REVENUE RECOGNITION

The following table summarizes the disaggregation of revenue by nature:



	Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions	2018		2017		2018		2017
Net product sales	$	5,461	$	4,770	$	10,433	$	9,350
Alliance revenues	154		237		306		461
Other revenues	89		137		158		262
Total Revenues	$	5,704	$	5,144	$	10,897	$	10,073

Net product sales represent more than 90% of the Company’s total revenue during the three and six months ended June 30, 2018 and 2017. Products are sold principally to wholesalers or distributors and to a lesser extent, directly to retailers, hospitals, clinics, government agencies and pharmacies. Customer orders are generally fulfilled within a few days of receipt resulting in minimal order backlog. Contractual performance obligations are usually limited to transfer of control of the product to the customer. The transfer occurs either upon shipment or upon receipt of the product in certain non-U.S. countries after considering when the customer obtains legal title to the product and when the Company obtains a right of payment. At these points, customers are able to direct the use of and obtain substantially all of the remaining benefits of the product.

Wholesalers are initially invoiced at contractual list prices. Payment terms are typically 30 to 90 days based on customary practices in each country with the exception of certain biologic products in the U.S., including Opdivo, Yervoy and Empliciti (90 days to 120 days). Revenue is reduced from wholesaler list price at the time of recognition for expected charge-backs, discounts, rebates, sales allowances and product returns, which are referred to as gross-to-net (GTN) adjustments. These reductions are attributed to various commercial arrangements, managed healthcare organizations and government programs such as Medicare, Medicaid and the 340B Drug Pricing Program containing various pricing implications such as mandatory discounts, pricing protection below wholesaler list price or other discounts when Medicare Part D beneficiaries are in the coverage gap. In addition, non-U.S. government programs include different pricing schemes such as cost caps, volume discounts, outcome-based pricing and pricing claw-backs determined on sales of individual companies or an aggregation of companies participating in a specific market. Charge-backs and cash discounts are reflected as a reduction to receivables and settled through the issuance of credits to the customer, typically within one month. All other rebates, discounts and adjustments, including Medicaid and Medicare, are reflected as a liability and settled through cash payments to the customer, typically within various time periods ranging from a few months to one year.

Significant judgment is required in estimating GTN adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

The following table summarizes GTN adjustments:



	Three Months Ended June 30,						Six Months Ended June 30,
Dollars in Millions	2018			2017			2018			2017
Gross product sales	$	7,509		$	6,306		$	14,210		$	12,168
GTN adjustments^(a)
Charge-backs and cash discounts	(663		)	(500		)	(1,246		)	(938		)
Medicaid and Medicare rebates	(765		)	(517		)	(1,322		)	(901		)
Other rebates, returns, discounts and adjustments	(620		)	(519		)	(1,209		)	(979		)
Total GTN adjustments	(2,048		)	(1,536		)	(3,777		)	(2,818		)
Net product sales	$	5,461		$	4,770		$	10,433		$	9,350


(a)	Includes reductions to provisions for product sales made in prior periods resulting from changes in estimates of $60 million and $5 million in the three months ended June 30, 2018 and 2017 and $110 million and $54 million in the six months ended June 30, 2018 and 2017, respectively.

Alliance and other revenues consist primarily of amounts related to collaborations and out-licensing arrangements. Such arrangements may include the transfer of certain rights to develop or commercialize investigational compounds or products and joint obligations to provide development, distribution, promotion, sales and marketing services and clinical or commercial product supply. Each of these arrangements are evaluated for whether they represent contracts that are within the scope of the revenue recognition guidance in their entirety or contain aspects that are within the scope of the guidance, either directly or by reference based upon the application of the guidance related to the derecognition of nonfinancial assets (ASC 610). Performance obligations are identified and separated when the other party can benefit directly from the rights, goods or services either on their own or together with other readily available resources and when the rights, goods or services are not highly interdependent or interrelated.

Transaction prices for these arrangements may include fixed up-front amounts as well as variable consideration such as contingent development and regulatory milestones, sales-based milestones and royalties. The most likely amount method is used to estimate contingent development, regulatory and sales-based milestones because the ultimate outcomes are binary in nature. The expected value method is used to estimate royalties because a broad range of potential outcomes exist, except for instances in which such royalties relate to a license. Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Significant judgment is required in estimating the amount of variable consideration to recognize when assessing factors outside of BMS’s influence such as likelihood of regulatory success, limited availability of third party information, expected duration of time until resolution, lack of relevant past experience, historical practice of offering fee concessions and a large number and broad range of possible amounts. To the extent arrangements include multiple performance obligations that are separable, the transaction price assigned to each distinct performance obligation is reflective of the relative stand-alone selling price and recognized at a point in time upon the transfer of control.

We have three types of out-licensing arrangements: 1) straight license arrangements, when we out-license intellectual property to another party and have no further performance obligations; 2) arrangements that include a license and an additional performance obligation to supply product upon the request of the third party; and 3) collaboration arrangements, which include transferring a license to a third party to jointly develop and commercialize a product.

Most of our out-licensing arrangements have a single performance obligation satisfied upon the rights transferred to a third party with no additional continuing involvement. In arrangements that include a license plus a contingent supply obligation, the items are not combined into a single performance obligation. Transfer of control for the license occurs upon execution of the agreement. Contingent development and regulatory milestones are allocated to the license and recognized upon transfer of control subject to the constraint discussed above. Sales-based milestones and royalties are allocated to the license and recognized when the milestone is achieved or the subsequent sales occur. Consideration is received for the supply under "cost plus" arrangements, which approximate stand alone selling prices. Royalties are presented in Alliance and other revenues (excluding those related to divestitures) and contingent milestones are presented in Other income (net). Supply sales to other parties in which product rights have been transferred to the counterparty are typically distinct and are recognized at a point in time upon transfer of control and included in Alliance and other revenues.

Amounts received from collaboration partners related to upfront fees or contingent development or regulatory milestones are recognized ratably over time as the license is combined with other performance obligations such as development and commercial activities and included in Other income (net). Profit sharing amounts payable to BMS by collaboration partners are recognized in Alliance and other revenues once earned as such amounts are related to third-party sales. Supply sales to alliance partners in which product rights have been transferred to the counterparty are typically distinct and are recognized at a point in time upon transfer of control. Refer to "-Note 4. Alliances" for further information.

The following table summarizes the disaggregation of revenue by product and region:



	Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions	2018		2017		2018		2017
Prioritized Brands
Opdivo	$	1,627	$	1,195	$	3,138	$	2,322
Eliquis	1,650		1,176		3,156		2,277
Orencia	711		650		1,304		1,185
Sprycel	535		506		973		969
Yervoy	315		322		564		652
Empliciti	64		55		119		108
Established Brands
Baraclude	179		273		404		555
Sustiva Franchise	73		188		157		372
Reyataz Franchise	117		188		241		381
Hepatitis C Franchise	12		112		15		274
Other Brands	421		479		826		978
Total Revenues	$	5,704	$	5,144	$	10,897	$	10,073

United States	$	3,230	$	2,865	$	6,008	$	5,603
Europe	1,408		1,188		2,814		2,334
Rest of World	923		963		1,796		1,888
Other	143		128		279		248
Total Revenues	$	5,704	$	5,144	$	10,897	$	10,073

The following table summarizes contract assets as of June 30, 2018 and January 1, 2018:



Dollars in Millions	June 30, 2018		January 1, 2018
Prepaid expenses and other	$	247	$	349
Other assets	28		32
Total Contract Assets	$	275	$	381

Contract assets are primarily estimated future royalties and termination fees not eligible for the licensing exclusion and therefore recognized upon the adoption of ASC 606 and ASC 610. Contract assets are reduced and receivables are increased in the period the underlying sales occur. Contingent development and regulatory milestones from out-licensing arrangements of $1.3 billion were constrained and not recognized after considering the likelihood of a significant reversal of cumulative amount of revenue occurring. Cumulative catch-up adjustments to revenue affecting contract assets or contract liabilities were not material during the three and six months ended June 30, 2018. Revenue recognized from performance obligations satisfied in prior periods was approximately $150 million and $300 million in the three and six months ended June 30, 2018, consisting primarily of royalties for out-licensing arrangements and revised estimates for gross-to-net adjustments related to prior period sales.

Sales commissions and other incremental costs of obtaining customer contracts are expensed as incurred as the amortization periods would be less than one year.