with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote~~ Abilify*, for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder. The U.S. portion of the commercialization and manufacturing agreement was amended in 2009 and further amended in 2012, and it expires upon the expected loss of product exclusivity in April 2015. The agreement expires in all European Union (EU) countries in June 2014 and in each other non-U.S. country where we have the exclusive right to sell Abilify*~~, the agreement expires on the later of April 2015 or loss of exclusivity in any such country.~~

~~Otsuka is the principal in most third-party net sales. Therefore, net sales recognized for~~ Abilify* ~~include only BMS’s share of total net sales to third party customers. In the U.S., BMS’s contractual share was~~ ~~51.5%~~ in 2012. Beginning January 1, 2013, BMS’s contractual share changed to the percentages of total U.S. net sales set forth in the table below. An assessment of BMS's expected annual contractual share is completed each quarterly reporting period (determined to be ~~34.1%~~ ~~in the third quarter of 2013).~~



~~Annual U.S. Net Sales~~	~~BMS Share as a % of U.S. Net Sales~~
~~$0 to $2.7 billion~~	~~50%~~
~~$2.7 billion to $3.2 billion~~	~~20%~~
~~$3.2 billion to $3.7 billion~~	7%
~~$3.7 billion to $4.0 billion~~	2%
~~$4.0 billion to $4.2 billion~~	1%
~~In excess of $4.2 billion~~	~~20%~~

~~In the United Kingdom, Germany, France, Spain, and beginning on March 1, 2013 in Italy, BMS’s contractual share of third-party net sales is~~ ~~65%. In these countries and the U.S., third-party customers are invoiced by BMS on behalf of Otsuka and alliance revenue is recognized when~~ Abilify* is shipped and all risks and rewards of ownership have been transferred to third-party customers. BMS recognizes all of the net sales in certain countries where it is the exclusive distributor for the product or has an exclusive right to sell Abilify*.

BMS purchases the active pharmaceutical ingredient from Otsuka and completes the manufacture of the product for sale to third-party customers by BMS or Otsuka. Under the terms of the 2009 U.S. amendment, BMS paid Otsuka ~~$400 million~~ in 2009, which is amortized as a reduction of net sales through the expected loss of U.S. exclusivity in April 2015. The unamortized balance is included in other assets. Otsuka receives a royalty based on ~~1.5%~~ ~~of total U.S. net sales, which is included in cost of products sold. Otsuka was responsible for~~ ~~30%~~ ~~of the U.S. expenses related to the commercialization of~~ Abilify* ~~from 2010 through 2012. Under the 2012 U.S. amendment, Otsuka assumed responsibility for providing and funding all sales force efforts effective January 2013. In consideration, BMS paid Otsuka~~ ~~$27 million~~ ~~in January 2013, and is responsible for funding certain operating expenses up to~~ ~~$82 million~~ ~~in 2013,~~ ~~$56 million~~ ~~in 2014 and~~ ~~$8 million~~ in 2015. In the EU, Otsuka reimbursed BMS for the sales force effort it provided through March 31, 2013. Otsuka assumed responsibility for providing and funding sales force efforts in the EU effective April 2013.

~~BMS and Otsuka also have an oncology collaboration for~~ ~~Sprycel~~ ~~and~~ ~~Ixempra~~ ~~(ixabepilone) (the “Oncology Products”) in the U.S., Japan and the EU (the Oncology Territory). A collaboration fee is paid to Otsuka based on the following percentages of annual net sales of~~ ~~Sprycel~~ ~~and~~ ~~Ixempra~~:

% of Net Sales
2010 – 2012 2013 – 2020
$0 to $400 million 30% 65%
$400 million to $600 million 5% 12%
$600 million to $800 million 3% 3%
$800 million to $1.0 billion 2% 2%
In excess of $1.0 billion 1% 1%

~~During these annual periods, Otsuka contributes~~ ~~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~~.

~~Summarized~~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 ~~to this alliance is as follows:~~amortization if the payments were deferred or capitalized.

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Abilify* net sales, net of amortization of extension payment
$ 569
$ 676
$ 1,654
$ 2,008
Oncology fee – Cost of products sold 68
36
214
103
Royalties – Cost of products sold 21
18
61
55
Cost reimbursements to/(from) Otsuka^(a)
(13 ) (2 ) (11 ) (34 )
Amortization:
Net sales reduction 16
16
49
49
Cost of products sold —
1
—
5



	Three Months Ended March 31,
Dollars in Millions	2014			2013
Revenues from alliances:
Net product sales	$	895		$	1,023
Alliance and other revenues	912			809
Total Revenues	1,807			1,832

Payments to/(from) alliance partners:
Cost of products sold	355			289
Marketing, selling and administrative	(3		)	(42		)
Advertising and production promotion	35			(15		)
Research and development	(31		)	(24		)
Other (income)/expense	(395		)	(72		)

Net earnings attributable to noncontrolling interest, pre-tax	4			24


Selected Alliance Balance Sheet information:
Dollars in Millions	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Other assets – extension payment	$	104	$	153
Receivables - from alliance partners					$	1,095	$	1,122
Accounts payable - to alliance partners					1,522		1,396
Deferred income from alliances^(a)					2,023		5,089


(a)	~~Primarily included in marketing, selling and administrative expenses.~~Includes 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 quarter of 2014 are set forth below.

AstraZeneca

In February 2014, BMS and AstraZeneca ~~have a~~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. One collaboration covers~~agreements covering (1) ~~Onglyza~~Onglyza* ,and related combination products sold under various names, (2) ~~Kombiglyze XR~~Forxiga* ~~(saxagliptin and metformin hydrochloride extended-release), and~~ (~~Komboglyze~~Farxiga* ~~(saxagliptin and metformin immediate-release marketed~~ in the ~~EU); a second collaboration covers dapagliflozin;~~U.S.) and ~~a third collaboration, entered into~~related combination products and, (3) beginning in August 2012 ~~covers Amylin’s~~after BMS's acquisition of Amylin Pharmaceutical, Inc. (Amylin), Amylin's portfolio of products (including Bydureon*, Byetta*, Symlin* ~~(pramlintide acetate)~~ and ~~metreleptin, which is currently in development)~~Myalept*(metreleptin), as well as certain assets owned by Amylin, including a manufacturing ~~facility. Dapagliflozin is marketed as~~ facility located in West Chester, Ohio.

~~Forxiga~~The divestiture included the shares of Amylin and the resulting transfer of its Ohio manufacturing facility; the intellectual property related to ~~outside the U.S. The agreements for saxagliptin exclude Japan. In this document unless specifically noted, we refer to both~~ ~~Kombiglyze~~Onglyza* and~~Komboglyze~~ Forxiga*; 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 was completed in all jurisdictions as ~~Kombiglyze~~. ~~Onglyza~~ ~~and dapagliflozin were discovered by BMS.~~ ~~Kombiglyze~~ ~~was codeveloped with AstraZeneca.~~ Bydureon*, Byetta*, Symlin* ~~and metreleptin were discovered by Amylin, LLC (Amylin), a wholly-owned subsidiary~~ of ~~BMS since August 2012. BMS~~March 31, 2014 except China, pending consent from BMS's joint venture partners. For accounting purposes AstraZeneca is the principal for the end-customer product sales in ~~third party customer net sales, except for~~ ~~Onglyza~~ and Amylin's portfolio of products in Japan. Both companies jointly develop the clinical and marketing strategy and share commercialization expenses and profits and losses equally on a global basis and also share in development costs, with the exception of dapagliflozin development costs in Japan, which are borne by AstraZeneca subject to a pre-agreed clinical plan. Additional development costs will be shared equally.all markets (except China) beginning February 1, 2014.

In ~~2012, BMS received proceeds of~~ ~~$3.6 billion~~ ~~from AstraZeneca, $3.5 billion of which was a non-refundable, upfront payment in consideration for entering into~~connection with the ~~Amylin-related collaboration and the remaining~~ ~~$73 million~~ was for tax sharing attributes expected to be reimbursed back to AstraZeneca in the fourth quarter of 2013 (included in accrued expenses at September 30, 2013 and December 31, 2012). In the third quarter of 2013, AstraZeneca exercised its option for equal governance rights over certain key strategic and financial decisions regarding the Amylin-related collaboration. A receivable for the ~~$135 million~~ ~~option fee was recognized at September 30, 2013 (received in October 2013). The~~ ~~$3.5 billion~~ non-refundable upfront fee and $135 million option fee are accounted for as deferred income and amortized as a reduction to cost of products sold on a pro-rata basis over the estimated useful lives of the predominant elements included in the collaboration (primarily intangible assets related to Bydureon* ~~with an estimated useful life of~~ 13 ~~years,~~ Byetta* ~~with an estimated useful life of~~ 7 ~~years,~~ Symlin* ~~with an estimated life of~~ 9 ~~years, metreleptin with an estimated useful life of~~ 12 ~~years, and, to a lesser degree, the manufacturing plant with an estimated useful life of~~ 15 ~~years). AstraZeneca is entitled to share in the proceeds from the~~ sale, ~~of any of the assets related to the collaboration. BMS is entitled to reimbursements for~~ ~~50%~~ ~~of capital expenditures related to Amylin.~~ BMS and AstraZeneca ~~agreed~~entered into several agreements, including a transitional services agreement, a supply agreement and a development agreement. Under those agreements, BMS is obligated to ~~share~~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 ~~tax attributes related~~products, including the active product ingredients for Onglyza* and Forxiga* 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 ~~Amylin collaboration.~~

~~With respect to the other collaborations, BMS has received~~ ~~$300~~development agreement are approximately $227 million in ~~non-refundable upfront, milestone~~2014, $127 million in 2015 and ~~other licensing payments related to~~ ~~Onglyza~~ ~~to date and could receive up to an additional~~ ~~$300~~$84 million ~~for sales-based milestones. BMS has also received~~ ~~$250 million~~ in ~~non-refundable upfront, milestone and other licensing payments related to dapagliflozin to date, and could potentially receive up to an additional~~ ~~$150 million~~ ~~for development and regulatory milestones and up to an additional~~ ~~$390 million~~ ~~for sales-based milestones. Amortization of the~~ ~~Onglyza~~ ~~and dapagliflozin deferred income is included in other income.~~2016.

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 Forxiga* Worldwide Net Sales up to $500 million	44	%	35	%	27	%	12-25%
Onglyza* and Forxiga* 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 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 $3.5 billion was accounted for in the first quarter of 2014 (including royalties and $700 million of contingent regulatory milestone payments related to the approval of Farxiga* in the U.S. and Forxiga* in Japan). Approximately $2.8 billion of the consideration was allocated to the sale of the business and the remaining $649 million was allocated to the undelivered elements described above. The gain on sale of the diabetes business was $259 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 $59 million of earned royalties, of which $48 million was allocated to the sale of the business and included in other income and $11 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. Consideration recognized in periods subsequent to the delivery of the elements is presented as a financing activity when received.

Summarized financial information related to ~~these~~the AstraZeneca alliances iswas as follows:

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 430
$ 266
$ 1,219
$ 599
Profit sharing – Cost of products sold 170
118
494
268
Cost reimbursements to/(from) AstraZeneca:
Commercialization expenses^(a)
(53 ) (43 ) (172 ) (62 )
Research and development (17 ) (17 ) (56 ) (7 )
Amortization:
Cost of products sold (78 ) (50 ) (227 ) (50 )
Other (income)/expense (8 ) (9 ) (23 ) (30 )

Non-refundable upfront, milestone and other licensing receipts:
Amylin-related products —
3,570
—
3,570
Dapagliflozin —
—
80
—



	Three Months Ended March 31,
Dollars in Millions	2014			2013
Revenues from AstraZeneca alliances:
Net product sales	$	159		$	355
Alliance and other revenues	19			4
Total Revenues	178			359

Payments to/(from) AstraZeneca:
Cost of products sold:
Profit sharing	76			146
Amortization of deferred income	—			(75		)

Cost reimbursements to/(from) AstraZeneca recognized in:
Cost products sold	(9		)	(3		)
Marketing, selling and administrative	(11		)	(37		)
Advertising and product information	(3		)	(11		)
Research and development	(7		)	(22		)

Other (income)/expense:
Amortization of deferred income	(13		)	(7		)
Provision for restructuring	(2		)	(5		)
Royalties	(48		)	—
Transitional services	(31		)	—
Gain on sale of business	(259		)	—

Selected Alliance Cash Flow information:
Deferred income	275			80
Proceeds from sale of business	3,055			—

Dollars in Millions September 30,
2013 December 31,
2012
Deferred income – Non-refundable upfront, milestone and other licensing receipts
Amylin-related products $ 3,342
$ 3,423
Onglyza 195
208
Dapagliflozin 196
206



Selected Alliance Balance Sheet information:
Dollars in Millions	March 31, 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	362		—
Services not yet performed for AstraZeneca	273		—


(a)	~~Primarily included~~Included in ~~marketing, selling and administrative expenses.~~liabilities related to assets held-for-sale at December 31, 2013.

Otsuka

As described in the 2013 Form 10-K, BMS recognizes revenue for Abilify* based on the expected annual contractual share using a forecast of net sales for the year. BMS assesses this percentage each quarter. This percentage was determined to be 33% and 35% for the three months ended March 31, 2014 and 2013, respectively.

Gilead

~~BMS and Gilead Sciences, Inc. (Gilead) have a joint venture~~As described in the ~~U.S.,~~2013 Form 10-K, effective January 1, 2014, following the European loss of exclusivity for ~~the U.S. and Canada, and in Europe to develop and commercialize~~ Atripla* (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg), a once-daily single tablet three-drug regimen for the treatment of human immunodeficiency virus (HIV) infection, combining Sustiva, ~~a product~~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*Truvada* (emtricitabine and tenofovir disoproxil fumarate)~~, a product of Gilead.~~

~~Net sales recognized~~. This alliance will continue until either party terminates the arrangement or the last patent expiration occurs for Atripla* ~~include only the bulk efavirenz component of~~ Atripla* ~~which is based on the relative ratio of the average respective net selling prices of~~ Truvada* ~~and~~ ~~Sustiva.~~ ~~The net sales are deferred and the related alliance receivable is not recognized until the combined product is sold to third-party customers.~~

~~Summarized financial information related to this alliance is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 328
$ 305
$ 998
$ 950
Equity in net loss of affiliates 4
6
12
14

~~Lilly~~

BMS has an Epidermal Growth Factor Receptor (EGFR) commercialization agreement with Eli Lilly and Company (Lilly) through Lilly’s November 2008 acquisition of ImClone Systems Incorporated (ImClone) for the codevelopment and promotion of Erbitux* ~~in the U.S. which expires in September 2018. Lilly has the right to copromote at their own expense. BMS also has codevelopment and copromotion rights in Canada and Japan.~~ Erbitux* is indicated for use in the treatment of patients with certain types of metastatic colorectal cancer and for use in the treatment of squamous cell carcinoma of the head and neck. BMS is the principal in third party customer sales in North America. Under the EGFR agreement, with respect to Erbitux* ~~sales in North America, BMS pays Lilly a distribution fee based on a flat rate of~~ ~~39%~~ ~~of net sales in North America plus a share of certain royalties paid by Lilly.~~

~~In Japan, BMS shares rights to~~ Erbitux* ~~under an agreement with Lilly and Merck KGaA and receives~~ ~~50%~~ ~~of the pre-tax profit from Merck KGaA’s net sales of~~ Erbitux* ~~in Japan which is further shared equally with Lilly.~~

In March 2013, the Company and Lilly terminated the global codevelopment and cocommercialization arrangement for necitumumab (IMC-11F8), with all rights returning to Lilly. Discovered by ImClone, necitumumab is a fully human monoclonal antibody that was part of the alliance between the Company and Lilly.

~~BMS is amortizing~~ ~~$500 million~~ ~~of license acquisition costs associated with the EGFR commercialization agreement through 2018.~~

~~Summarized financial information related to this alliance is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 183
$ 173
$ 516
$ 531
Distribution fees and royalties – Cost of products sold 76
71
214
220
Cost reimbursements to/(from) Lilly^(a)
—
5
—
13
Amortization – Cost of products sold 9
9
28
28
Japan commercialization fee – Other (income)/expense (8 ) (9 ) (20 ) (28 )

Dollars in Millions September 30,
2013 December 31,
2012
Other intangible assets – Non-refundable upfront, milestone and other licensing payments $ 183
$ 211


~~(a)~~	~~Primarily included in research and development expenses.~~

Prior to BMS’s acquisition of Amylin on August 8, 2012, Amylin had entered into a settlement and termination agreement with Lilly regarding their collaboration for the global development and commercialization of Byetta* ~~and~~ ~~Bydureon~~Atripla* (exenatide products) under which the parties agreed to transition full responsibility of these products to Amylin. The transition of the U.S. operations was completed by the time of the acquisition. The transition of non-U.S. operations of the exenatide products in a majority of markets was completed on April 1, 2013 terminating Lilly’s exclusive right to non-U.S. commercialization of the exenatide products. BMS is responsible for any non-U.S. losses incurred by Lilly during 2012 and 2013 up to a maximum of, ~~$60 million~~Truvada*, or Sustiva.

~~Sanofi~~

~~In September 2012, BMS and Sanofi restructured the terms of the codevelopment and cocommercialization agreements for~~ Plavix*~~, a platelet aggregation inhibitor, and~~ Avapro*/Avalide*, an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy. Effective January 1, 2013, Sanofi assumed essentially all of the worldwide operations of the alliance with the exception of Plavix* ~~in the U.S. and Puerto Rico. The alliance for~~ Plavix* in these markets will continue unchanged through December 2019 under the same terms as in the original alliance arrangements described below. In exchange for the rights being assumed by Sanofi, BMS will receive quarterly royalties from January 1, 2013 until December 31, 2018 and a terminal payment from Sanofi of ~~$200 million~~ ~~at the end of 2018.~~

~~Beginning in 2013, all royalties received from Sanofi in the territory covering the Americas and Australia, opt-out markets, and former development royalties are presented in net sales, including~~ ~~$53 million~~ ~~and~~ ~~$160 million~~ ~~in the three and~~ ~~nine months ended September 30, 2013~~, respectively. Development and opt-out royalties were recognized in other (income)/expense in 2012. Royalties attributed to the territory covering Europe and Asia continue to be earned by the territory partnership and are included in equity in net income of affiliates. Additionally, equity in net income of affiliates for the ~~nine months ended September 30, 2013~~ ~~includes~~ ~~$22 million~~ ~~of profit that was deferred prior to the restructuring of the agreement. Net sales attributed to the supply of irbesartan active pharmaceutical ingredient to Sanofi were~~ ~~$43 million~~ ~~and~~ ~~$29 million~~ ~~for the three months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively, and~~ ~~$94 million~~ ~~and~~ ~~$97 million~~ ~~for the~~ ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012, respectively. The supply arrangement for irbesartan expires in 2015.~~

~~Prior to the restructuring, BMS’s worldwide alliance with Sanofi for the codevelopment and cocommercialization of~~ Avapro*/Avalide* ~~and~~ Plavix* operated 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. These two territory partnerships managed central expenses, such as marketing, research and development and royalties, and supply of finished product to individual countries. BMS acted as the operating partner and owned 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. BMS also recognized net sales in comarketing countries outside this territory (e.g. Italy for irbesartan only, Germany, Greece and Spain). Sanofi acted as the operating partner and owned a ~~50.1%~~ ~~majority controlling interest in the territory covering Europe and Asia and BMS has a~~ ~~49.9%~~ ~~ownership interest in this territory.~~

Pfizer

~~Summarized financial information~~As described in the 2013 Form 10-K, BMS has an alliance with Pfizer relating to Eliquis. In January 2014, BMS received a $20 million milestone payment from Pfizer related to ~~this alliance is as follows:~~the approval of

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 113
$ 159
$ 350
$ 2,917
Royalties – Cost of products sold —
19
2
527
Equity in net income of affiliates (46 ) (45 ) (140 ) (163 )
Other (income)/expense —
(61 ) (14 ) (122 )
Noncontrolling interest – pre-tax (4 ) (7 ) 19
847

Distributions (to)/from Sanofi – Noncontrolling interest (11 ) 290
(33 ) (768 )
Distributions from Sanofi – Investment in affiliates 51
54
103
183

Dollars in Millions September 30,
2013 December 31,
2012
Investment in affiliates – territory covering Europe and Asia $ 46
$ 9
Noncontrolling interest (44 ) (30 )

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

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 111
$ 248
$ 288
$ 886
Gross profit 91
132
232
402
Net income 90
116
228
358

~~Pfizer~~

U.S.~~BMS and Pfizer Inc. (Pfizer) maintain a worldwide codevelopment and cocommercialization agreement for~~ ~~Eliquis, an anticoagulant discovered by BMS.~~ ~~Eliquis~~ ~~was approved in the EU~~ for the prevention of ~~venous thromboembolic events~~deep vein thrombosis in ~~adult~~ patients who have undergone ~~elective~~ hip or knee ~~replacement surgeryin May 2011~~and was approved in the EU in November 2012 and in the U.S. and Japan in December 2012 to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation. Pfizer funds between ~~50%~~ ~~and~~ ~~60%~~ of all development costs depending on the study. The companies jointly develop the clinical and marketing strategy and share commercialization expenses and profits equally on a global basis. In certain countries not in the BMS global commercialization network, Pfizer will commercialize ~~Eliquis~~ ~~alone and will pay BMS compensation based on a percentage of net sales. BMS manufactures the product and is the principal in third party customer sales.~~

~~BMS received~~ ~~$754 million~~ ~~in non-refundable upfront, milestone and other licensing payments for~~ ~~Eliquis~~ ~~to date, and could receive up to an additional~~ ~~$130 million~~ ~~for development and regulatory milestones. Amortization of deferred income is included in other income.~~

~~Summarized financial information related to this alliance is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Net sales $ 41
$ —
$ 75
$ 1
Profit sharing – Cost of products sold 19
—
35
—
Cost reimbursements to/(from) Pfizer:
Commercialization expenses^(a)
(4 ) (6 ) (21 ) (14 )
Research and development (6 ) (1 ) 3
10
Amortization – Other (income)/expense (11 ) (10 ) (30 ) (29 )

Non-refundable upfront, milestone and other licensing receipts 70
—
195
—

Dollars in Millions September 30,
2013 December 31,
2012
Deferred income – Non-refundable upfront, milestone and other licensing receipts $ 562
$ 397


~~(a)~~	~~Primarily included in marketing, selling and administrative expenses.~~

~~Reckitt Benckiser Group plc~~

In May 2013, BMS and Reckitt Benckiser Group plc (Reckitt) entered into a three year collaboration regarding several over-the-counter-products sold primarily in Mexico and Brazil. Net sales of these products were approximately ~~$100 million~~ in 2012. Reckitt received the right to sell, distribute and market the products through May 2016 and will have certain responsibilities related to regulatory matters in the covered territory. BMS will receive royalties on net sales of the products and will also exclusively supply certain of the products to Reckitt pursuant to a supply agreement at cost plus a markup. Certain limited assets, including the market authorizations and certain employees directly attributed to the business, were transferred to Reckitt at the start of the collaboration period. BMS retained ownership of all other assets related to the business including the trademarks covering the products.

BMS also granted Reckitt an option to acquire the trademarks, inventory and certain other assets exclusively related to the products at the end of the collaboration at a price determined based on a multiple of sales (plus the cost of any remaining inventory held by BMS at the time). If the option is not exercised, all assets previously transferred to Reckitt will revert back to BMS. The option may be exercised by Reckitt between May and November 2015, in which case closing would be expected to occur in May 2016.

~~Non-refundable upfront collaboration proceeds of~~ ~~$485 million~~ ~~received by BMS were allocated to the rights transferred to Reckitt ($376 million) and the fair value of the option to purchase the remaining assets ($109 million~~) using the best estimate of the selling price for these elements after considering various market factors, including an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and included in other liabilities. Changes in the estimated fair value of the option liability are recognized in other (income)/expense and were not material in the three and ~~nine months ended September 30, 2013. The amount allocated to the rights transferred to Reckitt is recognized as alliance revenue throughout the collaboration period. Alliance revenue, including product supply and royalties, was~~ ~~$43 million~~ ~~and~~ ~~$73 million~~ ~~during the three and~~ ~~nine months ended September 30, 2013, respectively.~~

~~The Medicines Company~~

~~In February 2013, BMS and The Medicines Company entered into a two year collaboration regarding~~ ~~Recothrom~~, a recombinant thrombin for use as a topical hemostat to control non-arterial bleeding during surgical procedures (previously acquired by BMS in connection with its acquisition of ZymoGenetics, Inc in 2010). Net sales of ~~Recothrom~~ ~~were~~ ~~$67 million~~ ~~in 2012. The Medicines Company received the right to sell, distribute and market~~ ~~Recothrom~~ ~~on a global basis for two years, and will have certain responsibilities related to regulatory matters in the covered territory. BMS will exclusively supply~~ ~~Recothrom~~ ~~to The Medicines Company pursuant to a supply agreement at cost plus a markup and will also receive royalties on net sales of~~ ~~Recothrom. Certain employees directly attributed to the business and certain assets were transferred to The Medicines Company at the start of the collaboration period, including the~~ ~~Recothrom~~ ~~Biologics License Application and related regulatory assets. BMS retained all other assets related to~~ ~~Recothrom~~ ~~including the patents, trademarks and inventory.~~

~~BMS also granted The Medicines Company an option to acquire the patents, trademarks, inventory and certain other assets exclusively related to~~ ~~Recothrom~~ at a price determined based on a multiple of sales (plus the cost of any remaining inventory held by BMS at that time). If the option is not exercised, all assets previously transferred to The Medicines Company will revert back to BMS. The option may be exercised by The Medicines Company between February and August 2014, in which case closing would be expected to occur in February 2015.

~~Non-refundable upfront collaboration proceeds of~~ ~~$115 million~~ ~~received by BMS were allocated to the rights transferred to The Medicines Company ($80 million) and the fair value of the option to purchase the remaining assets ($35 million~~) using the best estimate of the selling price for these elements after considering various market factors, including an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and included in other liabilities. Changes in the estimated fair value of the option liability are recognized in other (income)/expense and were not material in the three and ~~nine months ended September 30, 2013. The amount allocated to the rights transferred is recognized as alliance revenue throughout the collaboration period. Alliance revenue, including product supply and royalties, was~~ ~~$21 million~~ ~~and~~ ~~$51 million~~ ~~during the three and~~ ~~nine months ended September 30, 2013, respectively.~~surgery.

Valeant

~~In October 2012,~~As described in the 2013 Form 10-K, BMS ~~and PharmaSwiss SA, a wholly-owned subsidiary of~~has an alliance with Valeant ~~Pharmaceuticals International Inc. (Valeant) entered into a collaboration~~ for certain mature ~~brand products~~brands in Europe. In March 2014, Valeant ~~received the right to sell, distribute, and market the products in Europe through December 31, 2014 and~~notified BMS that it will have certain responsibilities related to regulatory matters in the covered territory. During the collaboration term, BMS will exclusively supply the products to Valeant pursuant to a supply agreement at cost plus a markup.

~~BMS also granted Valeant an~~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. If the option~~sales (expected to be approximately $60 million). The closing is ~~not exercised, all rights transferred to Valeant will revert back to BMS. The option may be exercised by Valeant between January and June 2014, in which case closing would be~~ expected to occur in ~~December 2014.~~

~~Non-refundable upfront collaboration proceeds of~~ ~~$79~~January 2015. In addition, a $16 million ~~received by BMS were allocated~~ charge was included in other expense to ~~the rights transferred to Valeant ($61 million) and~~increase the fair value of the option to ~~purchase~~$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 ~~assets ($18 million) using~~rights in such products for those markets and related inventories at the ~~best estimate~~end of the ~~selling price~~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.

Note 4. 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 ~~these elements after considering various market factors, including an analysis~~further information on the transaction. The diabetes business was treated as a single disposal group held-for-sale as of ~~any estimated excess of~~December 31, 2013. No write-down was required as the fair value of the business ~~over~~less costs to sell exceeded the ~~potential purchase price if the option is exercised.~~related carrying value. The ~~fair value~~following assets and liabilities of the ~~option was determined using Level 3 inputs and included in~~diabetes business held-for-sale were presented separately from BMS’s other ~~liabilities. Changes in the estimated fair value of the option liability are recognized in other (income)/expense and were not material for the three and~~ ~~nine months ended September 30, 2013. The amount allocated to the rights to transfer is recognized as alliance revenue throughout the collaboration period. Alliance revenue, including product supply was~~ ~~$13 million~~ ~~and~~ ~~$43 million~~ ~~during the three and~~ ~~nine months ended September 30, 2013, respectively.~~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 $56 million at March 31, 2014, comprising of inventories not yet transferred to AstraZeneca, pending required regulatory approvals.

Note 45. OTHER (INCOME)/EXPENSE

Other (income)/expense includes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Dollars in Millions	2013			2012			2013			2012			2014			2013
Interest expense	$	46		$	48		$	146		$	131		$	54		$	50
Investment income	(23		)	(27		)	(76		)	(85		)	(23		)	(25		)
Provision for restructuring	6			29			212			71			21			33
Litigation charges/(recoveries)	17			50			(5		)	(100		)
Litigation charges													29			—
Equity in net income of affiliates	(42		)	(40		)	(128		)	(150		)	(36		)	(36		)
Out-licensed intangible asset impairment	—			—			—			38
Gain on sale of product lines, businesses and assets	—			—			(1		)	(3		)	(259		)	(1		)
Other income received from alliance partners, net	(31		)	(96		)	(120		)	(225		)
Pension settlements	37			3			138			3
Other alliance and licensing income													(108		)	(57		)
Pension curtailments, settlements and special termination benefits													64			—
Other	(5		)	22			19			74			50			17
Other (income)/expense	$	5		$	(11	)	$	185		$	(246	)	$	(208	)	$	(19	)

Note 56. RESTRUCTURING

The following is the provision for restructuring:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
Dollars in Millions	2013		2012		2013		2012		2014		2013
Employee termination benefits	$	4	$	21	$	205	$	56	$	20	$	29
Other exit costs	2		8		7		15		1		4
Provision for restructuring	$	6	$	29	$	212	$	71	$	21	$	33

Restructuring charges included termination benefits for workforce reductions of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately ~~150~~180 and ~~185~~245 for the three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively, and approximately~~ ~~1,285~~ ~~and~~ ~~480~~ ~~for the~~ ~~nine months endedSeptember 30,~~ 2013 ~~and~~ ~~2012~~, respectively. ~~Termination benefits in 2013 were primarily related to workforce reductions in several European countries.~~

The following table represents the activity of employee termination and other exit cost liabilities:


Dollars in Millions	2013			2012			2014			2013
Liability at January 1	$	167		$	77		$	102		$	167
Charges	223			77			23			34
Changes in estimates	(11		)	(6		)	(2		)	(1		)
Provision for restructuring	212			71			21			33
Foreign currency translation	2			(1		)	1			—
Amylin acquisition	—			26
Spending	(191		)	(66		)	(27		)	(58		)
Liability at September 30	$	190		$	107
Liability at March 31							$	97		$	142

1413

Note 67. INCOME TAXES


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
Dollars in Millions	2013			2012			2013			2012			2014			2013
Earnings/(Loss) Before Income Taxes	$	818		$	(1,259	)	$	2,022		$	1,827
Provision for/(benefit from) income taxes	126			(546		)	177			250
Earnings Before Income Taxes													$	985		$	674
Provision for income taxes													49			51
Effective tax rate	15.4		%	(43.4		)%	8.8		%	13.7		%	5.0		%	7.6		%

Changes in the effective tax rates between the current and prior period primarily resulted from the following items. The current period includes a $96 million income tax benefit attributed to the sale of the diabetes business. This tax benefit resulted primarily from ~~discrete tax benefits attributable to higher impairment charges in 2012 (including a $1.8 billion impairment charge in~~ the ~~third quarter~~capital loss deduction on the sale of ~~2012); favorable earnings mix between high and low tax jurisdictions attributable to lower~~ Plavix* ~~sales in 2013; and to a lesser extent, an internal transfer of intellectual property in~~ the ~~fourth quarter of 2012 and higher charges for contingent tax matters in~~Amylin shares. The prior period includes the ~~third quarter of 2013. The~~ retroactive reinstatement of the R&D tax credit and look ~~thru~~through exception for the full year 2012 of ($43 million). The applicable tax legislation for these items was ~~recognized~~not extended as of March 31, 2014, therefore the R&D tax credit was not considered in the ~~first quarter of 2013.~~2014 effective tax rate.

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 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 ~~September 30, 2013~~March 31, 2014 could decrease in the range of approximately $~~400~~25 million to $~~450~~75 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 Financial Accounting Standards Board 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.

Note 78. ~~EARNINGS/(LOSS)~~EARNINGS PER SHARE

Three Months Ended September 30, Nine Months Ended September 30,
Amounts in Millions, Except Per Share Data 2013 2012 2013 2012
Net Earnings/(Loss) Attributable to BMS $ 692
$ (711 ) $ 1,837
$ 1,035
Earnings attributable to unvested restricted shares —
—
—
(1 )
Net Earnings/(Loss) Attributable to BMS common shareholders $ 692
$ (711 ) $ 1,837
$ 1,034

Earnings/(Loss) per share – basic $ 0.42
$ (0.43 ) $ 1.12
$ 0.62

Weighted-average common shares outstanding – basic 1,646
1,666
1,643
1,679
Contingently convertible debt common stock equivalents 1
—
1
1
Incremental shares attributable to share-based compensation plans 15
—
15
17
Weighted-average common shares outstanding – diluted 1,662
1,666
1,659
1,697

Earnings/(Loss) per share – diluted $ 0.42
$ (0.43 ) $ 1.11
$ 0.61

Anti-dilutive weighted-average equivalent shares – stock incentive plans —
—
—
2

~~Contingently convertible debt common stock equivalents and incremental share-based compensation plans of~~ ~~17 million~~ ~~were excluded from the per share calculation for the three months ended September 30, 2012 because of the net loss in that period.~~



	Three Months Ended March 31,
Amounts in Millions, Except Per Share Data	2014		2013
Net Earnings Attributable to BMS	$	937	$	609
Earnings attributable to unvested restricted shares	—		—
Net Earnings Attributable to BMS common shareholders	$	937	$	609

Earnings per share – basic	$	0.57	$	0.37

Weighted-average common shares outstanding – basic	1,652		1,638
Contingently convertible debt common stock equivalents	1		1
Incremental shares attributable to share-based compensation plans	13		16
Weighted-average common shares outstanding – diluted	1,666		1,655

Earnings per share – diluted	$	0.56	$	0.37

Anti-dilutive weighted-average equivalent shares – stock incentive plans	—		1

1514

Note 89. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

~~Financial instruments include cash and cash equivalents, marketable securities, accounts receivable and payable, debt instruments and derivatives.~~

Changes in exchange rates and interest rates create exposure to market risk. 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. Derivative financial instruments are not used for trading purposes.

Financial instruments are subject to counterparty credit risk which is considered as part of the overall fair value measurement. Counterparty credit risk is monitored on an ongoing basis and is mitigated by limiting amounts outstanding with any individual counterparty, utilizing conventional derivative financial instruments and only entering into agreements with counterparties that meet high credit quality standards.

The consolidated financial statements would not be materially impacted if any counterparty failed to perform according to the terms of its agreement. Collateral is not required by any party whether derivatives are in an asset or liability position under the terms of the agreements.

~~Fair Value Measurements –~~ ~~The fair values of financial instruments are classified into one of the following categories:~~

Level 1 inputs utilize non-binding quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. These instruments include U.S. treasury securities.

Level 2 inputs utilize observable prices for similar instruments, non-binding quoted prices for identical or similar instruments in markets that are not active, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. These instruments include corporate debt securities, certificates of deposit, money market funds, foreign currency forward contracts, interest rate swap contracts, forward starting interest rate swap contracts, equity funds, fixed income funds and long-term debt. Additionally, certain corporate debt securities utilize a third-party matrix pricing model that uses significant inputs corroborated by market data for substantially the full term of the assets. Equity and fixed income funds are primarily invested in publicly traded securities and are valued at the respective net asset value of the underlying investments. There were no significant unfunded commitments or restrictions on redemptions related to equity and fixed income funds as of ~~September 30, 2013~~. Level 2 derivative instruments are valued using London Interbank Offered Rate yield curves, less credit valuation adjustments, and observable forward foreign exchange rates at the reporting date. Valuations of derivative contracts may fluctuate considerably from period-to-period due to volatility in underlying foreign currencies and underlying interest rates, which are driven by market conditions and the duration of the contract. Credit 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.

Level 3 unobservable inputs are used when little or no market data is available. Valuation models for the Auction Rate Security (ARS) and Floating Rate Security (FRS) portfolio 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 the ARS was determined using an internally developed valuation which was based in part on indicative bids received on the underlying assets of the security and other evidence of fair value. The ARS is a private placement security rated ‘BBB-’ by Standard and Poor’s as of ~~September 30, 2013~~ and represents interests in insurance securitizations. Due to the current lack of an active market for FRS and the general lack of transparency into their underlying assets, other qualitative analysis is relied upon to value FRS including discussions with brokers and fund managers, default risk underlying the security and overall capital markets liquidity. The fair value of written options to sell the assets of certain businesses in connection with collaboration agreements, (see “—Note 3. Alliances and Collaborations” for further discussion) is based on an option pricing methodology that considers revenue and profitability projections, volatility, discount rates, and potential exercise price assumptions.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:


	September 30, 2013											December 31, 2012											March 31, 2014											December 31, 2013
Dollars in Millions	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Cash and cash equivalents - Money market and other securities	$	—	$	1,459		$	—		$	1,459		$	—	$	1,288		$	—		$	1,288		$	—	$	4,761		$	—		$	4,761		$	—	$	3,201		$	—		$	3,201
Marketable securities
Certificates of deposit	—		99			—			99			—		34			—			34			—		817			—			817			—		122			—			122
Commercial paper																							—		50			—			50			—		—			—			—
Corporate debt securities	—		4,350			—			4,350			—		4,377			—			4,377			—		4,391			—			4,391			—		4,432			—			4,432
U.S. Treasury securities	—		—			—			—			150		—			—			150
Equity funds	—		68			—			68			—		57			—			57			—		75			—			75			—		74			—			74
Fixed income funds	—		46			—			46			—		47			—			47			—		47			—			47			—		46			—			46
ARS and FRS	—		—			11			11			—		—			31			31
ARS																							—		—			12			12			—		—			12			12
Derivative assets:
Interest rate swap contracts	—		88			—			88			—		146			—			146			—		86			—			86			—		64			—			64
Foreign currency forward contracts	—		48			—			48			—		59			—			59			—		37			—			37			—		50			—			50
Forward starting interest rate swap contracts	—		25			—			25			—		—			—			—
Derivative liabilities:
Interest rate swap contracts	—		(10		)	—			(10		)	—		—			—			—			—		(12		)	—			(12		)	—		(27		)	—			(27		)
Foreign currency forward contracts	—		(33		)	—			(33		)	—		(30		)	—			(30		)	—		(27		)	—			(27		)	—		(35		)	—			(35		)
Written option liabilities*	—		—			(162		)	(162		)	—		—			(18		)	(18		)
Written option liabilities^(a)																							—		—			(178		)	(178		)	—		—			(162		)	(162		)
Contingent consideration liability^(b)																							—		—			(8		)	(8		)	—		—			(8		)	(8		)


*(a)	~~Written option~~Includes $69 million and $18 million in accrued expenses and $109 million and $144 million in other liabilities ~~are~~as of March 31, 2014 and December 31, 2013, respectively.


(b)	The contingent consideration liability is included in other liabilities. ~~See "Note 3. Alliances and Collaborations" for further information.~~

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).

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

2013 2012
Dollars in Millions Written option liabilities ARS and FRS Written option liabilities ARS and FRS
Fair value at January 1 $ (18 ) $ 31
$ —
$ 110
Additions from new collaborations (144 ) —
—
—
Sales —
(20 ) —
(81 )
Fair value at September 30 $ (162 ) $ 11
$ —
$ 29



	2014								2013
Dollars in Millions	ARS		Contingent consideration liability			Written option liabilities			ARS and FRS		Contingent consideration liability			Written option liabilities
Fair value at January 1	$	12	$	(8	)	$	(162	)	$	31	$	(8	)	$	(18	)
Additions from new alliances	—		—			—			—		—			(35		)
Changes in fair value	—		—			(16		)	—		—			—
Fair value at March 31	$	12	$	(8	)	$	(178	)	$	31	$	(8	)	$	(53	)

~~Marketable~~

Available-for-sale Securities

The following table summarizes ~~marketable~~available-for-sale securities:

Dollars in Millions Amortized
Cost Gross
Unrealized
Gain in
Accumulated
OCI Gross
Unrealized
Loss in
Accumulated
OCI Gain/(Loss)
in
Income Fair Value

September 30, 2013
Certificates of deposit $ 99
$ —
$ —
$ —
$ 99
Corporate debt securities 4,315
45
(10 ) —
4,350
Equity funds 52
—
—
16
68
Fixed income funds 47
—
—
(1 ) 46
ARS 9
2
—
—
11
Total Marketable Securities $ 4,522
$ 47
$ (10 ) $ 15
$ 4,574

December 31, 2012
Certificates of deposit $ 34
$ —
$ —
$ —
$ 34
Corporate debt securities 4,305
72
—
—
4,377
U.S. Treasury securities 150
—
—
—
150
Equity funds 52
—
—
5
57
Fixed income funds 47
—
—
—
47
ARS and FRS 29
3
(1 ) —
31
Total Marketable Securities $ 4,617
$ 75
$ (1 ) $ 5
$ 4,696

~~The following table summarizes the classification of marketable securities in the consolidated balance sheet:~~

Dollars in Millions September 30,
2013 December 31,
2012
Current Marketable Securities $ 951
$ 1,173
Non-current Marketable Securities 3,623
3,523
Total Marketable Securities $ 4,574
$ 4,696



Dollars in Millions	Amortized Cost		Gross Unrealized Gain in Accumulated OCI		Gross Unrealized Loss in Accumulated OCI			Fair Value
Dollars in Millions	Amortized Cost		Gross Unrealized Gain in Accumulated OCI		Gross Unrealized Loss in Accumulated OCI			Fair Value
March 31, 2014
Certificates of deposit	$	817	$	—	$	—		$	817
Commercial paper	50		—		—			50
Corporate debt securities	4,353		44		(6		)	4,391
ARS	9		3		—			12
Total	$	5,229	$	47	$	(6	)	$	5,270

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

AtAvailable-for-sale securities included in current marketable securities were $1,712 million as of ~~September 30, 2013~~, ~~$3,612 million~~March 31, 2014 and $819 million as of ~~non-current available for sale~~December 31, 2013. Non-current available-for-sale corporate debt securities ~~mature~~maturing within five ~~years.~~years were $3,531 million as of March 31, 2014. Auction rate securities maturing beyond 10 years were $12 million as of ~~$11 million~~March 31, 2014 ~~mature beyond 10 years.~~.

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 $75 million and $47 million, respectively, as of March 31, 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 ~~are recognized~~was $2 million in ~~other (income)/expense~~2014 and ~~partially offset the changes~~$5 million in ~~fair value of certain employee retirement benefits.~~2013.

Qualifying Hedges

The following table summarizes the fair value of outstanding derivatives:


		September 30, 2013					December 31, 2012						March 31, 2014					December 31, 2013
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 swap contracts	Other assets	$	873	$	88		$	573	$	146		Other assets	$	973	$	86		$	673	$	64
Interest rate swap contracts	Other liabilities	1,150		(10		)	—		—			Other liabilities	1,350		(12		)	1,950		(27		)
Foreign currency forward contracts	Prepaid expenses and other	335		41			—		—			Prepaid expenses and other	227		32			301		44
Foreign currency forward contracts	Other assets	88		7			735		59			Other assets	136		5			100		6
Foreign currency forward contracts	Accrued expenses	725		(31		)	916		(30		)	Accrued expenses	625		(24		)	704		(31		)
Foreign currency forward contracts	Other liabilities	130		(2		)	—		—			Other liabilities	259		(3		)	263		(4		)
Forward starting interest rate swap contracts	Prepaid expenses and other	305		25			—		—

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 gains on foreign currency forward contracts are expected to be reclassified to cost of products sold within the next two years, including $128 million of pre-tax gains to be reclassified within the next 12 months. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the Euro ($~~596~~726 million) and Japanese yen ($~~342~~255 million) at ~~September 30, 2013~~March 31, 2014.

~~BMS entered into an aggregate~~ ~~$305 million~~ notional amount of forward starting interest rate swap contracts maturing in December 2013 with several financial institutions to hedge the variability of probable forecasted interest expense. The Company designated these contracts as cash flow hedges, with effective changes in fair value recorded net of tax in accumulated other comprehensive loss.

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 ~~three and~~ ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013.

Net Investment Hedges — Non-U.S. dollar borrowings of €541 million ($~~732~~749 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 ~~2013~~2014 to convert $~~650~~200 million notional amount ~~of 0.875% Notes Due 2017,~~ ~~$500 million~~ ~~notional amount of 5.45% Notes Due 2018 and~~ ~~$300 million~~ ~~notional amount of 2.00% Notes Due 2022~~ from fixed rate ~~debt~~ to variable rate debt.

Long-term debt and the current portion of long-term debt includes:


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Principal Value	$	6,082		$	6,631		$	6,980		$	7,593
Adjustments to Principal Value:
Fair value of interest rate swap contracts	78			146			74			37
Unamortized basis adjustment from interest rate swap contract terminations	454			509			375			442
Unamortized bond discounts	(52		)	(54		)	(62		)	(64		)
Total	$	6,562		$	7,232		$	7,367		$	8,008

Current portion of long-term debt(a)	$	30		$	664		$	—		$	27
Long-term debt	6,532			6,568			7,367			7,981


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

The fair value of debt was $~~7,109~~7,909 million at ~~September 30, 2013~~March 31, 2014 and $~~8,285~~8,487 million at December 31, ~~2012~~2013 and was valued using Level 2 inputs. Interest payments were $~~158~~37 million and $~~125~~49 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively, net of amounts related to interest rate swap contracts.

~~The~~ ~~$597 million~~ ~~principal amount of our 5.25% Notes Due 2013 matured and was repaid in the third quarter of 2013. Net proceeds of~~ ~~$1,950 million~~ ~~were received from the issuance of senior unsecured notes in the third quarter of 2012, net of a~~ ~~$36 million~~ ~~discount and~~ ~~$14 million~~ ~~of deferred loan issuance costs. Substantially all of the~~ ~~$2.0 billion~~ debt obligations assumed in the acquisition of Amylin were repaid in the third quarter of 2012, including a promissory note with Lilly with respect to a revenue sharing obligation and Amylin senior notes due 2014.

~~The average amount of commercial paper outstanding was~~ ~~$297 million~~ ~~at a weighted-average interest rate of~~ ~~0.12%~~ ~~during the~~ ~~nine months ended September 30, 2013. The maximum month-end amount of commercial paper outstanding during the~~ ~~nine months ended September 30, 2013~~ ~~was~~ ~~$820 million. Commercial paper borrowings of~~ ~~$470 million~~ ~~were outstanding at~~ ~~September 30, 2013~~. No commercial paper borrowings were outstanding atas of ~~December~~March 31, ~~2012~~2014.

~~There~~In February 2014, the outstanding 5.45% Notes due 2018 were ~~no debt repurchases in 2013. Debt repurchase activity for 2012, including repayment of the Amylin debt obligations, was as follows:~~redeemed.


	Nine Months Ended		Three Months Ended
Dollars in Millions	September 30, 2012		March 31, 2014
Principal amount	$	2,052	$	582
Carrying value	2,081		633
Repurchase price	2,108
Notional amount of interest rate swaps terminated	6
Swap termination proceeds	2
Debt redemption price			676
Notional amount of interest rate swap contracts terminated			500
Interest rate swap contract termination payments			(4		)
Total loss	27		45

Note 910. RECEIVABLES

Receivables include:


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Trade receivables	$	1,931		$	1,812		$	1,822		$	1,779
Less allowances	(92		)	(104		)	(80		)	(89		)
Net trade receivables	1,839			1,708			1,742			1,690
Alliance receivables	1,244			857
Alliance partners receivables							1,095			1,122
Prepaid and refundable income taxes	310			319			283			262
Other	280			199			196			286
Receivables	$	3,673		$	3,083		$	3,316		$	3,360

Non-U.S. receivables sold on a nonrecourse basis were $~~728~~215 million and $~~734~~224 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively. In the aggregate, receivables due from our three largest pharmaceutical wholesalers in the U.S. represented ~~35%~~36% and ~~37%~~40% of total trade receivables at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.

Note 1011. INVENTORIES

Inventories include:


Dollars in Millions	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Finished goods	$	531	$	572	$	502	$	491
Work in process	810		814		886		757
Raw and packaging materials	299		271		267		250
Inventories	$	1,640	$	1,657	$	1,655	$	1,498

Inventories expected to remain on-hand beyond one year are included in other assets and were $~~455~~282 million at ~~September 30, 2013~~March 31, 2014 and $~~424~~351 million at December 31, ~~2012~~2013.

Note 1112. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment includes:


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Land	$	112		$	114		$	109		$	109
Buildings	5,083			4,963			4,784			4,748
Machinery, equipment and fixtures	3,932			3,695			3,715			3,699
Construction in progress	387			611			248			287
Gross property, plant and equipment	9,514			9,383			8,856			8,843
Less accumulated depreciation	(4,278		)	(4,050		)	(4,371		)	(4,264		)
Property, plant and equipment	$	5,236		$	5,333		$	4,485		$	4,579

Property, plant and equipment related to the Mount Vernon, Indiana manufacturing facility was approximately $300 million as of March 31, 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 are 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 $~~333~~138 million and $~~274~~108 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively.

~~Note~~ 12~~. OTHER INTANGIBLE ASSETS~~

~~Other intangible assets include:~~

Dollars in Millions September 30,
2013 December 31,
2012
Licenses $ 1,155
$ 1,160
Developed technology rights 8,827
8,827
Capitalized software 1,215
1,200
In-process research and development (IPRD) 668
668
Gross other intangible assets 11,865
11,855
Less accumulated amortization (3,689 ) (3,077 )
Total other intangible assets $ 8,176
$ 8,778

During the third quarter of 2012, the Company discontinued development of BMS-986094 (formerly INX-189) in the interest of patient safety and recognized a non-cash, pre-tax impairment charge of $1.8 billion related to the IPRD intangible asset.

~~Amortization expense was~~ ~~$647 million~~ ~~and~~ ~~$394 million~~ ~~for the~~ ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012, respectively.~~

Note 13. DEFERRED INCOME

Deferred income includes:


Dollars in Millions	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Upfront, milestone and other licensing payments	$	4,734	$	4,346
Upfront, milestone and other licensing receipts					$	908	$	970
Atripla* deferred revenue	373		339		499		468
Gain on sale-leaseback transactions	78		99		64		71
Diabetes business divestiture (Undelivered elements)					635		—
Other	16		65		19		16
Total deferred income	$	5,201	$	4,849	$	2,125	$	1,525

Current portion	$	1,003	$	825	$	1,061	$	756
Non-current portion	4,198		4,024		1,064		769

For further information pertaining to upfront, milestone and other licensing payments ~~see “—Note~~is described in “Note 3. Alliances” in the Company’s 32013~~. Alliances and Collaborations.”~~ Form 10-K.

Amortization of deferred income was $~~398~~80 million and $~~186~~111 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively.

Note 14. EQUITY


	Common Stock			Capital in Excess of Par Value of Stock			Retained Earnings			Treasury Stock					Noncontrolling Interest			Common Stock			Capital in Excess of Par Value of Stock			Retained Earnings			Treasury Stock					Noncontrolling Interest
Dollars and Shares in Millions	Shares	Par Value		Capital in Excess of Par Value of Stock			Retained Earnings			Shares		Cost			Noncontrolling Interest			Shares	Par Value		Capital in Excess of Par Value of Stock			Retained Earnings			Shares		Cost			Noncontrolling Interest
Balance at January 1, 2012	2,205	$	220	$	3,114		$	33,069		515		$	(17,402	)	$	(89	)
Net earnings	—	—		—			1,035			—		—			854
Cash dividends declared	—	—		—			(1,723		)	—		—			—
Stock repurchase program	—	—		—			—			58		(1,914		)	—
Employee stock compensation plans	3	1		(397		)	—			(15	)	841			—
Distributions	—	—		—			—			—		—			(765		)
Balance at September 30, 2012	2,208	$	221	$	2,717		$	32,381		558		$	(18,475	)	$	—

Balance at January 1, 2013	2,208	$	221	$	2,694		$	32,733		570		$	(18,823	)	$	15		2,208	$	221	$	2,694		$	32,733		570		$	(18,823	)	$	15
Net earnings	—	—		—			1,837			—		—			19			—	—		—			609			—		—			26
Cash dividends declared	—	—		—			(1,744		)	—		—			—			—	—		—			(581		)	—		—			—
Stock repurchase program	—	—		—			—			11		(413		)	—			—	—		—			—			8		(298		)	—
Employee stock compensation plans	—	—		(728		)	—			(20	)	1,261			—			—	—		(568		)	—			(13	)	803			—
Distributions	—	—		—			—			—		—			(46		)	—	—		—			—			—		—			(1		)
Balance at September 30, 2013	2,208	$	221	$	1,966		$	32,826		561		$	(17,975	)	$	(12	)
Balance at March 31, 2013																		2,208	$	221	$	2,126		$	32,761		565		$	(18,318	)	$	40

Balance at January 1, 2014																		2,208	$	221	$	1,922		$	32,952		559		$	(17,800	)	$	82
Net earnings																		—	—		—			937			—		—			(1		)
Cash dividends declared																		—	—		—			(598		)	—		—			—
Employee stock compensation plans																		—	—		(457		)	—			(7	)	544			—
Debt conversion																		—	—		(16		)	—			(1	)	35			—
Distributions																		—	—		—			—			—		—			(23		)
Balance at March 31, 2014																		2,208	$	221	$	1,449		$	33,291		551		$	(17,221	)	$	58

~~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. In June 2012, the Board of Directors increased its authorization for the repurchase of stock by an additional~~ ~~$3.0 billion. The repurchase program does not have an expiration date, although we do not anticipate any future repurchases at this time.~~

~~Noncontrolling interest in 2012 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 a tax benefit of ~~$2 million~~ ~~for the three months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012~~ ~~and net of taxes of~~ ~~$11 million~~ ~~and~~ ~~$318 million~~ ~~for the~~ ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012~~, respectively, in the consolidated statements of earnings with a corresponding increase or decrease 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. The above activity includes the pre-tax income and distributions related to these partnerships.

The components of other comprehensive income/(loss) were as follows:


	2013									2012									2014									2013
	Pretax			Tax			After tax			Pretax			Tax			After tax			Pretax			Tax			After tax			Pretax			Tax			After tax
Three Months Ended September 30,
Three months ended March 31,
Derivatives qualifying as cash flow hedges:^(a)
Unrealized gains	$	(39	)	$	10		$	(29	)	$	(35	)	$	9		$	(26	)	$	(5	)	$	2		$	(3	)	$	69		$	(23	)	$	46
Reclassified to net earnings	(3		)	1			(2		)	(22		)	9			(13		)	(2		)	2			—			(10		)	5			(5		)
Derivatives qualifying as cash flow hedges	(42		)	11			(31		)	(57		)	18			(39		)	(7		)	4			(3		)	59			(18		)	41
Pension and postretirement benefits:
Actuarial gains	269			(81		)	188			—			—			—
Actuarial losses																			(250		)	90			(160		)	—			—			—
Amortization^(b)	29			(11		)	18			36			(12		)	24			26			(13		)	13			38			(11		)	27
Settlements^(c)	37			(11		)	26			—			—			—
Curtailments and settlements^(c)																			54			(21		)	33			—			—			—
Pension and postretirement benefits	335			(103		)	232			36			(12		)	24			(170		)	56			(114		)	38			(11		)	27
Available for sale securities:
Unrealized gains/(losses)	19			(5		)	14			29			9			38
Realized (gains)/losses	—			—			—			—			—			—
Available for sale securities^(d)	19			(5		)	14			29			9			38			4			(2		)	2			3			1			4
Foreign currency translation	17			—			17			21			—			21			(11		)	—			(11		)	(1		)	—			(1		)
Foreign currency translation on net investment hedges	(24		)	—			(24		)	(21		)	—			(21		)
	$	305		$	(97	)	$	208		$	8		$	15		$	23		$	(184	)	$	58		$	(126	)	$	99		$	(28	)	$	71

Nine Months Ended September 30,
Derivatives qualifying as cash flow hedges:^(a)
Unrealized gains	$	60		$	(23	)	$	37		$	9		$	(8	)	$	1
Reclassified to net earnings	(47		)	17			(30		)	(43		)	15			(28		)
Derivatives qualifying as cash flow hedges	13			(6		)	7			(34		)	7			(27		)
Pension and postretirement benefits:
Actuarial gains	1,204			(411		)	793			19			(5		)	14
Amortization^(b)	105			(34		)	71			105			(35		)	70
Settlements^(c)	138			(46		)	92			—			—			—
Pension and postretirement benefits	1,447			(491		)	956			124			(40		)	84
Available for sale securities:
Unrealized gains/(losses)	(32		)	5			(27		)	37			8			45
Realized gains	(8		)	3			(5		)	(10		)	2			(8		)
Available for sale securities^(d)	(40		)	8			(32		)	27			10			37
Foreign currency translation	(22		)	—			(22		)	(1		)	—			(1		)
Foreign currency translation on net investment hedges	(19		)	—			(19		)	8			—			8
	$	1,379		$	(489	)	$	890		$	124		$	(23	)	$	101


(a)	Reclassifications to net earnings of derivatives qualifying as effective hedges are recognized in cost of products sold.


(b)	Actuarial losses and prior service cost are amortized into cost of products sold, research and development, and marketing, selling and administrative expenses as appropriate.


(c)	Pension curtailments and settlements are recognized in other (income)/expense.


(d)	~~Released (gains)/losses on available for sale securities are recognized in other (income)/expense.~~Includes unrealized gains/(losses) only.

The accumulated balances related to each component of other comprehensive loss, net of taxes, were as follows:


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Derivatives qualifying as cash flow hedges	$	16		$	9		$	13		$	16
Pension and other postretirement benefits	(2,067		)	(3,023		)	(1,971		)	(1,857		)
Available for sale securities	33			65			30			28
Foreign currency translation	(294		)	(253		)	(339		)	(328		)
Accumulated other comprehensive loss	$	(2,312	)	$	(3,202	)	$	(2,267	)	$	(2,141	)

2219

Note 15. PENSION AND POSTRETIREMENT BENEFIT PLANS

The net periodic benefit ~~cost~~cost/(credit) of defined benefit pension and postretirement benefit plans includes:


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
Dollars in Millions	2013			2012			2013			2012			2013			2012			2013			2012			2014			2013			2014			2013
Service cost – benefits earned during the year	$	10		$	7		$	1		$	1		$	29		$	24		$	4		$	5		$	10		$	10		$	1		$	1
Interest cost on projected benefit obligation	76			79			3			5			225			237			10			16			78			74			3			3
Expected return on plan assets	(128		)	(125		)	(7		)	(6		)	(391		)	(377		)	(20		)	(19		)	(131		)	(132		)	(7		)	(6		)
Amortization of prior service cost/(benefit)	(1		)	(1		)	—			—			(3		)	(2		)	(1		)	(1		)
Amortization of prior service credits																									(1		)	(1		)	—			—
Amortization of net actuarial loss	30			32			—			2			105			97			—			8			27			38			—			—
Settlements	37			3			—			—			138			3			—			—
Net periodic (benefit)/cost	$	24		$	(5	)	$	(3	)	$	2		$	103		$	(18	)	$	(7	)	$	9
Curtailments and settlements																									54			—			(3		)	—
Special termination benefits																									13			—			—			—
Net periodic cost/(credit)																									$	50		$	(11	)	$	(6	)	$	(2	)

Pension settlement charges were recognized in ~~2013~~the first quarter of 2014 after determining the annual lump sum payments will likely exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan. The ~~charge~~charges included the acceleration of a portion of unrecognized actuarial losses. The applicable pension benefit obligation and pension plan assets were remeasured as of ~~June 30, 2013 and September 30, 2013~~March 31, 2014 resulting in a decrease ~~in pension liabilities~~to other assets and a corresponding ~~credit to~~increase in accumulated other comprehensive ~~income~~loss of ~~$1,204 million~~ (~~$793 million~~ ~~net of taxes).~~$250 million. The changes resulted from a ~~higher~~lower weighted average discount rate assumed in remeasuring the pension benefit obligations (~~4.6%~~(4.2% at ~~September 30, 2013~~March 31, 2014 and ~~3.7%~~4.6% at December 31, ~~2012) and to a lesser extent~~2013) partially offset by higher actual return on plan assets than expected.

Contributions to the ~~U.S.~~ pension plans are expected to approximate $~~185~~120 million during ~~2013~~2014, of which $~~176~~61 million ~~was contributed~~were incurred in the ~~nine~~three months ended ~~September 30, 2013. Contributions to the international plans are expected to range from~~ ~~$60 million~~ to ~~$70 million~~ in ~~2013, of which~~ ~~$56 million~~ ~~was contributed in the~~ ~~nine months ended September 30, 2013~~March 31, 2014.

The expense attributed to defined contribution plans in the U.S. was $50 million and $47 million for the three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively and~~ ~~$147 million~~ ~~and~~ ~~$143 million~~ ~~for the~~ ~~nine months ended September 30,~~ 2013 ~~and~~ ~~2012~~, respectively.

Note 16. EMPLOYEE STOCK BENEFIT PLANS

Stock-based compensation expense was as follows:

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Stock options $ —
$ (1 ) $ 1
$ 4
Restricted stock 19
9
56
46
Market share units 5
4
21
17
Performance share units 21
14
62
41
Amylin stock options and restricted stock units —
94
—
94
Total stock-based compensation expense $ 45
$ 120
$ 140
$ 202

Income tax benefit $ 13
$ 38
$ 47
$ 66

The acceleration of unvested stock options and restricted stock units in connection with the acquisition of Amylin resulted in stock-based compensation expense for three and nine months ended September 30, 2012.



	Three Months Ended March 31,
Dollars in Millions	2014		2013
Restricted stock	$	19	$	18
Market share units	9		8
Performance share units	21		23
Total stock-based compensation expense	$	49	$	49

Income tax benefit	$	16	$	16

In the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014, ~~2.4~~1.7 million restricted stock units, ~~1.0~~0.9 million market share units and ~~2.5~~2.3 million performance share units were granted. The weighted-average grant date fair value was $~~37.76~~52.58 for restricted stock units, ~~and~~ $~~37.40~~55.44 for market share units and $55.17 for performance share units granted during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014.

Substantially all restricted stock units vest ratably over a four year period. Market share units vest ratably over a four year period and the number of shares ultimately issued is based on share price performance. The fair value of market share units considers the probability of satisfying market conditions. The number of shares issued when performance share units vest is determined based on the achievement of annual performance goals. Performance share units ~~do not~~ vest ~~until~~at the end of the three year ~~performance~~ period.

Unrecognized compensation cost related to nonvested awards of $~~255~~414 million is expected to be recognized over a weighted-average period of ~~2.5~~2.8 years.

2320

Note 17. LEGAL PROCEEDINGS AND CONTINGENCIES

The Company and certain of its subsidiaries are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. 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 patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. Legal proceedings that are material or that the Company believes could become material 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. Unless otherwise noted, the Company is unable to assess the outcome of the respective litigation nor is it able to provide an estimated range of potential loss. Furthermore, failure to enforce our patent rights would likely result in substantial decreases in the respective product ~~sales~~revenues from generic competition.

INTELLECTUAL PROPERTY

Atripla*

In April 2009, Teva Pharmaceutical Industries Ltd. (Teva) filed an abbreviated New Drug Application (aNDA) to manufacture and market a generic version of Atripla*. Atripla* is a single tablet three-drug regimen combining the Company’s Sustiva (efavirenz) and Gilead’s Truvada*(emtricitabine and tenofovir disproxil fumarate). As of this time, the Company’s U.S. patent rights covering Sustiva’s method of use has not been challenged. The composition of matter ~~and method of use have not been challenged.~~expired in November 2013. Teva sent Gilead a Paragraph IV certification letter challenging two of the fifteen Orange Book-listed patents for Atripla*. In May 2009, Gilead filed a patent infringement action against Teva in the U.S. District Court for the Southern District of New York (SDNY). In January 2010, the Company received a notice that Teva ~~has~~ amended its aNDA and iswas challenging eight additional Orange Book-listed patents for Atripla*. In March 2010, the Company and Merck, Sharp & Dohme Corp. (Merck) 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 August 2013, the Company, Merck and Teva reached a settlement relating to the two efavirenz polymorph patents and the case has been dismissed. In March 2010, Gilead filed two patent infringement actions against Teva in the SDNY relating to six Orange Book-listed patents for Atripla* and in April 2013, Gilead and Teva reached an agreement ~~in principle~~ to settle the lawsuit on the patents covering tenofovir disoproxil ~~fumarate contained~~fumarate. In February 2014, Gilead and Teva reached a settlement in principle to settle the ongoing litigation concerning the emtricitabine patents covering Atripla* and Truvada* ~~products.~~.

Baraclude

In August 2010, Teva filed an aNDA to manufacture and market generic versions of Baraclude. The Company received a Paragraph IV certification letter from Teva challenging the one Orange Book-listed patent for Baraclude, U.S. Patent No. 5,206,244 (the ‘244 Patent), covering the entecavir molecule. In September 2010, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware (Delaware District Court) against Teva for infringement. In February 2013, the Delaware District Court ruled against the Company and invalidated the ‘244 Patent. The Company has appealed the Delaware District Court’s ~~decision.~~decision and a decision is expected in 2014. In October 2013, Teva's aNDA for its generic version of entecavir was tentatively approved by the FDA. The Company is prepared to take legal action in the event that Teva chooses to launch its generic product prior to the resolution of the Company's appeal. There could be a rapid and significant negative impact on U.S. net product sales of Baraclude ~~beginning~~ in ~~late-2013.~~2014. U.S. net product sales of Baraclude were $~~208~~289 million in ~~the~~ 2013.

~~nine months ended September 30, 2013~~Baraclude — South Korea

In 2013, Daewoong Pharmaceutical Co. Ltd. and Hanmi Pharmaceuticals Co., Ltd. initiated separate invalidity actions in the Korean Intellectual Property Office (KIPO) against Korean Patent No. 160,523 (the ‘523 patent). The ‘523 patent expires in October 2015 and is the Korean equivalent of the ‘244 Patent, the U.S. composition of matter patent. The invalidity actions have been consolidated and are pending. We may receive a decision in 2014. There is a risk that a decision invalidating the patent will encourage generic companies to launch generic versions of ~~$241 million~~Baraclude prior to October 2015. Net product sales of Baraclude in ~~the full year 2012.~~South Korea were $158 million in 2013.

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 Inc. (Apotex), has since changed its name to Apotex. In August 2007, Apotex filed an application in the Federal Court of Australia (the Federal Court) 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 Federal 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 Court 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 sought by Apotex. The Australian government has intervened in this matter and is also seeking damages for alleged losses experienced during the period when the injunction was in place. It is not possible at this time to predict the outcome of the Australian government’s claim or its impact on the Company.

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. On June 8, 2009, Sanofi filed its defense to the impeachment action and filed a suit against Apotex for infringement of the ‘777 Patent. The trial was completed in June 2011 and in December 2011, the Federal Court of Canada issued a decision that the ‘777 Patent is invalid. In July 2013, the Federal Court of Appeal reversed the Federal Court of Canada's decision and upheld the validity of the '777 Patent. The case was remanded to the Federal Court of Canada to consider the damages owed to the Company by Apotex for the infringement of the ‘777 patent. In September 2013, Apotex sought leave to appeal the decision of the Federal Court of Appeal to the Supreme Court of ~~Canada.~~

~~Sprycel~~

~~In September 2010, Apotex filed an aNDA~~Canada and the Supreme Court of Canada is scheduled to ~~manufacture and market generic versions of~~ ~~Sprycel. The Company received a Paragraph IV certification letter from Apotex challenging~~hear the ~~four~~ ~~Orange Book listed patents for~~ ~~Sprycel, including the composition of matter patent. In November 2010, the Company filed a patent infringement lawsuit in the NJ District Court against Apotex for infringement of the~~ ~~four~~ ~~Orange Book listed patents covering~~ ~~Sprycel~~, which triggered an automatic 30-month stay of approval of Apotex’s aNDA. In October 2011, the Company received a Paragraph IV notice letter from Apotex informing the Company that it is seeking approval of generic versions of the 80 mg and 140 mg dosage strengths of ~~Sprycel~~ and challenging the same four Orange Book listed patents. In November 2011, BMS filed a patent infringement suit against Apotex on the 80 mg and 140 mg dosage strengths in the NJ District Court and this case ~~was consolidated with the suit filed~~ in November ~~2010. The parties reached a settlement in September 2013 and the case was dismissed, concluding the matter.~~

~~Sustiva—EU~~

In January 2012, Teva obtained a European marketing authorization for Efavirenz Teva 600 mg tablets. In February 2012, the Company and Merck filed lawsuits and requests for injunctions against Teva in the Netherlands, Germany and the U.K. for infringement of Merck’s European Patent No. 0582455 and Supplementary Protection Certificates expiring in November 2013. As of September 2013, requests for injunctions have been granted in the U.K. and denied in the Netherlands and Germany. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.2014.

GENERAL COMMERCIAL LITIGATION

Remaining Apotex Matters Related to Plavix*

As previously disclosed, in November 2008, Apotex filed a lawsuit in New Jersey Superior Court against the Company and Sanofi, seeking payment of $60 million, plus interest calculated at the rate of 1% per month, ~~until paid,~~ related to the break-up of a March 2006 proposed settlement agreement relating to the-then pending Plavix* patent litigation against Apotex. In April 2011, the New Jersey Superior Court granted the Company’s cross-motion for summary judgment motion and denied Apotex’s motion for summary judgment. Apotex appealed these decisions and the New Jersey Appellate Division reversed the grant of summary judgments remanding the case back to the Superior Court for additional proceedings. The parties have ~~now~~ agreed to resolve this matter through binding ~~arbitration.~~arbitration, which took place in March 2014. A decision is expected in the second quarter of 2014. The resolution of this matter is not expected to have a material impact on the Company.

In January 2011, Apotex filed a lawsuit in Florida State Court, Broward County, alleging breach of contract relating to the May 2006 proposed settlement agreement with Apotex relating to the then pending Plavix* patent litigation. A trial was held in March 2013 and a jury verdict was delivered in favor of the Company. Apotex has appealed this decision.

PRICING, SALES AND PROMOTIONAL PRACTICES LITIGATION AND INVESTIGATIONS

Abilify* Federal Subpoena

In January 2012, the Company received a subpoena from the United States Attorney’s Office for the SDNY requesting information related to, among other things, the sales and marketing of Abilify*. It is not possible at this time to assess the outcome of this matter or its potential impact on the Company.

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 respective states’ consumer protection statutes. The Company has entered

into a tolling agreement with the states. It is not possible at this time to reasonably assess the outcome of this investigation or its potential impact on the Company.

Abilify* Co-Pay Assistance Litigation

In March 2012, the Company and its partner Otsuka were named as co-defendants in a putative class action lawsuit filed by union health and welfare funds in the SDNY. Plaintiffs ~~are challenging~~challenged the legality of the Abilify* co-pay assistance program under ~~the Federal Antitrust and the Racketeer Influenced and Corrupt Organizations (RICO) laws, and seeking damages.~~various theories. The Company and Otsuka filed ~~a motion~~motions to dismiss the complaint. In ~~June 2013, the Court granted the Company's motion, dismissing all claims but allowing plaintiffs to re-plead the RICO claim. In August 2013,~~April 2014, the plaintiffs ~~moved for leave to file an amended complaint, and~~voluntarily dismissed the case with prejudice against the Company, ~~has opposed~~which concludes the ~~motion on various grounds. It is not possible at this time to reasonably assess the outcome of this litigation or its potential impact on the Company.~~matter.

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 two state attorneys general suits pending in state courts in Pennsylvania and Wisconsin. Beginning in August 2010, the Company was the defendant in a trial in the Commonwealth Court of Pennsylvania (Commonwealth Court), brought by the Commonwealth of Pennsylvania. In September 2010, the jury issued a verdict for the Company, finding that the Company was not liable for fraudulent or negligent misrepresentation; however, the Commonwealth Court judge issued a decision on a Pennsylvania consumer protection claim that did not go to the jury, finding the Company liable for $28 million and enjoining the Company from contributing to the provision of inflated AWPs. The Company appealed the decision to the Pennsylvania Supreme Court and oral argument took place in May 2013.

Qui Tam Litigation

In March 2011, the Company was served with an unsealed qui tam complaint filed by three former sales representatives in California Superior Court, County of Los Angeles. The California Department of Insurance has elected to intervene in the lawsuit. The complaint alleges the Company paid kickbacks to California providers and pharmacies in violation of California Insurance Frauds Prevention Act, Cal. Ins. Code § 1871.7. ~~Discovery is ongoing.~~ It is not possible at this time to reasonably assess the outcome of this lawsuit or its 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 in various state and federal courts claiming personal injury damage allegedly sustained after using Plavix*. Currently, over ~~5,000~~5,700 claims involving injury plaintiffs as well as claims by spouses and/or other beneficiaries, are filed in state and federal courts in various states including California, Illinois, New Jersey, Delaware and New York. In February 2013, the Judicial Panel on Multidistrict Litigation granted the Company and Sanofi’s motion to establish a multidistrict litigation to coordinate ~~federal~~Federal pretrial proceedings in Plavix* product liability and related cases in New Jersey Federal Court. It is not possible at this time to reasonably assess the outcome of these lawsuits or the potential impact on the Company.

Reglan*

The Company is one of a number of defendants in numerous lawsuits, on behalf of approximately 3,000 plaintiffs, including injury plaintiffs claiming personal injury allegedly sustained after using Reglan* or another brand of the generic drug metoclopramide, a product indicated for gastroesophageal reflux and certain other gastrointestinal disorders, as well as claims by spouses and/or other beneficiaries. The Company, through its generic subsidiary, Apothecon, Inc., distributed metoclopramide tablets manufactured by another party between 1996 and 2000. It is not possible at this time to reasonably assess the outcome of these lawsuits. The resolution of these pending lawsuits, however, is not expected to have a material 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. The Company has agreed to resolve the claims of approximately ~~400~~ ~~plaintiffs and has also~~

~~reached a settlement in principle to resolve an additional~~ 27 ~~claims. The Company remains a defendant in approximately~~ 5 actively pending lawsuits 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. The resolution of these remaining lawsuits is not expected to have a material impact on the Company.

Byetta* and Bydureon*

Amylin, a former subsidiary of the Company, ~~(see “—Note~~ 3~~. Alliances and Collaborations”),~~ and Lilly are co-defendants in product liability litigation related to Byetta*~~and to a lesser extent,~~ ~~Bydureon~~*. To date, there are over ~~200~~300 separate lawsuits pending on behalf of ~~approximately~~over ~~900~~1,300 plaintiffs, which include injury plaintiffs as well as claims by spouses and/or other beneficiaries, in various courts in the U.S. The Company has agreed in principle to resolve over ~~300~~500 of these claims. The majority of these cases have been brought by individuals who allege personal injury sustained after using Byetta*, primarily pancreatic cancer and pancreatitis, and, in some cases, claiming alleged wrongful death. The majority of cases are pending in Federal Court in San Diego in a recently established multidistrict litigation, with ~~most~~the next largest contingent of ~~the remaining~~ cases pending in a coordinated proceeding in California Superior Court in Los Angeles. ~~Amylin and Lilly are currently scheduled for trial in February 2014 in California Superior Court.~~ Amylin has product liability insurance covering a substantial number of claims involving Byetta* and any additional liability to Amylin with respect to Byetta* ~~and~~ Bydureon*is expected to be shared between the Company and ~~its alliance partner,~~ AstraZeneca. It is not possible to reasonably predict the outcome of any lawsuit, claim or proceeding or the potential impact on the Company.

~~BMS-986094~~

In August 2012, the Company announced that it had discontinued development of BMS-986094, an investigational compound which was being tested in clinical trials to treat the hepatitis C virus infection due to the emergence of a serious safety issue. To date, ~~ten~~ lawsuits have been filed against the Company by plaintiffs in Texas, Oklahoma and Virginia, most of which were removed to Federal Court, alleging that they participated in the Phase II study of BMS-986094 and suffered injuries as a result thereof. The Company has settled the vast majority of claims that have surfaced to date in this matter and ~~two~~ ~~claims remain outstanding. The resolution of the remaining lawsuits and any other potential future lawsuits is not expected to have a material 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 $6766 million at ~~September 30, 2013,~~March 31, 2014, 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

Since May 2008, over ~~250~~300 lawsuits have been filed against the Company in New Jersey Superior Court by or on behalf of current and former residents of New Brunswick, New Jersey who live or have lived adjacent to the Company’s New Brunswick facility. The complaints allege various personal injuries resulting from environmental contamination at the New Brunswick facility and historical operations at that site, or are claims for medical monitoring. A portion of these complaints also assert claims for alleged property damage. 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. Since October 2011, over ~~150~~200 additional cases have been filed in New Jersey Superior Court and removed by the Company to United States District Court, District of New Jersey. Accordingly, there are in excess of ~~400~~500 cases between the state and federal court actions. Discovery is ongoing. The first trial ~~has been~~is currently scheduled to commence in state court in ~~February~~September 2014. ~~The Company intends to defend itself vigorously in this litigation.~~ It is not possible at this time to ~~reasonably assess~~predict 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 the 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, and avoid litigation. 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 moved to a binding allocation process. The parties are expected to conduct fact and expert discovery, followed by formal evidentiary hearings and written argument. Hearings are scheduled to commence in ~~March~~May 2014. In addition, in September 2009, the Township and BOE filed suits against several other parties alleged to have contributed waste materials to the site. The Company does not currently believe that it is responsible for any additional amounts beyond the two interim payments totaling $4 million already transmitted. Any additional possible loss is not expected to be material.

OTHER PROCEEDINGS

~~Italy Investigation~~

In July 2011, the Public Prosecutor in Florence, Italy (Italian Prosecutor) initiated a criminal investigation against the Company’s subsidiary in Italy (BMS Italy). The allegations against the Company relate to alleged activities of a former employee who left the Company in the 1990s. In July 2013, the judge dismissed the case following the Italian Prosecutor's request for dismissal citing insufficient evidence to support the allegations against the Company. This concludes the matter.

SEC Germany Investigation

In October 2006, the SEC informed the Company that it had begun a formal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. 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 (FCPA). The Company ishas been cooperating with the SEC.

FCPA Investigation

In March 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.

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Note 18. SUBSEQUENT EVENTS

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. The transaction is expected to be accounted for as an asset acquisition with essentially all value allocated to IPN007 resulting in a $175 million charge to research and development expense.

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 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.

~~The comparability~~In February, the Company sold to AstraZeneca substantially all of the diabetes business comprising our alliance with them. BMS received payments of $3.3 billion from AstraZeneca including a $600 million payment for the U.S. approval of Farxiga* (dapagliflozin). BMS also received $100 million in April for the approval of dapagliflozin in Japan. Under terms of the agreement, the Company will potentially receive additional regulatory and sales-based milestone payments from AstraZeneca of up to $700 million; royalty payments based on net sales through 2025 and ~~earnings to~~additional payments if and when certain assets are subsequently transferred. Revenues in the ~~prior year periods was impacted by~~U.S. and expenses decreased in the ~~acquisition~~current period as a result of ~~Amylin and expanded diabetes alliance arrangement with AstraZeneca in August 2012~~the divestiture and a ~~$1.8 billion intangible asset impairment charge~~$355 million after tax gain on the sale of the business was recognized. See "Item 1. Financial Statements—Alliances" for further information.

The company plans to initiate a rolling submission for nivolumab in ~~September 2012 as well as the loss of exclusivity of~~ Plavix* ~~(clopidogrel bisulfate) in May 2012.~~third-line squamous cell non-small cell lung cancer based on Study 063, which it expects to complete by year-end.

Highlights

The following table summarizes our financial information:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Dollars in Millions, except per share data	2013			2012			2013			2012			2014			2013
Net Sales	$	4,065		$	3,736		$	11,944		$	13,430
Total Revenues													$	3,811		$	3,831
Total Expenses	3,247			4,995			9,922			11,603			2,826			3,157
Earnings/(Loss) Before Income Taxes	818			(1,259		)	2,022			1,827
Provision for/(benefit from) income taxes	126			(546		)	177			250
Earnings Before Income Taxes													985			674
Provision for income taxes													49			51
Effective tax rate	15.4		%	(43.4		)%	8.8		%	13.7		%	5.0		%	7.6		%

Net Earnings/(Loss) Attributable to BMS
Net Earnings Attributable to BMS
GAAP	692			(711		)	1,837			1,035			937			609
Non-GAAP	768			685			2,177			2,587			766			679

Diluted Earnings/(Loss) Per Share
Diluted Earnings Per Share
GAAP	0.42			(0.43		)	1.11			0.61			0.56			0.37
Non-GAAP	0.46			0.41			1.31			1.52			0.46			0.41

Cash, Cash Equivalents and Marketable Securities							6,345			6,628			10,617			5,775

Our non-GAAP financial measures, including non-GAAP earnings and related earnings per share (EPS) information, are adjusted to exclude specified items which represent certain costs, expenses, gains and losses and other items impacting the comparability of financial results.

For a detailed listing of all specified items and further information and reconciliations of non-GAAP financial measures see “—Non-GAAP Financial Measures” below.

Strategy

~~Over the past few years,~~Since 2007, we ~~transformed our Company~~have been transforming BMS into a leading-edge biopharma company focused ~~biopharmaceutical company.~~exclusively on discovering, developing, and delivering innovative medicines that address serious unmet medical needs. We continue to ~~focus on sustaining our business and building a foundation for the future~~evolve driven by growing our newer key marketed products, advancing our pipeline portfolio and managing our costs. We expect our portfolio will become increasingly diversified across products and geographies over the next few years. We also expect to continue to improve our cost base and realize significant cost savings and avoidance over the next few years.

~~We experienced substantial exclusivity losses in 2012 for~~ Plavix* ~~and~~ Avapro*/Avalide* ~~(irbesartan/irbesartan-hydrochlorothiazide), which together had approximately $2.5 billion of U.S. net sales in the nine months ended September 30, 2012. As expected,~~this fundamental objective as we ~~experienced a rapid, precipitous, and material decline in~~ Plavix* ~~and~~ Avapro*/Avalide* net sales and a reduction in net income and operating cash flow, which are the norm in the industry when companies experience a loss of exclusivity for a significant product. We will face additional exclusivity losses in the coming years. We also face significant challenges with global economic uncertainty, particularly in the European Union (EU), and an increasingly complex global and regulatory environment. We believe our strategy to grow our ~~newer~~ marketed products and progress our ~~robust research and development (R&D) pipeline position us well for the future.~~pipeline.

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We are focused on four core therapeutic areas: oncology, virology, immunology, and specialty cardiovascular disease. Within oncology, we are pioneering innovative medicines in the area of immuno-oncology which unlock the body’s own immune system to battle cancer. Yervoy (ipilimumab), our first immuno-oncology agent, was introduced in 2011 for the treatment of metastatic melanoma. We continue to ~~expand~~invest significantly in our ~~biologics capabilities. We still rely significantly on small molecules for discovering potential new~~deep pipeline of innovative medicines ~~but large molecules or biologics, derived from recombinant DNA technologies are becoming increasingly important. Currently, more than 40%~~in this area covering a broad array of ~~our pipeline compounds are biologics, as are four of our key marketed products.~~cancers.

We are evolving our commercial model and growing our marketed product portfolio in a manner consistent with our overall strategy. In oncology, we are building on the success of Yervoy, which yielded 2013 revenues of nearly $1 billion, and other products such as Sprycel (dasatinib) and Erbitux* (cetuximab). Beyond oncology, we continue to support key brands in our virology franchise such as Reyataz (atazanavir sulfate) and Baraclude (entecavir) (together accounting for approximately $3 billion in revenues in 2013), in addition to investing in Orencia (abatacept), the key brand in our immunology portfolio, which accounted for approximately $1.4 billion in revenues in 2013. Additionally, we are strongly committed to Eliquis (apixaban), a novel oral anti-coagulant, which launched globally in 2013 via our alliance with Pfizer, Inc (Pfizer).

The divestiture of our diabetes portfolio allows us to further accelerate the evolution of our business model into a leading specialty care biopharma company. This transaction also allows us to focus our resources behind our growth opportunities that drive the greatest long-term value.

Looking ahead, we will continue to implement our biopharma strategy by driving the growth of key brands, executing new product launches, investing in our pipeline, ~~with our licensing~~maintaining a culture of continuous improvement, and acquisitions strategy, referred to as our “string of pearls.” We are seeking to build relationships with academic organizations that have innovative programs and capabilities that complement our own internal R&D efforts.pursuing disciplined capital allocation, including through business development.

Product and Pipeline Developments

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

~~Yervoy~~ ~~(ipilimumab)~~Nivolumab - a fully human monoclonal antibody ~~for~~that binds to the programmed death receptor-1 (PD-1) on T and NKT cells that is being investigated as an anti-cancer treatment ~~of patients with unresectable (inoperable) or metastatic melanoma.~~

In September 2013, at the European Cancer Congress, results were presented from a pooled analysis of survival data for 12 studies in patients with metastatic or locally advanced or unresectable melanoma who were treated with ~~Yervoy~~ at different doses and regimens, including the investigational dose of 10 mg/kg and some patients who were followed for up to 10 years. The analysis found that a plateau in the survival curve begins at three years, with some patients followed for up to ten years. At three years, 22% of patients were alive.

~~In September 2013, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency adopted a positive opinion recommending use of~~ ~~Yervoy~~ ~~in first line (chemotherapy naïve) advanced melanoma patients. The CHMP's positive opinion will now be reviewed by the European Commission, which has the authority to approve medicines for the EU.~~

~~In September 2013,~~April, the Company ~~announced results from the Phase III randomized, double-blind clinical trial (Study 043) comparing~~ ~~Yervoy~~ ~~to placebo following radiation in patients~~met with advanced metastatic castration-resistant prostate cancer who have received prior treatment with docetaxel. The study's primary endpoint of overall survival did not reach statistical significance. However, anti-tumor activity was observed across some efficacy endpoints, including progression free-survival.

~~Dapagliflozin - an oral sodium-glucose cotransporter 2 (SGLT2) inhibitor for the treatment of diabetes that is part of our alliance with AstraZeneca.~~

In September 2013, at the Annual Meeting of the European Association for the Study of Diabetes (EASD), the Company and AstraZeneca announced results from a Phase III study evaluating dapagliflozin in adult patients with type 2 diabetes who were inadequately controlled on combination treatment with metformin plus sulfonylurea. Patients treated with dapagliflozin as an add-on therapy to metformin plus sulfonylurea demonstrated significant improvements in glycosylated hemoglobin levels (HbA1c) and, among key secondary endpoints, significant reductions in fasting plasma glucose and body weight compared to placebo at 24 weeks. Significant improvements were also observed in seated systolic blood pressure at eight weeks in patients treated with dapagliflozin compared to placebo.

~~In July 2013, the Company and AstraZeneca completed their resubmission of a New Drug Application (NDA) to~~ the U.S. Food and Drug Administration (FDA) regarding the results of Study 063, which evaluated nivolumab in third-line squamous cell non-small cell lung cancer, and plans to initiate a rolling submission for ~~dapagliflozin~~this indication based on Study 063 in the coming days. The Company expects to complete the rolling submission by year-end.

Reyataz - a protease inhibitor for the treatment of the human immunodeficiency virus (HIV)

In April 2014, the Company announced the submission of a new drug application (NDA) to the FDA for a fixed-dose combination of atazanavir sulfate, a protease inhibitor marketed as Reyataz, and cobicistat, an investigational pharmacokinetic enhancer, or boosting agent, that can increase the level of certain HIV-1 medicines in the blood and make them more effective. Cobicistat is being developed by Gilead Sciences, Inc (Gilead).

Hepatitis C Portfolio - (Daclatasvir (DCV) - an NS5A replication complex inhibitor in development; Asunaprevir (ASV) - an NS3 protease inhibitor in development; BMS-791325 - an NS5B non-nucleoside polymerase inhibitor in development)

In April 2014, the Company announced Phase III results from the global HALLMARK-Dual study investigating the all-oral, interferon- and ribavirin-free regimen of DCV + ASV among genotype 1b hepatitis C virus (HCV) infected patients. Results showed that the 24-week regimen achieved an overall sustained virologic response (a functional cure) 12 weeks after the end of treatment (SVR12) among treatment-naïve (90%), peginterferon/ribavirin non-responder (82%), and peginterferon/ribavirin ineligible/intolerant (82%) patients, including cirrhotic and non-cirrhotic patients (84% and 85%, respectively). In the study the DCV+ASV regimen was generally well tolerated.

In April 2014, the Company announced the submission of an NDA with the FDA for investigational DCV Dual Regimen (DCV + ASV). The data submitted in the NDAs support the use of DCV + ASV in patients with HCV. The DCV NDA also seeks approval for use of this compound in combination with other agents for multiple genotypes. The submissions are subject to FDA review for acceptance for filing.

In February 2014, the Company announced that the FDA has granted its investigational DCV Dual Regimen (DCV + ASV) Breakthrough Therapy Designation for use as a combination therapy in the treatment of genotype 1b chronic HCV. The designation is based on data from the Company’s ongoing Phase III clinical trial program evaluating the all-oral combination regimen of DCV + ASV without ribavirin.

In January 2014, the Company announced that the European Medicines Agency (EMA) has validated the marketing authorization application (MAA) for the use of DCV for the treatment of adults with ~~type~~chronic HCV with compensated liver disease, including genotypes 1, 2, ~~diabetes.~~3 and 4. The ~~NDA resubmission, which has been accepted by~~application seeks the ~~FDA, includes several new studies and additional long-term data (up to four years duration) from previously submitted studies. The Prescription Drug User Free Act (PDUFA) date is January 11, 2014.~~

~~Onglyza~~ ~~(saxagliptin)~~ - ~~a once-daily oral tablet~~approval of daclatasvir for use in combination with other agents, including sofosbuvir, for the treatment ~~for type 2 diabetes that is part~~ of ~~our strategic alliance with AstraZeneca.~~

~~In September 2013 at~~chronic HCV. The EMA's validation marks the ~~European Society~~start of ~~Cardiology, the Company and AstraZeneca announced the full results of the SAVOR clinical trial in adult patients with type 2 diabetes. In this study,~~ ~~Onglyza~~ met the primary safety objective, demonstrating no increased risk for the primary composite endpoint of cardiovascular death, non-fatal myocardial infarction or non-fatal ischemic stroke, when added to a patient's current standard of care (with or without other anti-diabetic therapies), as compared to placebo. ~~Onglyza~~ ~~did not meet the primary efficacy endpoint of superiority to placebo for the same composite endpoint. Patients treated with~~ ~~Onglyza~~ experienced improved glycemic control and reduced development and progression of microalbuminuria over two years as assessed in exploratory analyses. At a subsequent meeting (the Annual Meeting of the EASD) additional subanalyses from SAVOR were presented. These subanalyses found no increased rate of hypoglycemia among patients treated with ~~Onglyza~~ ~~compared to placebo when added to metformin monotherapy, at baseline. These subanalyses also found higher rates of hypoglycemia only in the~~ ~~Onglyza~~ group compared to the placebo group among patients taking sulfonylureas, agents known to cause hypoglycemia, at baseline. In addition, the subanalyses found that rates of adjudication-confirmed pancreatitis were balanced between the ~~Onglyza~~ ~~and placebo treatment groups. Observed rates of pancreatic cancer were also low (5 patients in the~~ ~~Onglyza~~ ~~arm versus 12 patients in the placebo arm).~~

an accelerated regulatory review process.

Eliquis (apixaban) - an oral Factor Xa inhibitor, targeted at stroke prevention in nonvalvular atrial fibrillation (NVAF) and the prevention and treatment of venous thromboembolic (VTE) disorders. Eliquis is part of our ~~strategic~~ alliance with Pfizer.

In ~~September 2013 at the European Society of Cardiology (ESC) Congress,~~March 2014, the Company and Pfizer announced the results of a ~~post-hoc~~pre-specified subanalysis ~~from~~of the Phase III ARISTOTLE trial ~~which evaluated~~assessing the effect of blood pressure control on outcomes. The study showed that the results for stroke risk reduction for Eliquis ~~compared to~~versus warfarin in patients with or without other types of valvular heart disease (VHD) who were eligible for enrollment in the ARISTOTLE trial, including mitral regurgitation, mitral stenosis, aortic regurgitation, aortic stenosis, tricuspid regurgitation, or valve surgery. The results of this subanalysis were consistent with the ~~results of the~~ overall ARISTOTLE ~~trial and demonstrated~~study results, demonstrating that Eliquis~~compared with warfarin~~ reduced stroke or systemic embolism, caused fewer major bleeding events and reduced all-cause mortality ~~in NVAF patients~~as compared to warfarin, regardless of blood pressure control. The results also showed that poor blood pressure control was associated with a substantially higher risk of stroke or ~~without VHD.~~systemic embolism, independent of Eliquis or warfarin treatment.

In August 2013 at the ESC, the Company and Pfizer announced the results of a post-hoc subanalysis from the Phase III ARISTOTLE trial which showed comparable rates of of clinical events versus the warfarin treatment arm in a 30-day period following a procedure which required the temporary discontinuation of an anticoagulant prior to and following the procedure.

In ~~July 2013,~~March 2014, the Company and Pfizer announced that the FDA ~~has accepted for review~~approved a ~~Supplemental NDA~~supplemental New Drug Application(sNDA) for Eliquis for the prophylaxis of deep vein thrombosis, which may lead to pulmonary embolism, in ~~adult~~ patients who have undergone hip or knee replacement surgery. ~~The PDUFA date is~~

In February 2014, the Company and Pfizer announced results of a pre-specified subanalysis of the Phase III ARISTOTLE trial in relation to patient age. ARISTOTLE was designed to evaluate the efficacy and safety of Eliquis compared to warfarin for reducing the risk of stroke or systemic embolism in patients with NVAF. This subanalysis found consistent results across age groups for reducing the risk of stroke and systemic embolism and reducing the risk of all-cause death with fewer bleeding events for Eliquis versus warfarin. Owing to the higher risk at older age (age 75 and older), the absolute benefit to patients with NVAF was greater with Eliquis in the older population.

Diabetes Alliance Products:

In March ~~15, 2014.~~2014, the Japanese Ministry of Health, Labour and Welfare approved Forxiga*.

In February 2014, the FDA approved the sNDA for the Dual Chamber Pen presentation of Bydureon*.

In February 2014, Myalept*(metreleptin for injection) was approved by the FDA as an adjunct to diet as replacement therapy to treat the complications of leptin deficiency in patients with congenital or acquired generalized lipodystrophy.

In January 2014, the Company and AstraZeneca announced that Xigduo* (dapagliflozin and metformin hydrochloride) has been granted marketing authorization by the European Commission for the treatment of type 2 diabetes in the European Union (EU).

In January 2014, the Company and AstraZeneca announced the FDA approved Farxiga* to improve glycemic control, along with diet and exercise, in adults with type 2 diabetes.

RESULTS OF OPERATIONS

~~Net Sales~~

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


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
					2013 vs. 2012												2013 vs. 2012												2014 vs. 2013
	Net Sales				Analysis of % Change								Net Sales				Analysis of % Change								Total Revenues				Analysis of % Change
Dollars in Millions	2013		2012		Total Change		Volume		Price		Foreign Exchange		2013		2012		Total Change		Volume		Price		Foreign Exchange		2014		2013		Total Change		Volume		Price		Foreign Exchange
United States	$	2,037	$	2,016	1	%	3	%	(2	)%	—		$	6,053	$	8,146	(26	)%	(24	)%	(2	)%	—		$	1,765	$	1,971	(10	)%	(12	)%	2	%	—
Europe	985		858		15	%	13	%	(2	)%	4	%	2,881		2,706		6	%	7	%	(2	)%	1	%	948		946		—		3	%	(5	)%	2	%
Rest of the World	805		787		2	%	12	%	(2	)%	(8	)%	2,405		2,346		3	%	10	%	(2	)%	(5	)%	830		765		8	%	18	%	(3	)%	(7	)%
Other^(a)	238		75		**		N/A		N/A		—		605		232		**		N/A		N/A		—		268		149		80	%	N/A		N/A		N/A
Total	$	4,065	$	3,736	9	%	12	%	(2	)%	(1	)%	$	11,944	$	13,430	(11	)%	(9	)%	(1	)%	(1	)%	$	3,811	$	3,831	(1	)%	1	%	(1	)%	(1	)%

** Change is in excess of 100%

~~(a) Other net sales include royalties and other alliance-related revenues for products not sold by our regional commercial organizations.~~


(a)	Other total revenues include royalties and other alliance-related revenues for products not sold by our regional commercial organizations.

No single country outside the U.S. contributed more than 10% of total ~~net sales~~revenues during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013. In general, our business is not seasonal. For information on U.S. pharmaceutical prescriber demand, reference is made 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 products. U.S. and non-U.S. net sales are categorized based upon the location of the customer.

3128

The change in U.S. ~~net sales~~revenues attributed to volume ~~for~~resulted from the ~~three month periods was a result of increased demand for most key products~~diabetes business divestiture in February 2014 and Amylin-related product sales following the completion of our acquisition in August 2012. The change in U.S. net sales attributed to volume for the nine month periods reflects the impact of the exclusivity loss of Plavix* ~~in May 2012 and~~ Avapro*/Avalide* ~~in March 2012~~wholesaler buying patterns, partially offset by increased demand for ~~most~~certain key ~~products and Amylin-related product sales.~~

products. The change in U.S. ~~net sales for both periods~~revenues attributed to price was ~~a result of the reduction in our share of~~ Abilify* ~~(aripiprazole) net sales from~~ ~~51.5%~~ ~~in 2012~~due to~~34.1%~~ ~~in 2013 based upon a weighted-average forecast of expected annual net sales in 2013 (7% impact) offset by~~ higher average net selling prices of Abilify*(aripiprazole) and other key products. See “—~~Key~~Revenues of Products” for further ~~discussion of sales by key product.~~discussions.

~~Net sales~~Revenues in Europe ~~increased due to sales growth of~~remained relatively flat as higher demand for most key products and ~~Amylin-related product sales following the transition of non-U.S. operations in the second quarter of 2013 and~~ favorable foreign exchange ~~partially~~were offset by ~~the restructured Sanofi agreement~~loss of exclusivity of . Sustiva~~See "Item 1. Financial Statements—Note 3. Alliances~~ in 2013 and ~~Collaborations" for further discussion. Net sales in both periods continued to be negatively impacted by~~ fiscal challenges in many European countries as healthcare payers, including government agencies, have reduced and are expected to continue to reduce healthcare costs through actions that directly or indirectly impose additional price reductions. These measures include, but are not limited to, mandatory discounts, rebates, and other restrictive measures.

~~Net sales~~Revenues in Rest of the World increased ~~in both periods~~ due to ~~higher demand~~volume growth for most key products (particularly in Japan and China) partially offset by ~~the restructured Sanofi agreement,~~ unfavorable foreign exchange ~~(particularly~~(primarily in ~~Japan)~~Japan and Canada), and generic competition for mature brands.

Other ~~net sales~~revenues increased ~~in both periods~~ due to higher ~~royalty revenue resulting from the restructured Sanofi agreement~~royalties and revenue ~~attributed to recent~~from alliances including mature brands and over-the-counter ~~products collaborations.~~products. These revenues are expected to decline in 2015 and 2016 upon the expiration of certain royalty and alliance agreements.

We recognize revenue net of gross-to-net ~~sales~~ adjustments that are further described in “—Critical Accounting Policies” in the Company’s ~~2012~~2013 ~~Annual Report on~~ Form 10-K. Our share of Abilify* and Atripla* ~~sales~~ is reflected net of all gross-to-net ~~sales~~ adjustments in ~~gross sales.~~alliance and other revenues. Although not presented as a gross-to-net adjustment in the below tables, our share of Abilify* and Atripla*(efavirenz 600 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) gross-to-net ~~sales~~ adjustments were ~~$323~~$359 million in 2014 and ~~$366~~$308 million ~~for the~~in ~~three months ended September 30,~~ 2013 ~~and~~ ~~2012, respectively, and $957 million and $1,073 million for the~~ ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012, respectively.~~. The activities and ending reserve balances for each significant category of gross-to-net ~~sales~~ adjustments were as follows:


Dollars in Millions	Charge-Backs Related to Government Programs			Cash Discounts			Managed Healthcare Rebates and Other Contract Discounts			Medicaid Rebates			Sales Returns			Other Adjustments			Total			Charge-Backs Related to Government Programs			Cash Discounts			Managed Healthcare Rebates and Other Contract Discounts			Medicaid Rebates			Sales Returns			Other Adjustments			Total
Balance at January 1, 2013	$	41		$	13		$	175		$	351		$	345		$	183		$	1,108
Balance at January 1, 2014																						$	37		$	12		$	147		$	227		$	279		$	236		$	938
Provision related to sales made in:
Current period	409			113			356			260			96			400			1,634			138			34			98			97			13			136			516
Prior period	—			—			(5		)	(45		)	(43		)	(4		)	(97		)
Prior periods																						—			—			3			(11		)	—			(4		)	(12		)
Returns and payments	(419		)	(113		)	(315		)	(280		)	(79		)	(360		)	(1,566		)	(143		)	(36		)	(127		)	(67		)	(22		)	(113		)	(508		)
Impact of foreign currency translation	—			—			(1		)	—			—			—			(1		)	—			—			(2		)	—			(1		)	2			(1		)
Balance at Balance at September 30, 2013	$	31		$	13		$	210		$	286		$	319		$	219		$	1,078
Balance at March 31, 2014																						$	32		$	10		$	119		$	246		$	269		$	257		$	933

The reconciliation of gross product sales to net product sales by each significant category of gross-to-net ~~sales~~ adjustments was as follows:


Dollars in Millions	Three Months Ended September 30,						% Change		Nine Months Ended September 30,						% Change		Three Months Ended March 31,
	2013			2012			2013 vs. 2012		2013			2012			2013 vs. 2012		2014			2013
Gross Sales	$	4,610		$	4,225		9	%	$	13,481		$	15,127		(11	)%
Gross-to-Net Sales Adjustments
Gross product sales																	$	3,311		$	3,392
Gross-to-Net Adjustments
Charge-backs related to government programs	(143		)	(137		)	4	%	(409		)	(505		)	(19	)%	(138		)	(131		)
Cash discounts	(39		)	(36		)	8	%	(113		)	(154		)	(27	)%	(34		)	(35		)
Managed healthcare rebates and other contract discounts	(126		)	(98		)	29	%	(351		)	(182		)	93	%	(101		)	(91		)
Medicaid rebates	(78		)	(93		)	(16	)%	(215		)	(296		)	(27	)%	(86		)	(51		)
Sales returns	(16		)	6			**		(53		)	(228		)	(77	)%	(13		)	(4		)
Other adjustments	(143		)	(131		)	9	%	(396		)	(332		)	19	%	(132		)	(123		)
Total Gross-to-Net Sales Adjustments	(545		)	(489		)	11	%	(1,537		)	(1,697		)	(9	)%
Net Sales	$	4,065		$	3,736				$	11,944		$	13,430
Total Gross-to-Net Adjustments																	(504		)	(435		)
Net product sales																	$	2,807		$	2,957

** Change is in excess of 100%

Changes in the gross-to-net ~~sales~~ adjustment rates are primarily a function of changes in sales mix and contractual and legislative discounts and rebates.

~~Chargebacks related to government programs, cash discounts, and~~ Medicaid rebates ~~decreased~~were lower in ~~the nine months ended September 30,~~ 2013, ~~as a result of lower~~ Plavix* ~~sales following its loss of exclusivity.~~

~~Managed healthcare rebates and other contract discounts increased~~ primarily due to ~~Amylin-related product sales. Managed healthcare rebates and other contract discounts also included~~ a ~~$67 million~~ reduction in ~~the estimated Medicare Part D coverage gap discounts attributable to~~ prior period ~~rebates after receiving~~accruals based upon actual invoices ~~in the nine months ended September 30, 2012. No significant amounts were related to~~ Plavix* ~~in either period because those contract discounts in the Medicare Part D program were not renewed as of January 1, 2012.~~

The estimated Medicaid rebates attributable to prior period sales were reduced by $45 million and $37 million in the nine months ended September 30, 2013 and 2012, respectively, after receiving actual invoices (primarily in each respective first quarter).received.

~~The provision for sales returns was higher in 2012 as a result of the loss of exclusivity of~~ Plavix* ~~and~~ Avapro*/Avalide*. The U.S. sales return reserves for Plavix* and Avapro*/Avalide* at ~~September 30, 2013~~March 31, 2014 were ~~$149~~$145 million and were determined after considering several factors including estimated inventory levels in the distribution channels. In accordance with Company policy, these products are eligible to be returned between six months prior to and twelve months after product expiration. Adjustments to these reserves might be required in the future for revised estimates to various assumptions including actual ~~returns, which are generally not expected to occur until 2014.~~returns.

Other adjustments ~~are~~increased primarily ~~related~~due to higher government rebates in non-U.S. ~~markets and increased as a result of government austerity measures.~~markets.

3329

~~Key~~Revenues of Products

~~Net sales of key products represent~~ ~~84%~~ ~~and~~ ~~83%~~ ~~of total net sales for the~~ ~~three months ended September 30, 2013~~ ~~and~~ ~~2012, respectively, and~~ ~~83%~~ ~~and~~ ~~85%~~ ~~of total net sales for the~~ ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012~~, respectively. The following table presents U.S. and international net sales by key products, the percentage change from the prior period, and the foreign exchange impact when compared to the prior period. The reasons for significant variances are provided below:

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 % Change % Change Attributable to Foreign Exchange 2013 2012 % Change % Change Attributable to Foreign Exchange
Key Products
Virology
Baraclude (entecavir) $ 378
$ 346
9 % (3 )% $ 1,115
$ 1,028
8 % (3 )%
U.S. 67
61
10 % —
208
176
18 % —
Non-U.S. 311
285
9 % (3 )% 907
852
6 % (3 )%

Reyataz (atazanavir sulfate) 375
363
3 % —
1,167
1,127
4 % —
U.S. 189
197
(4 )% —
582
584
—
—
Non-U.S. 186
166
12 % (1 )% 585
543
8 % (1 )%

Sustiva (efavirenz) Franchise 389
370
5 % 1 % 1,187
1,144
4 % 1 %
U.S. 259
250
4 % —
785
763
3 % —
Non-U.S. 130
120
8 % 4 % 402
381
6 % 2 %

Oncology
Erbitux* (cetuximab) 183
173
6 % —
516
531
(3 )% —
U.S. 180
169
7 % —
506
521
(3 )% —
Non-U.S. 3
4
(25 )% —
10
10
—
—

Sprycel (dasatinib) 316
263
20 % (4 )% 915
738
24 % (4 )%
U.S. 134
109
23 % —
384
295
30 % —
Non-U.S. 182
154
18 % (7 )% 531
443
20 % (6 )%

Yervoy (ipilimumab) 238
179
33 % 1 % 700
495
41 % —
U.S. 130
123
6 % —
429
362
19 % —
Non-U.S. 108
56
93 % 2 % 271
133
**
1 %

Neuroscience
Abilify* (aripiprazole) 569
676
(16 )% 1 % 1,654
2,008
(18 )% —
U.S. 378
507
(25 )% —
1,084
1,485
(27 )% —
Non-U.S. 191
169
13 % 3 % 570
523
9 % 1 %

Metabolics
Bydureon* (exenatide extended-release for injectable suspension) 87
20
**
N/A
205
20
**
N/A
U.S. 73
20
**
—
182
20
**
—
Non-U.S. 14
N/A
N/A
N/A
23
N/A
N/A
N/A

Byetta* (exenatide) 106
55
93 % N/A
295
55
**
N/A
U.S. 76
55
38 % —
234
55
**
—
Non-U.S. 30
N/A
N/A
N/A
61
N/A
N/A
N/A

Forxiga (dapagliflozin) 7
N/A
N/A
N/A
15
N/A
N/A
N/A
U.S. N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Non-U.S. 7
N/A
N/A
N/A
15
N/A
N/A
N/A

Onglyza/Kombiglyze (saxagliptin/saxagliptin and metformin) 211
178
19 % —
653
511
28 % —
U.S. 138
130
6 % —
445
376
18 % —
Non-U.S. 73
48
52 % —
208
135
54 % —


	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
Dollars in Millions	2013		2012		% Change		% Change Attributable to Foreign Exchange		2013			2012		% Change		% Change Attributable to Foreign Exchange		2014		2013		% Change		% Change Attributable to Foreign Exchange
Key Products (continued)
Immunoscience
Nulojix (belatacept)	$	7	$	3	**		—		$	18		$	7	**		—
Key Products
Virology
Baraclude (entecavir)																		$	406	$	366	11	%	(2	)%
U.S.	5		3		67	%	—		13			6		**		—		70		68		3	%	—
Non-U.S.	2		—		N/A		—		5			1		**		—		336		298		13	%	(2	)%

Reyataz (atazanavir sulfate)																		344		361		(5	)%	(1	)%
U.S.																		176		193		(9	)%	—
Non-U.S.																		168		168		—		(2	)%

Sustiva (efavirenz) Franchise																		319		387		(18	)%	—
U.S.																		228		251		(9	)%	—
Non-U.S.																		91		136		(33	)%	2	%

Oncology
Erbitux* (cetuximab)																		169		162		4	%	N/A
U.S.																		158		158		—		—
Non-U.S.																		11		4		**		N/A

Sprycel (dasatinib)																		342		287		19	%	(3	)%
U.S.																		145		115		26	%	—
Non-U.S.																		197		172		15	%	(5	)%

Yervoy (ipilimumab)																		271		229		18	%	—
U.S.																		146		159		(8	)%	—
Non-U.S.																		125		70		79	%	(1	)%

Neuroscience
Abilify* (aripiprazole)																		540		522		3	%	—
U.S.																		325		328		(1	)%	—
Non-U.S.																		215		194		11	%	1	%

Immunoscience
Orencia (abatacept)	375		307		22	%	(3	)%	1,047			851		23	%	(2	)%	363		320		13	%	(3	)%
U.S.	246		211		17	%	—		698			581		20	%	—		229		214		7	%	—
Non-U.S.	129		96		34	%	(10	)%	349			270		29	%	(8	)%	134		106		26	%	(7	)%

Cardiovascular
Avapro/Avalide (irbesartan/irbesartan-hydrochlorothiazide)	71		95		(25	)%	—		173			419		(59	)%	—
U.S.	—		9		(100	)%	—		(9		)	139		**		—
Non-U.S.	71		86		(17	)%	—		182			280		(35	)%	—

Eliquis (apixaban)	41		—		N/A		—		75			1		**		—		106		22		**		N/A
U.S.	27		N/A		N/A		—		49			N/A		N/A		—		61		17		**		—
Non-U.S.	14		—		N/A		—		26			1		**		—		45		5		**		N/A

Plavix* (clopidogrel bisulfate)	42		64		(34	)%	—		177			2,498		(93	)%	—
Diabetes Alliance																		179		358		(50	)%	—
U.S.	18		43		(58	)%	—		102			2,404		(96	)%	—		114		292		(61	)%	—
Non-U.S.	24		21		14	%	—		75			94		(20	)%	—		65		66		(2	)%	—

Mature Products and All Other	670		644		4	%	(1	)%	2,032			1,997		2	%	(1	)%	772		817		(6	)%	(1	)%
U.S.	117		129		(9	)%	—		361			379		(5	)%	—		113		176		(36	)%	—
Non-U.S.	553		515		7	%	(2	)%	1,671			1,618		3	%	(2	)%	659		641		3	%	(1	)%



**	Change in excess of 100%.

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

U.S. ~~net sales~~revenues increased primarily due to higher average net selling ~~prices and higher demand. Estimated U.S. prescription demand increased by 4% and 6% in the three and~~ ~~nine months ended September 30, 2013, respectively.~~prices. We may experience a rapid and significant decline in U.S. ~~net sales beginning in late 2013~~revenues due to possible generic competition following a Federal ~~court’s~~court's decision in February 2013 invalidating the composition of matter patent.

This decision is being appealed by the Company.

International ~~net sales~~revenues increased due to higher demand partially offset by unfavorable foreign exchange.

Reyataz — a protease inhibitor for the treatment of ~~the human immunodeficiency virus (HIV)~~HIV

U.S. ~~net sales~~revenues decreased due to lower demand partially offset by higher average net selling prices. ~~Estimated U.S. prescription demand decreased by 2% and 5% in the three and~~ ~~nine months ended September 30, 2013, respectively.~~

~~International net sales increased due to higher demand and the timing of government purchases in certain countries.~~

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

U.S. ~~net sales increased~~revenues decreased due to lower demand partially offset by higher average net selling ~~prices offset by lower demand. Estimated U.S. prescription demand was flat for the three months ended September 30, 2013 and~~prices.

International revenues decreased ~~by 2% for the~~ ~~nine months ended September 30, 2013~~.

~~International net sales increased~~ due to ~~higher~~Sustiva's loss of exclusivity in Europe in 2013 resulting in lower demand, average net selling prices and ~~favorable foreign exchange.~~Atripla* revenue sharing.

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 in the treatment of patients with certain types of metastatic colorectal cancer and for use in the treatment of squamous cell carcinoma of the head and neck. Erbitux* is part of our ~~strategic~~ alliance with ~~Lilly.~~Eli Lilly and Company.

U.S. net sales increased in the three months ended September 30, 2013 due to higher average net selling prices. U.S. net sales decreased in the nine months ended September 30, 2013 as lower demand was partially offset by higher average net selling prices.revenues remained flat.

Sprycel — an oral inhibitor of multiple tyrosine kinases indicated for the first-line treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia in chronic phase and 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). Sprycel is part of our ~~strategic~~ alliance with ~~Otsuka.~~Otsuka Pharmaceutical Co., Ltd (Otsuka).

U.S. ~~net sales~~revenues increased ~~primarily~~ due to higher demand and higher average net selling prices. ~~Estimated U.S. prescription demand increased by 23% and 21% in the three and~~ ~~nine months ended September 30, 2013, respectively.~~

International ~~net sales~~revenues increased due to higher demand partially offset by unfavorable foreign exchange.

Yervoy — a monoclonal antibody for the treatment of patients with unresectable (inoperable) or metastatic melanoma

U.S. ~~net sales increased in both periods~~revenues decreased due to ~~higher demand. U.S. net sales in the nine months ended September 30, 2013 were also favorably impacted by~~ the recognition of $27 million in the first quarter of ~~net sales that were~~2013 of previously deferred ~~until sufficient historical experience to estimate sales returns was developed.~~revenues partially offset by higher demand.

International ~~net sales~~revenues increased due to higher demand.

Abilify* — an antipsychotic agent for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder and is part of our ~~strategic~~ alliance with Otsuka

U.S. ~~net sales decreased due to a reduction in our contractual share of net sales from~~ ~~51.5%~~ ~~in 2012 to an estimated~~ ~~34.1%~~ ~~in 2013, which was partially offset by higher average net selling prices. Estimated U.S. prescription demand increased by 2% for the three months ended September 30, 2013 and was~~revenues remained relatively flat ~~for the~~ ~~nine months ended September 30, 2013~~.

~~International net sales increased due to higher demand and favorable foreign exchange.~~

Bydureon* ~~— a once-weekly glucagon-like peptide-1 (GLP-1) receptor agonist for the treatment of type 2 diabetes that is part of our strategic alliance with AstraZeneca~~

~~U.S. net sales are included in our results since the completion of our Amylin acquisition in August 2012.~~

~~The transition of international operations of~~ Bydureon* ~~in a majority of markets from Lilly was completed in the second quarter of 2013. See "Item 1. Financial Statements —Note 3. Alliances and Collaborations" for further discussion.~~

Bydureon* ~~was launched by Amylin in the U.S. in the first quarter of 2012 and in certain EU markets in the second quarter of 2012.~~

Byetta* ~~— a twice daily GLP-1 receptor agonist for the treatment of type 2 diabetes that is part of our strategic alliance with AstraZeneca~~

~~U.S. net sales are included in our results since the completion of our Amylin acquisition in August 2012.~~

~~The transition of international operations of~~ Byetta* ~~in a majority of markets from Lilly was completed in the second quarter of 2013. See "Item 1. Financial Statements —Note 3. Alliances and Collaborations" for further discussion.~~

~~Forxiga~~ ~~— an oral SGLT2 inhibitor for the treatment of diabetes that is part of our alliance with AstraZeneca~~

~~Forxiga~~ ~~began being launched for the treatment of type 2 diabetes in EU markets in the fourth quarter of 2012.~~

~~Onglyza~~/~~Kombiglyze~~ ~~(known in the EU as~~ ~~Onglyza~~/~~Komboglyze) — an oral dipeptidyl peptidase 4 inhibitor for the treatment of type 2 diabetes that is part of our strategic alliance with AstraZeneca~~

~~U.S. net sales in both periods increased primarily~~ due to higher average net selling ~~prices. U.S. net sales in~~prices offset by lower demand, wholesaler buying patterns and the ~~nine months ended September 30, 2013 were also favorably impacted by a $26 million~~ reduction in ~~the sales return accrual based on actual experience. Estimated U.S. prescription demand decreased by 4% for the three months ended September 30,~~our share of Abilify* revenues from 35% in 2013 ~~and increased by 1% for the~~ ~~nine months ended September 30, 2013~~to 33%.

International ~~net sales~~revenues increased ~~primarily~~ due to higher demand.

~~Nulojix~~ ~~— a fusion protein with novel immunosuppressive activity targeted at prevention of kidney transplant rejection~~

• ~~Nulojix~~ ~~was approved and launched~~ These revenues are expected to decline in the ~~U.S.~~third and ~~EU during 2011.~~fourth quarters following the loss of exclusivity in the EU.

Orencia — a fusion protein indicated for adult patients with moderate to severe rheumatoid arthritis who have had an inadequate response to one or more currently available treatments, such as methotrexate or anti-tumor necrosis factor therapy

U.S. ~~net sales~~revenues increased primarily due to higher demand for the subcutaneous formulation and higher average net selling prices. ~~Estimated U.S. prescription demand for the subcutaneous formulation of~~ ~~Orencia~~ ~~increased by 51% and 82% in the three and~~ ~~nine months ended September 30, 2013, respectively. The intravenous formulation of~~ ~~Orencia~~ ~~does not have prescription-level data as it is not dispensed through retail and mail order channels.~~

International ~~net sales~~revenues increased primarily due to higher demand partially offset by unfavorable foreign exchange.

Avapro*/Avalide* ~~(known in the EU as~~ Aprovel*/Karvea*~~) — an angiotensin II receptor blocker for the treatment of hypertension and diabetic nephropathy that is part of the Sanofi alliance~~

U.S. net sales are no longer recognized following the restructured Sanofi agreement. Negative sales of $9 million in the nine months ended September 30, 2013 were due to an increase in the sales return reserve for ~~Avalide*.~~

~~International net sales were impacted by changes attributed to the restructured Sanofi agreement. See "Item 1. Financial Statements —Note 3. Alliances and Collaborations" for further discussion.~~

Eliquis — an oral Factor Xa inhibitor, targeted at stroke prevention in adult patients with NVAF and the prevention and treatment of VTE disorders. Eliquis is part of our ~~strategic~~ alliance with ~~Pfizer.~~Pfizer

~~Eliquis~~ ~~was launched~~U.S. and international revenues continued to increase following the 2013 launches in the U.S., ~~Europe,~~EU, Japan, Canada and ~~Canada in the first quarter of 2013 and continues to be launched in various~~other markets for the reduction of the risk of stroke and systemic embolism in patients with NVAF.

Plavix*Diabetes Alliance — includes ~~— a platelet aggregation inhibitor that is~~Bydureon*, Byetta*, Forxiga*, Onglyza*/Kombiglyze* were part of our strategic alliance with ~~Sanofi~~AstraZeneca

~~U.S. net sales decreased due~~BMS sold its diabetes business to ~~the loss of exclusivity in May 2012.~~

~~International net sales were impacted by changes attributed to the restructured Sanofi agreement. See "Item 1. Financial Statements—Note 3. Alliances and Collaborations" for further discussion.~~

AstraZeneca on February 1, 2014.

Mature Products and All Other — includes all other products, including those which have lost exclusivity in major markets, over-the-counter brands and royalty revenue

U.S. ~~net sales~~revenues decreased due to lower demand and the continued generic erosion of other products. ~~U.S. net sales in the nine months ended September 30, 2013 were also favorably impacted by sales of~~ Symlin*~~, which are included in our results since the acquisition of Amylin in the August 2012.~~

International ~~net sales~~revenues increased due to revenue attributed to certain ~~collaborations~~alliances, which was partially offset by the continued generic erosion of other products.

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 Veterans Administration hospitals, and long-term care (excluding diabetes franchise products ~~Onglyza~~, ~~Kombiglyze~~, Byetta*~~, and~~ Bydureon*~~), among others.~~ Erbitux*, ~~Yervoy~~ ~~and~~ ~~Nulojix,~~ ~~and the intravenous formulation of~~ ~~Orencia~~ are parenterally administered products and do not have prescription-level data as these products are not dispensed through retail and mail order channels. The data is provided by Wolters Kluwer Health based on the Source Prescription Audit and IMS Health based on information from the Next-Generation Prescription Service version 2.0 of the National Prescription Audit. The data is a product of each respective service providers’ own recordkeeping and projection processes and therefore 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 calculating these estimates and will monitor the quality of our own and third-party data used in such calculations.

For all of our products (excluding diabetes franchise products) we calculate the estimated total U.S. prescription change on a weighted-average basis, as mail order prescriptions include a greater volume of product supplied, 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 of approximately three and adding to this the retail prescriptions. For the diabetes franchise, we do not adjust the U.S. prescription data for the difference in volume of mail order and retail prescriptions. We use these methodologies for our internal demand reporting.

3731

Estimated End-User Demand

Pursuant to the Securities and Exchange Commission (SEC) Consent Order described in our ~~2012~~2013 Annual Report on Form 10-K, we monitor the level of inventory on hand in the U.S. wholesaler distribution channel and outside of the U.S. in the direct customer distribution channel. We are obligated to disclose products with levels of inventory in excess of one month on hand or expected demand, subject to a de minimis exception. Estimated levels of inventory in the distribution channel in excess of one month on hand for these products were not material to our results of operations as of the dates indicated. ~~Below are U.S. products that had estimated levels of inventory in the distribution channel in excess of one month at~~ ~~September 30, 2013, and international products that had estimated levels of inventory in the distribution channel in excess of one month on hand at June 30, 2013:~~

Plavix* had ~~1.2~~1.1 months of inventory on hand at March 31, 2014in the U.S. compared to 0.9 months of inventory on hand at December 31, 2013 due to decrease in demand following the loss of exclusivity in 2012.

Reyataz had 1.4 months of inventory on hand internationally at ~~June 30,~~December 31, 2013 ~~due~~compared to ~~the loss of exclusivity in May 2012. We expect a gradual decrease in inventory on hand of~~ Plavix* ~~to occur over the next few years as product in the wholesale distribution channel continues to be worked down or returned. Levels~~1.1 months of inventory on hand ~~in the wholesale and retail distribution channels were considered in assessing the sales return reserves established~~ at September 30, ~~2013~~.2013. The level of inventory on hand was due to government purchasing patterns in Brazil.

~~Dafalgan~~Sustiva Franchise~~, an analgesic product sold principally in Europe,~~ had 1.2 months of inventory on hand internationally at ~~direct customers~~December 31, 2013 compared to ~~1.1~~0.6 months of inventory on hand at ~~March~~September 30, 2013. The level of inventory exceeds one month due to decrease in demand following the loss of exclusivity in Europe in November 2013. We expect inventory on hand to decrease over the next few quarters.

Taxol,an oncology product, had 1.2 months of inventory on hand internationally at December 31, 2013 compared to 0.9 months of inventory on hand at September 30, 2013. The increased level of inventory on hand was due to ~~the ordering patterns~~a one-time sale of ~~pharmacists~~short-dated inventory in ~~France.~~Brazil as a result of a government required labeling change.

In the U.S., we generally determine our months on hand estimates using inventory levels of product on hand and the amount of out-movement provided by our three largest wholesalers and our distributors. Our three largest wholesalers account for approximately 90% of total gross sales of U.S. products. Factors that may influence our estimates include generic competition, seasonality of products, wholesaler purchases in light of increases in wholesaler list prices, new product launches, new warehouse openings by wholesalers and new customer stockings by wholesalers. In addition, these estimates are calculated using third-party data, which may be impacted by their recordkeeping processes.

Our non-U.S. businesses have significantly more direct customers. Limited information on direct customer product level inventory and corresponding out-movement information and the reliability of third-party demand information, where available, varies widely. When direct customer product level inventory, ultimate patient/consumer demand or out-movement data does not exist or is otherwise not available, we have developed a variety of methodologies to estimate such data, including using historical sales made to direct customers and third-party market research data related to prescription trends and end-user demand. Accordingly, we rely on a variety of methods to estimate direct customer product level inventory and to calculate months on hand. Factors that may affect our estimates include generic competition, seasonality of products, direct customer purchases in light of price increases, new product launches, new warehouse openings by direct customers, new customer stockings by direct customers and expected direct customer purchases for governmental bidding situations. As a result, all of the information required to estimate months on hand in the direct customer distribution channel for non-U.S. businesses for the quarter ended ~~September 30, 2013~~March 31, 2014 is not available prior to the filing of this quarterly report on Form 10-Q. We will disclose any product with levels of inventory in excess of one month on hand or expected demand for the current quarter, subject to a de minimis exception, in the next ~~annual~~quarterly report on Form ~~10-K.~~10-Q.

Expenses


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
Dollars in Millions	2013		2012			% Change		2013		2012			% Change		2014			2013			% Change
Cost of products sold	$	1,175	$	987		19	%	$	3,346	$	3,535		(5	)%	$	968		$	1,063		(9	)%
Marketing, selling and administrative	980		1,071			(8	)%	3,016		3,077			(2	)%	957			994			(4	)%
Advertising and product promotion	194		167			16	%	601		585			3	%	163			189			(14	)%
Research and development	893		951			(6	)%	2,774		2,822			(2	)%	946			930			2	%
Impairment charge for BMS-986094 intangible asset	—		1,830			(100	)%	—		1,830			(100	)%
Other (income)/expense	5		(11		)	**		185		(246		)	**		(208		)	(19		)	**
Total Expenses	$	3,247	$	4,995		(35	)%	$	9,922	$	11,603		(14	)%	$	2,826		$	3,157		(10	)%

** Change is in excess of 100%

Cost of products sold ~~increased in the three month periods~~decreased primarily due to ~~higher profit sharing expenses~~the diabetes business divestiture in ~~connection with our alliances. Cost of products sold decreased in the nine month periods primarily due to lower royalties following the loss of exclusivity of~~ Plavix* ~~and~~ Avapro*/Avalide* ~~and impairment charges of $147 million during the second quarter of 2012,~~February 2014 partially offset by higher ~~net amortization costs and~~ profit sharing ~~expenses resulting from the Amylin acquisition in the third quarter of 2012.~~

~~Prior period impairment charges included $120 million related to continued competitive pricing pressures~~ and a reduction in the undiscounted projected cash flows to an amount less than the carrying value of a developed technology intangible asset at June 30, 2012. The remaining $27 million charge related to the abandonment of aroyalties for other alliances and accelerated depreciation for certain manufacturing ~~facility resulting from the outsourcing of a manufacturing process.~~

facilities. Cost of products sold as a percentage of ~~net sales was~~total revenues decreased from ~~28.9%~~27.7% ~~and~~to ~~26.4%~~25.4% in the ~~three months ended September 30, 2013~~ ~~and~~ ~~2012, respectively, and~~ ~~28.0%~~ ~~and~~ ~~26.3%~~ incurrent period, primarily due to the ~~nine months ended September 30, 2013~~ ~~and~~ ~~2012~~, respectively. These changes were primarily attributed to a less favorable product mix as a result of royalties and profit sharing expenses in connection with our alliances, higher amortization costs in 2013 and impairment charges in 2012.above factors.

Marketing, selling and administrative expenses ~~decreased due to the accelerated vesting of stock options~~ and restricted stock units related to the Amylin acquisition ($67 million) in the third quarter of 2012, a lower pharmaceutical company fee, a reduction in sales related activities for certain products to coincide with their respective lifecycles partially offset by higher spending to support the launch of new key products and additional spending following the Amylin acquisition.

~~Advertising~~advertising and product promotion expenses ~~increased primarily due to~~both decreased following the ~~timing of expenses for recently launched key products.~~diabetes business divestiture in February 2014.

Research and development expenses ~~decreased primarily~~increased due to a $33 million in process research and development (IPRD) impairment ~~charges in 2012,~~charge following unfavorable clinical trial results and the ~~accelerated vesting of stock options~~decision to cease further development and ~~restricted stock units related to the Amylin acquisition and~~higher upfront ~~milestone and other~~ licensing ~~payments in 2012~~payments. These impacts were partially offset by ~~additional costs following~~ the Amylin acquisition. Refer to "Specified Items" included in "—Non-GAAP Financial Measures" for amounts related to 2012. The decrease in research and development expenses in the nine months ended September 30, 2013 was also partially offset by higher clinical grant spending.

~~A $1.8 billion impairment charge was recognized in 2012 when the development~~timing of ~~BMS-986094 (formerly INX-189), a compound which we acquired as part of our acquisition of Inhibitex, Inc. to treat hepatitis C, was discontinued in the interest of patient safety.~~expenditures.

Intangible assets are tested for impairment whenever current facts or circumstances warrant a review, although ~~in-process research and development (IPRD)~~IPRD is required to be tested annually. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for recently launched products or IPRD. These assets are initially measured at fair value and therefore a reduction in expectations used in the valuations could potentially lead to an impairment. Some of the more common potential risks leading to impairment include competition, earlier than expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trial results, higher development or other operating costs, inability to achieve expected sales levels or synergies, changes in tax laws or other macro-economic changes. We operate in a very dynamic market and regulatory environment in which events can occur causing our expectations to change quickly and thus leading to potential impairment charges.

~~Specific intangible assets with material carrying values at September 30, 2013, that are exposed to potential impairment include the recently acquired and launched~~ ~~Bydureon~~* product ($4,788 million) and several IPRD assets including peginterferon lambda ($310 million) in Phase III development for the treatment of hepatitis C virus, AM152 ($160 million)in Phase II development for the treatment of fibrosis and metreleptin ($120 million), which is filed and under review by the FDA for the treatment of lipodystrophy.

Other (income)/expense includes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Dollars in Millions	2013			2012			2013			2012			2014			2013
Interest expense	$	46		$	48		$	146		$	131		$	54		$	50
Investment income	(23		)	(27		)	(76		)	(85		)	(23		)	(25		)
Provision for restructuring	6			29			212			71			21			33
Litigation charges/(recoveries)	17			50			(5		)	(100		)
Litigation charges													29			—
Equity in net income of affiliates	(42		)	(40		)	(128		)	(150		)	(36		)	(36		)
Out-licensed intangible asset impairment	—			—			—			38
Gain on sale of product lines, businesses and assets	—			—			(1		)	(3		)	(259		)	(1		)
Other income received from alliance partners, net	(31		)	(96		)	(120		)	(225		)
Pension settlements	37			3			138			3
Other alliance and licensing income													(108		)	(57		)
Pension curtailments, settlements and special termination benefits													64			—
Other	(5		)	22			19			74			50			17
Other (income)/expense	$	5		$	(11	)	$	185		$	(246	)	$	(208	)	$	(19	)

~~Interest expense in~~Gain on sale of product lines, businesses and assets was related to the ~~nine months ended September 30, 2013 increased due to higher borrowings in 2013.~~

Provision for restructuring was primarily attributable to employee termination benefits. Employee termination costs of $156 million were incurred in the nine months ended September 30, 2013 as a result of workforce reductions in several European countries. The employee reductions are primarily attributed to sales force reductions resulting from the restructuringsale of the ~~Sanofi and Otsuka agreements and streamlining operations due to challenging market conditions~~diabetes business in ~~Europe.~~

~~Litigation charges/(recoveries) in 2012 included $172 million for our share of the Apotex damages award concerning~~ Plavix*.

Equity in net income of affiliates is primarily related to our international partnership with Sanofi in Europe and Asia which decreased in 2013 as a result of our restructuring of the Sanofi agreement and continues to be negatively impacted by generic competition for Plavix* ~~in Europe and Asia.~~

Out-licensed intangible asset impairment charges in 2012 are related to assets acquired in the Medarex, Inc. and ZymoGenetics, Inc. acquisitions and resulted from unfavorable clinical trial results and/or abandonment of the programs.

~~Other income received from alliance partners includes royalties and amortization of upfront, milestone and other licensing payments related to certain alliances. The decrease in U.S.~~ Plavix* net sales resulted in lower development royalties owed to Sanofi in 2013. Royalty revenues from Sanofi (except in Europe and Asia) are presented in net sales beginning in 2013 as a result of the restructuring of our Sanofi agreement.February 2014. See ~~“Item~~"Item 1. Financial Statements—Note 3~~. Alliances and Collaborations”~~3. Alliances" for further ~~discussion.~~

details.

Pension settlement charges were recognized in ~~2013~~the first quarter of 2014, after determining that the annual lump sum payments will likely exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan. The ~~charges~~charge included the acceleration of a portion of unrecognized actuarial losses. Similar charges will likely occur in the future. See “Item 1. Financial Statements—Note 15.15. Pension and Postretirement Benefit Plans” for further ~~detail.~~details.

Other alliance and licensing income increased primarily due to royalties and transitional service fees resulting from the diabetes business divestiture. See “Item 1. Financial Statements—Note 3. Alliances” for further details.

Other includes a $45 million loss on debt redemption in 2014.

Income Taxes



	Three months ended March 31,
Dollars in Millions	2014			2013
Earnings Before Income Taxes	$	985		$	674
Provision for income taxes	49			51
Effective tax rate	5.0		%	7.6		%

The effective tax rates were impacted by several factors including a tax benefit attributed to the gain on the sale of the diabetes business in the current period and the timing of the extension for the R&D credit and look through exception legislation.

See “Item 1. Financial Statements—Note 7. Income Taxes” for further discussion.

Non-GAAP Financial Measures

Our non-GAAP financial measures, including non-GAAP earnings and related EPS information, are adjusted to exclude certain costs, expenses, gains and losses and other specified items that due to their significant and/or unusual nature are evaluated on an individual basis. Similar charges or gains for some of these items have been recognized in prior periods and it is reasonably possible that they could reoccur in future periods. Non-GAAP information is intended to portray the results of our baseline performance which include the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceutical products on a global basis and to enhance an investor’s overall understanding of our past financial performance and prospects for the future. For example, non-GAAP earnings and EPS information is an indication of our baseline performance before items that are considered by us to not be reflective of our ongoing results. In addition, this information is among the primary indicators we use as a basis for evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods. This information is not intended to be considered in isolation or as a substitute for net earnings or diluted EPS prepared in accordance with GAAP.

Specified items were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Dollars in Millions	2013			2012			2013			2012			2014			2013
Accelerated depreciation, asset impairment and other shutdown costs	$	—		$	—		$	—		$	147		$	45		$	—
Amortization of acquired Amylin intangible assets	137			91			412			91			—			138
Amortization of Amylin collaboration proceeds	(68		)	(46		)	(202		)	(46		)	—			(67		)
Amortization of Amylin inventory adjustment	—			9			14			9			—			14
Cost of products sold	69			54			224			201			45			85

Stock compensation from accelerated vesting of Amylin awards	—			67			—			67
Process standardization implementation costs	4			3			6			16
Marketing, selling and administrative	4			70			6			83
Marketing, selling and administrative^(a)													3			1

Stock compensation from accelerated vesting of Amylin awards	—			27			—			27
Upfront, milestone and other licensing payments	—			21			—			21			15			—
IPRD impairment	—			—			—			103			33			—
Research and development	—			48			—			151			48			—

Impairment charge for BMS-986094 intangible asset	—			1,830			—			1,830

Provision for restructuring	6			29			212			71			21			33
Acquisition and collaboration related items	—			29			(10		)	42
Litigation charges/(recoveries)	—			50			(23		)	(100		)
Out-licensed intangible asset impairment	—			—			—			38
Loss on debt repurchase	—			8			—			27
Gain on sale of product lines, businesses and assets													(259		)	—
Pension curtailments, settlements and special termination benefits													64			—
Acquisition and alliance related items													16			—
Litigation charges													25			—
Loss on debt redemption													45			—
Upfront, milestone and other licensing receipts	—			—			(14		)	—			—			(14		)
Pension settlements	37			—			136			—
Other (income)/expense	43			116			301			78			(88		)	19

Increase to pretax income	116			2,118			531			2,343			8			105
Income tax on items above	(40		)	(722		)	(191		)	(791		)
Increase to net earnings	$	76		$	1,396		$	340		$	1,552
Income taxes on items above													(179		)	(35		)
Increase/(decrease) to net earnings													$	(171	)	$	70


(a)	Specified items in marketing, selling and administrative are process standardization implementation costs.

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The reconciliations from GAAP to Non-GAAP were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions, except per share data 2013 2012 2013 2012
Net Earnings/(Loss) Attributable to BMS – GAAP $ 692
$ (711 ) $ 1,837
$ 1,035
Earnings attributable to unvested restricted shares —
—
—
(1 )
Net Earnings/(Loss) used for Diluted EPS Calculation – GAAP $ 692
$ (711 ) $ 1,837
$ 1,034

Net Earnings/(Loss) Attributable to BMS – GAAP $ 692
$ (711 ) $ 1,837
$ 1,035
Less Specified Items 76
1,396
340
1,552
Net Earnings Attributable to BMS – Non-GAAP 768
685
2,177
2,587
Earnings attributable to unvested restricted shares —
—
—
(1 )
Net Earnings used for Diluted EPS Calculation – Non-GAAP $ 768
$ 685
$ 2,177
$ 2,586

Average Common Shares Outstanding – Diluted 1,662
1,666
1,659
1,697
Contingently convertible debt common stock equivalents —
1
—
—
Incremental shares attributable to share-based compensation plans —
16
—
—
Average Common Shares Outstanding - Diluted - Non-GAAP 1,662
1,683
1,659
1,697

Diluted Earnings/(Loss) Per Share – GAAP $ 0.42
$ (0.43 ) $ 1.11
$ 0.61
Diluted EPS Attributable to Specified Items 0.04
0.84
0.20
0.91
Diluted Earnings/(Loss) Per Share – Non-GAAP $ 0.46
$ 0.41
$ 1.31
$ 1.52

Common stock equivalents were included in the calculation of GAAP earnings per share for all periods presented above except for the three months ended September 30, 2012 because they were anti-dilutive due to the loss.

~~Income Taxes~~

Three months ended September 30, Nine months ended September 30,
Dollars in Millions 2013 2012 2013 2012
Earnings/(Loss) Before Income Taxes $ 818
$ (1,259 ) $ 2,022
$ 1,827
Provision for/(benefit from) income taxes 126
(546 ) 177
250
Effective tax rate 15.4 % (43.4 )% 8.8 % 13.7 %

Changes in the effective tax rates resulted primarily from discrete tax benefits attributable to higher impairment charges in 2012 (including a $1.8 billion impairment charge in the third quarter of 2012); favorable earnings mix between high and low tax jurisdictions attributable to lower Plavix* sales in 2013; and to a lesser extent, an internal transfer of intellectual property in the fourth quarter of 2012 and higher charges for contingent tax matters in the third quarter of 2013. The retroactive reinstatement of the R&D tax credit and look thru exception for the full year 2012 of ~~$43 million~~ ~~was recognized in the first quarter of 2013.~~

Historically, 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. See “Item 1. Financial Statements—Note 6~~. Income Taxes” for further discussion.~~

~~Noncontrolling Interest~~

~~See “Item 1. Financial Statements—Note~~ 3. Alliances and Collaborations” for further discussion of our Sanofi partnership for the territory covering the Americas. The decrease in noncontrolling interest resulted from the exclusivity loss in the U.S. of Plavix* ~~in May 2012 and~~ Avapro*/Avalide* ~~in March 2012. A summary of noncontrolling interest is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in Millions 2013 2012 2013 2012
Sanofi partnerships $ (4 ) $ (7 ) $ 19
$ 847
Other 1
3
(1 ) 12
Noncontrolling interest-pre-tax (3 ) (4 ) 18
859
Income taxes (3 ) (2 ) 10
317
Net earnings/(loss) attributable to noncontrolling interest-net of taxes $ —
$ (2 ) $ 8
$ 542



	Three Months Ended March 31,
Dollars in Millions, except per share data	2014			2013
Net Earnings Attributable to BMS – GAAP	$	937		$	609
Earnings attributable to unvested restricted shares	—			—
Net Earnings used for Diluted EPS Calculation – GAAP	$	937		$	609

Net Earnings Attributable to BMS – GAAP	$	937		$	609
Less Specified Items	(171		)	70
Net Earnings Attributable to BMS – Non-GAAP	766			679
Earnings attributable to unvested restricted shares	—			—
Net Earnings used for Diluted EPS Calculation – Non-GAAP	$	766		$	679

Average Common Shares Outstanding – Diluted	1,666			1,655

Diluted Earnings Per Share – GAAP	$	0.56		$	0.37
Diluted EPS Attributable to Specified Items	(0.10		)	0.04
Diluted Earnings Per Share – Non-GAAP	$	0.46		$	0.41

FINANCIAL POSITION, LIQUIDITY, AND CAPITAL RESOURCES

Our net ~~debt~~cash/(debt) position was as follows:


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Cash and cash equivalents	$	1,771		$	1,656		$	5,225		$	3,586
Marketable securities – current	951			1,173			1,834			939
Marketable securities – non-current	3,623			3,523			3,558			3,747
Cash, cash equivalents and marketable securities	6,345			6,352			10,617			8,272
Short-term borrowings and current portion of long-term debt	(680		)	(826		)	(281		)	(359		)
Long-term debt	(6,532		)	(6,568		)	(7,367		)	(7,981		)
Net debt position	$	(867	)	$	(1,042	)
Net cash/(debt) position							$	2,969		$	(68	)

Cash, cash equivalents and marketable securities held in the U.S. were approximately ~~$200 million~~$2.7 billion at ~~September 30, 2013~~March 31, 2014. Most of the remaining ~~$6.2~~$7.9 billion is held primarily in low-tax jurisdictions and is attributable to earnings that are expected to be indefinitely reinvested offshore. Cash repatriations are subject to restrictions in certain jurisdictions and may be subject to withholding and additional U.S. income taxes.

In February 2014, we sold to AstraZeneca substantially all of the diabetes business comprising our alliance with them, resulting in $3.3 billion of cash flow during the three months ended March 31, 2014. We ~~started issuing~~also redeemed our 5.45% Notes due 2018 in their entirety. The outstanding principal amount of the notes was $582 million. No commercial paper ~~to meet near-term domestic liquidity requirements during 2012. The average amount of commercial paper outstanding was~~ ~~$297 million~~ ~~at a weighted-average interest rate of~~ ~~0.12%~~ ~~during the~~ ~~nine months ended September 30, 2013. The maximum month-end amount of commercial paper outstanding during the~~ ~~nine months ended September 30, 2013~~ ~~was~~ ~~$820 million. Commercial paper~~ borrowings of ~~$470 million~~ were outstanding at ~~September 30, 2013~~ ~~and none were outstanding at~~ ~~December~~as of March 31, ~~2012. We will continue to issue commercial paper on an as-needed basis.~~2014.

Our investment portfolio includes non-current marketable securities, which are subject to changes in fair value as a result of interest rate fluctuations and other market factors, which may impact our results of operations. Our investment policy places limits on these investments and the amount and time to maturity of investments with any institution. The policy also requires that investments are only entered into with corporate and financial institutions that meet high credit quality standards. See “Item 1. Financial Statements—Note 89. Financial Instruments.”

We currently have two separate $1.5 billion ~~five-year~~ revolving credit facilities from a syndicate of lenders. The facilities provide for customary terms and conditions with no financial covenants and ~~are~~currently expire in September 2017 and July 2018. Each facility is extendable annually by one year on any anniversary date with the consent of the lenders. No borrowings were outstanding under either revolving credit facility at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

Additional regulations in the U.S. could be passed in the future, which could further reduce our results of operations, operating cash flow, liquidity and financial flexibility. We continue to monitor the potential impact of the economic conditions in certain European and other countries and the related impact on prescription trends, pricing discounts, creditworthiness of our customers and our ability to collect outstanding receivables from our direct customers. Currently, we believe these economic conditions will not have a material impact on our liquidity, cash flow or financial flexibility.

~~Although not material,~~We have exposure to certain European government-backed entities with a higher risk of ~~default were identified by monitoring~~default. We monitor them through economic factors including credit ratings, credit-default swap rates and debt-to-gross domestic product ratios in addition to entity specific factors. ~~Historically, our~~Our exposure ~~was~~has been limited by factoring receivables and deferring revenues until the collection of cash. Our credit exposures in Europe may increase in the future due to reductions in our factoring arrangements and the ongoing sovereign debt crisis. Our credit

exposure to trade receivables in Greece, Portugal, Italy and Spain was ~~$195~~$135 million at ~~September 30, 2013~~March 31, 2014, of which approximately ~~80%~~70% was from government-backed entities. Sales of trade receivables in Italy, Portugal and Spain were ~~$379~~$128 million in ~~2013~~2014 and ~~$250~~$72 million in ~~2012~~2013. Sales of receivables in Japan were ~~$349~~$87 million in 2014 and $152 million in 2013 ~~and $484 million in~~ ~~2012~~. Our ~~sales~~factoring agreements do not allow for recourse in the event of uncollectibility and we do not retain interest to the underlying assets once sold.

We continue to manage our operating cash flows by focusing on working capital items that are most directly affected by changes in sales volume, such as receivables, inventories and accounts payable.


Dollars in Millions	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Net trade receivables	$	1,839		$	1,708		$	1,742		$	1,690
Inventories	1,640			1,657			1,655			1,498
Accounts payable	(2,466		)	(2,202		)	(2,502		)	(2,559		)
Total	$	1,013		$	1,163		$	895		$	629

Credit Ratings

Moody’s Investors Service long-term and short-term credit ratings are ~~currently~~ A2 and Prime-1, respectively, and their long-term credit outlook ~~was revised from stable to negative in September 2013.~~is negative. Standard & Poor’s long-term and short-term credit ratings are ~~currently~~ A+ and A-1+, respectively, and their long-term credit outlook ~~remains~~is stable. ~~Fitch lowered our~~Fitch's long-term ~~credit rating from A to A-, lowered our~~and short-term credit ~~rating from F1 to~~ratings are A- and F2, respectively, and ~~revised our long-term~~long term credit outlook ~~from negative to stable in July 2013.~~is negative. Our credit ratings are considered investment grade. Our long-term ratings reflect the ~~agencies’~~agencies' opinion that we have a low default risk but are somewhat susceptible to adverse effects of changes in circumstances and economic conditions. Our short-term ratings reflect the ~~agencies’~~agencies' opinion that we have good to extremely strong capacity for timely repayment.

Cash Flows

The following is a discussion of cash flow activities:


	Nine Months Ended September 30,						Three Months Ended March 31,
Dollars in Millions	2013			2012			2014			2013
Cash flow provided by/(used in):
Operating activities	$	2,135		$	6,105		$	617		$	(428	)
Investing activities	(257		)	(7,004		)	2,212			161
Financing activities	(1,779		)	(3,375		)	(1,192		)	(44		)

Operating Activities

Cash flow from operating activities represents the cash receipts and disbursements from all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting net earnings for noncontrolling interest, non-cash operating items, gains and losses attributed to investing and financing activities and changes in operating assets and liabilities resulting from timing differences between the receipt and payments of cash and when the transactions are recognized in our results of operations. As a result, changes in cash from operating activities reflect the timing of cash collections from customers and alliance partners; payments to suppliers, alliance partners and employees; pension contributions; and tax payments in the ordinary course of business.

The $~~4.0~~1.0 billion ~~decrease~~increase in cash provided by operating activities compared to ~~2012~~2013 was primarily attributable to:

~~Lower upfront, milestone,~~Timing of payments with alliance partners, Medicaid rebates and contingent collaboration proceeds in 2013 ($2.9 billion). Collaboration proceeds of $3.8 billion were received in 2012 from AstraZeneca as consideration for entering into the Amylin collaboration and $875 million were received in 2013.

~~Lower operating cash flows attributed to~~ Plavix* ~~and~~ Avapro*/Avalide* ~~sales reductions following the loss of exclusivity of these products in 2012 (approximately $700 million);~~

~~Additional~~other working capital requirements in both periods (approximately $600 million);

Proceeds from the diabetes business divestiture allocated to supply and ~~other items~~R&D arrangements in ~~2013~~2014 ($275 million);

Lower pension contributions and annual employee bonus payments in 2014 (approximately ~~$400~~$200 million); and

Lower litigation payments in 2014 (approximately $100 million).

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~~Investing~~Partially offset by:

Higher upfront and contingent milestone proceeds in 2013 ($300 million).

Investing Activities

The ~~$6.7~~$2.1 billion ~~decrease~~increase in cash ~~used in~~provided by investing activities compared to ~~2012~~2013 was primarily attributable to:

~~Cash was used~~Proceeds allocated to ~~fund~~ the ~~acquisition~~sale of ~~Amylin ($5.0 billion) and Inhibitex ($2.5 billion)~~the diabetes business were $3.1 billion in ~~2012.~~

~~Cash generated from the sales, purchases and maturities of~~2014. These proceeds were partially invested in marketable ~~securities was~~ ~~$883 million~~ ~~in 2012. The cash was used to partially fund acquisitions.~~

securities.

Financing Activities

The ~~$1.6~~$1.2 billion ~~decrease~~increase in cash used in financing activities compared to ~~2012~~2013 was primarily attributable to:

Commercial paper borrowings were $600 million in 2013 (none in 2014).

~~Cash used~~Management periodically evaluates potential opportunities to repurchase ~~common stock was~~ ~~$433~~certain debt securities and terminate certain interest rate swap contracts prior to their maturity. Cash outflows related to the debt redemption were $676 million in ~~2013 and~~ ~~$1.9 billion~~2014 (none in 2012. In May 2010, the Board of Directors authorized the repurchase of up to $3.0 billion of common stock. In June 2012, the Board of Directors increased its authorization for the repurchase of stock by an additional $3.0 billion. The repurchase program does not have an expiration date, although we do not anticipate any future repurchases at this time.

2013).

Dividend payments were $~~1.7 billion~~605 million in ~~2013~~2014 and ~~2012.~~$580 million in 2013. Dividends declared per common share were ~~$1.05~~$0.36 in ~~2013~~2014 and ~~$1.02~~$0.35 in ~~2012.~~2013. Dividend decisions are made on a quarterly basis by our Board of Directors.

~~The~~ ~~$597~~Cash used to repurchase common stock was $297 million ~~principal amount of our 5.25% Notes matured and was repaid.~~

~~Net short-term commercial paper borrowings were~~ ~~$470 million~~ in ~~2013.~~

~~Proceeds from the issuance of senior unsecured notes and repayments of debt assumed~~2013 (none in ~~the Amylin acquisition were $2.0 billion each in 2012.~~2014).

Proceeds from stock option exercises were ~~$378~~$85 million in ~~2013~~2014 (excluding ~~$105~~$87 million of excess tax benefits) and ~~$339~~$215 million in ~~2012~~2013 (excluding ~~$58~~$55 million of excess tax benefits). These proceeds will vary from period to period based on fluctuations in the market value of our stock relative to the exercise price of the stock options and other factors.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Our critical accounting policies are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates. For a discussion of our critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2012~~2013 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (including documents incorporated by reference) and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as “should”, “expect”, “anticipate”, “estimate”, “target”, “may”, “project”, “guidance”, “intend”, “plan”, “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years. We have included important factors in the cautionary statements included in this report and in the ~~2012~~2013 Annual Report on Form 10-K, particularly under “Item 1A. Risk Factors,” that we believe could cause actual results to differ materially from any forward-looking statement.

Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.

4637

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our market risk, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our ~~2012~~2013 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

There were no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2013~~March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in “Item 1. Financial Statements—Note 17. Legal Proceedings and Contingencies,” to the interim consolidated financial statements, and is incorporated by reference herein.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the Company’s ~~2012~~2013 Annual Report on Form 10-K.

4738

Item 2. ISSUER PURCHASES OF EQUITY SECURITIES

The following table summarizes the surrenders of our equity securities during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014:

Period
Total Number of
Shares Purchased^(a)

Average
Price Paid
per Share^(a)

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs^(b)

Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs^(b)
Dollars in Millions, Except Per Share Data
January 1 to 31, 2013 3,206,822
$ 34.25
3,191,812
$ 1,672
February 1 to 28, 2013 2,466,156
$ 36.67
2,452,642
$ 1,583
March 1 to 31, 2013 4,780,971
$ 38.45
2,510,200
$ 1,484
Three months ended March 31, 2013 10,453,949
8,154,654

April 1 to 30, 2013 675,677
$ 40.85
665,458
$ 1,456
May 1 to 31, 2013 519,070
$ 41.65
487,187
$ 1,436
June 1 to 30, 2013 402,285
$ 46.30
391,002
$ 1,418
Three months ended June 30, 2013 1,597,032
1,543,647

July 1 to 31, 2013 793,859
$ 44.44
784,977
$ 1,383
August 1 to 31, 2013 342,124
$ 43.59
334,261
$ 1,368
September 1 to 30, 2013 7,113
$ 41.90
—
$ 1,368
Three months ended September 30, 2013 1,143,096
1,119,238

Nine months ended September 30, 2013 13,194,077
10,817,539



Period	Total Number of Shares Purchased^(a)	Average Price Paid per Share^(a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs^(b)
Dollars in Millions, Except Per Share Data
January 1 to 31, 2014	47,745	$	53.20	—	$	1,368
February 1 to 28, 2014	17,787	$	51.66	—	$	1,368
March 1 to 31, 2014	2,541,287	$	54.12	—	$	1,368
Three months ended March 31, 2014	2,606,819			—


(a)	The total number of shares purchased and the total number of shares purchased as part of publicly announced programs is different because shares of common stock are withheld by us from employee restricted stock awards in order to satisfy our applicable tax withholding obligations.


(b)	In May 2010, the Board of Directors authorized the repurchase of up to $3.0 billion of common stock. In June 2012, the Board of Directors increased its authorization for the repurchase of stock by an additional $3.0 billion. The stock repurchase program does not have an expiration date ~~although~~and we ~~do not anticipate any~~may consider future ~~repurchases at this time.~~repurchases.

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Item 6. EXHIBITS

Exhibits (listed by number corresponding to the Exhibit Table of Item 601 in Regulation S-K).



Exhibit No.		Description
12.		Computation of Earnings to Fixed Charges.
31a.		Section 302 Certification Letter.
31b.		Section 302 Certification Letter.
32a.		Section 906 Certification Letter.
32b.		Section 906 Certification Letter.
101.		The following financial statements from the Bristol-Myers Squibb Company Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2013,~~March 31, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) consolidated statements of earnings, (ii) consolidated statements of comprehensive income and retained earnings, (iii) consolidated balance sheets, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.

* Indicates, in this Form 10-Q, brand names of products, which are registered trademarks not solely owned by the Company or its subsidiaries. Byetta, Bydureon, Myalept and Symlin are trademarks of Amylin Pharmaceuticals, LLC and AstraZeneca Pharmaceuticals LP; Farxiga/Forxiga/Xigduo and Onglyza/Kombiglyze are trademarks of AstraZeneca AB (PUBL), Erbitux is a trademark of Eli Lilly and Company; Avapro/Avalide (known in the EU as Aprovel/Karvea) and Plavix are trademarks of Sanofi; Abilify is a trademark of Otsuka Pharmaceutical Co., Ltd.; Truvada is a trademark of Gilead Sciences, Inc.; Gleevec is a trademark of Novartis AG; Atripla is a trademark of Bristol-Myers Squibb and Gilead Sciences, LLC; Estrace and Ovcon are trademarks of Warner-Chilcott Company, LLC; Delestrogen is a trademark of JHP Pharmaceuticals, LLC; Reglan is a trademark of ANIP Acquisition Company, and Humira is a trademark of AbbVie Biotechnology LTD. Brand names of products that are in all italicized letters, without an asterisk, are registered trademarks of BMS and/or one of its subsidiaries.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		BRISTOL-MYERS SQUIBB COMPANY (REGISTRANT)

Date:	~~October 23, 2013~~April 29, 2014	By:	/s/ Lamberto Andreotti
			Lamberto Andreotti Chief Executive Officer

Date:	~~October 23, 2013~~April 29, 2014	By:	/s/ Charles Bancroft
			Charles Bancroft Chief Financial Officer

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	% of Net Sales
	2010 – 2012	2013 – 2020
$0 to $400 million	30%	65%
$400 million to $600 million	5%	12%
$600 million to $800 million	3%	3%
$800 million to $1.0 billion	2%	2%
In excess of $1.0 billion	1%	1%