10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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)	(IRS Employer Identification No.)

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

(Address of principal executive offices)

Telephone: (212) 546-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.10 Par Value	New York Stock Exchange Pacific Exchange, Inc.
$2 Convertible Preferred Stock, $1 Par Value	New York Stock Exchange Pacific Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None

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 such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

The aggregate market value of the 1,951,041,834 shares of voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2004) was approximately $47,800,524,933. Bristol-Myers Squibb has no non-voting common equity. At February 18, 2005, there were 1,951,786,180 shares of common stock outstanding.

PART I

Item 1. BUSINESS.

General

Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) was incorporated under the laws of the State of Delaware in August 1933 under the name Bristol-Myers Company, as successor to a New York business started in 1887. In 1989, Bristol-Myers Company changed its name to Bristol-Myers Squibb Company as a result of a merger. The Company, through its divisions and subsidiaries, is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceuticals and other healthcare related products.

Acquisitions and Divestitures

In December 2004, the Company committed to a plan to sell its Oncology Therapeutics Network (OTN) business and entered into a definitive agreement with One Equity Partners LLC. OTN is a leading specialty distributor of pharmaceutical products to office-based oncologists in the United States. The transaction is expected to be completed during the first half of 2005. The divestiture of OTN will further enable the Company to focus on its strategic priorities in developing its pipeline and new product opportunities in ten critical disease areas of significant unmet medical need. The operations of OTN have been reflected as discontinued operations in the accompanying consolidated financial statements.

Bristol-Myers Squibb Website

The Company’s internet website address is www.bms.com. The Company makes available free of charge on its website its annual, quarterly and current reports, including amendments to such reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (SEC).

Information relating to corporate governance at Bristol-Myers Squibb, including the Company’s Standards of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Code of Business Conduct and Ethics for Directors, (collectively, the “Codes”), Corporate Governance Guidelines, and information concerning the Company’s Executive Committee, Board of Directors, including Board Committees and Committee charters, and transactions in Bristol-Myers Squibb securities by Directors and executive officers, is available on the Company’s website at www.bms.com under the “Investors—Corporate Governance” caption and in print to any stockholder upon request. Any waivers to the Codes by directors or executive officers and any material amendment to the Code of Business Conduct and Ethics for Directors and Code of Ethics for Senior Financial Officers will be posted promptly on the Company’s website. Information relating to stockholder services, including the Company’s Dividend Reinvestment Plan and direct deposit of dividends, is available on the Company’s website at www.bms.com under the “Investors—Stockholder Services” caption.

The Company incorporates by reference certain information from parts of its proxy statement for the 2005 Annual Meeting of Stockholders. The SEC allows the Company to disclose important information by referring to it in that manner. Please refer to such information. The Company’s proxy statement for the 2005 Annual Meeting of Stockholders and 2004 Annual Report are available on the Company’s website (www.bms.com) under the “Investors—SEC Filings” caption.

Business Segments

The Company has three reportable segments—Pharmaceuticals, Nutritionals and Other Healthcare. The Pharmaceuticals segment is made up of the global pharmaceutical and international (excluding Japan) consumer medicines business. The Nutritionals segment consists of Mead Johnson Nutritionals (Mead Johnson), primarily an infant formula and children’s nutritionals business. The Other Healthcare segment consists of ConvaTec, Medical Imaging and Consumer Medicines (North America and Japan) businesses. For additional information about these segments, see “Item 8. Financial Statements—Note 18. Segment Information.”

Pharmaceuticals Segment

The Pharmaceuticals segment discovers, develops, licenses, manufactures, markets, distributes and sells branded pharmaceuticals. These products are sold worldwide, primarily to wholesalers, retail pharmacies, hospitals, government entities and the medical profession. The Company manufactures these products in the United States and Puerto Rico and in fifteen foreign countries. Pharmaceuticals sales accounted for 80% of the Company’s sales in 2004 and 2003, and 79% of the Company’s sales in 2002. Domestic pharmaceuticals sales accounted for 55%, 56% and 57% of total Pharmaceuticals sales in 2004, 2003 and 2002, respectively, while pharmaceuticals sales in Europe accounted for 31%, 30% and 28% of total Pharmaceuticals sales in 2004, 2003 and 2002, respectively, and pharmaceuticals sales in Japan accounted for 3% of total Pharmaceuticals sales in each of 2004, 2003 and 2002.

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The Company’s strategy is to build its pipeline and support sustainable growth by focusing its discovery and development efforts in ten critical disease areas, increasing its sales and marketing emphasis on specialists and high value primary care physicians, investing in research and development and establishing a biologics business. In addition to discovering and developing products through its own research and development efforts, the Company actively pursues products through research collaborations and strategic alliances with others in the pharmaceutical industry. For additional information, see “—Strategic Alliances” and “—Research and Development” below.

The Pharmaceuticals segment competes with other worldwide research-based drug companies, smaller research companies and generic drug manufacturers. The Company has experienced substantial revenue losses in the last few years due to the expiration of market exclusivity protection for certain of its products. The Company expects substantial incremental revenue losses in each of 2005, 2006 and 2007 representing continuing declines in revenues of those products as well as declines in revenues of certain additional products that will lose market exclusivity primarily in 2005 and 2006. For 2005, the Company estimates reductions of net sales in the range of $1.4 billion to $1.5 billion from the 2004 levels for products which have lost or will lose exclusivity protection in 2003, 2004 or 2005, specifically MONOPRIL in the United States, Canada and Europe, GLUCOPHAGE* XR and GLUCOVANCE* in the United States, CEFZIL in the United States, PARAPLATIN in the United States, VIDEX EC in the United States, TAXOL^® in Europe and PRAVACHOL in Europe. The Company also expects substantial incremental revenue losses in each of 2006 and 2007 representing continuing declines in net sales of the products that lost exclusivity protection in 2002, 2003 and 2004 and additional declines attributable to products that will lose exclusivity protection primarily in 2005 and 2006. These products (and the years in which they lose exclusivity protection) include GLUCOPHAGE*/GLUCOVANCE*/GLUCOPHAGE*XR in the United States (2002 to 2004), TAXOL^® in Europe and Japan (2003), PRAVACHOL in the United States (2006) and in Europe (2002 to 2007), PARAPLATIN in the United States (2004), MONOPRIL in the United States (2003), Canada (2003) and Europe (2001 to 2008), ZERIT in the United States (2008) and in Europe (2007 to 2011), CEFZIL in the United States (2005) and in Europe (2004 to 2009) and VIDEX/VIDEX EC (2004 to 2009). The timing and amounts of sales reductions from exclusivity losses, their realization in particular periods and the eventual levels of remaining sales revenues are uncertain and dependent on the levels of sales at the time exclusivity protection ends, the timing and degree of development of generic competition (speed of approvals, market entry and impact) and other factors.

Although anticipated revenue losses due to continued exclusivity losses during 2005 and 2006 are expected to be more or less offset by growth in net sales of the Company’s in-line, recently launched and potential new products during the same period, changes in product mix will adversely impact gross margin because the products that have lost or are expected to lose exclusivity generally have higher margins. These in-line and recently launched products include PLAVIX*, AVAPRO*/AVALIDE*, ABILIFY*, REYATAZ and ERBITUX*. The Company’s compounds in late stage development include muraglitazar, a dual PPAR agonist for type 2 diabetes, abatacept, for the treatment of rheumatoid arthritis, and entecavir, for hepatitis B. Expectations of continued sales growth are subject to competitive factors including those relating to PRAVACHOL discussed below, the outcome of the PLAVIX* patent litigation discussed below, and risks of product development and regulatory approval. In addition, earnings will be adversely affected by the Company’s investments to support the introduction of new products and the development and launch of additional new compounds. In 2007, based on management’s current estimates of growth of the Company’s in-line and recently launched products and a risk-adjusted assessment of potential new product launches, the Company expects earnings growth will resume.

PRAVACHOL, an HMG Co-A reductase inhibitor (statin), had net sales of $2.6 billion in 2004. During 2004, the Company experienced increased competition for PRAVACHOL from established brands and new entrants. U.S. prescriptions for PRAVACHOL declined 10% in 2004 compared to 2003. While the product has begun to lose exclusivity in some markets, between now and its anticipated loss of U.S. exclusivity in April 2006, its expected rate of decline in sales and in market share could be accelerated by increased competition from established brands and new entrants.

The Company’s expectations for future sales growth include substantial expected increases in sales of PLAVIX*, which had net sales of $3.3 billion for 2004, and is currently the Company’s largest product ranked by net sales. The composition of matter patent for PLAVIX*, which expires in 2011, is currently the subject of litigation in the United States. Similar proceedings involving PLAVIX* have been instituted outside the United States. The Company continues to believe that the patent is valid and that it is infringed, and with its alliance partner and patent-holder Sanofi-Aventis (Sanofi), is vigorously pursuing these cases. It is not possible at this time reasonably to assess the outcome of these litigations, or if there were an adverse determination in these litigations, the timing of potential generic competition for PLAVIX*. However, if generic competition were to occur, the Company believes it is very unlikely to occur before the second half of 2005. The loss of market exclusivity of PLAVIX* and the subsequent development of generic competition would be material to the Company’s results of operations and could be material to its financial condition and liquidity.

The Company and its subsidiaries are the subject of a number of significant pending lawsuits, claims, proceedings and investigations. It is not possible at this time reasonably to assess the final outcome of these investigations or litigations. Management continues to believe, as previously disclosed, that during the next few years, the aggregate impact, beyond current reserves, of these and other legal matters affecting the Company, if not favorably resolved, is reasonably likely to be material to the Company’s results of operations and cash flows, and may be material to its financial condition and liquidity. The Company’s expectations for the next several years described above do not reflect the potential impact of litigation on the Company’s results of operations.

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For more information about these and other matters, see “—Products,” “—Competition” and “—Research and Development” below, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook,” and “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.”

Products

Most of the Company’s pharmaceutical revenues come from products in the following therapeutic classes: cardiovascular, virology, including human immunodeficiency virus (HIV), infectious diseases, oncology, affective (psychiatric) disorders, and metabolics.

In the pharmaceutical industry, the majority of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. Market exclusivity is based upon patent rights and/or certain regulatory forms of exclusivity. In the U.S. and some other countries, when these patent rights and other forms of exclusivity expire and generic versions of a medicine are approved and marketed, there are often very substantial and rapid declines in the sales of the original innovative product. The Company’s business is focused on innovative pharmaceutical products, and the Company relies on patent rights and other forms of protection to maintain the market exclusivity of its products. For further discussion of patents rights and regulatory forms of exclusivity, see “—Intellectual Property and Product Exclusivity” below. For further discussion of the impact of generic competition on the Company’s business, see “—Generic Competition” below.

The chart below shows the net sales of key products in the Pharmaceuticals segment, together with the year in which the basic exclusivity loss (patent rights or data exclusivity) occurred or is estimated to occur in the United States, the European Union (EU) and Japan. The Company also sells its pharmaceutical products in other countries; however, data is not provided on a country-by-country basis because individual country sales are not significant outside the United States, the EU and Japan. In many instances, the basic exclusivity loss date listed below is the expiration date of the patent that claims the active ingredient of the drug or the method of using the drug for the approved indication. In some instances, the basic exclusivity loss date listed in the chart is the expiration date of the data exclusivity period. In situations where there is only data exclusivity without patent protection, a competitor could seek regulatory approval by submitting its own clinical trial data to obtain marketing approval.

The Company estimates the market exclusivity period for each of its products on a case-by-case basis for the purposes of business planning only. The length of market exclusivity for any of the Company’s products is impossible to predict with certainty because of the complex interaction between patent and regulatory forms of exclusivity and the inherent uncertainties regarding patent litigation. Although the Company provides these estimates for business planning purposes, these are not intended as an indication of how the Company’s patents might fare in any particular patent litigation brought against potential infringers. There can be no assurance that a particular product will enjoy market exclusivity for the full period of time that appears in the estimate or that the exclusivity will be limited to the estimate.

Pharmaceutical Products	2004		2003		2002		Past or Currently Estimated Year of U.S. Basic Exclusivity Loss	Past or Currently Estimated Year of EU Basic Exclusivity Loss(a)	Past or Currently Estimated Year of Japanese Basic Exclusivity Loss
	(dollars in millions)
Cardiovascular
PLAVIX*	$	3,327	$	2,467	$	1,890	2011	2013	++
PRAVACHOL		2,635		2,827		2,266	2006	2002-2007	++
AVAPRO*/AVALIDE*		930		757		586	2011	2012	++
MONOPRIL		274		470		426	2003	2001-2008	++
COUMADIN		255		303		300	1997	(b)	++
Virology
SUSTIVA		621		544		455	2013	2013	++
REYATAZ		414		88		—	2017	2017	2017
VIDEX/VIDEX EC		274		267		262	2001/2004	2001	2001
ZERIT		272		354		443	2008	2007-2011	2008
Infectious Diseases
CEFZIL		270		327		287	2005	2004-2009	++
TEQUIN		169		208		184	2007	++	++
Oncology
TAXOL®		991		934		857	2000	2003	2005-2013
PARAPLATIN		673		905		727	2004	2000	1998
ERBITUX*		261		—		—	2017	++	++
Affective (Psychiatric) Disorders
ABILIFY*		593		283		25	2009	++	++
Metabolics
GLUCOVANCE*		169		424		246	2004	++	++
GLUCOPHAGE* IR		68		118		220	2000	++	++
GLUCOPHAGE* XR		67		395		297	2003	++	++

Note: The currently estimated year of basic exclusivity loss includes any statutory extensions of exclusivity that have been earned, but not those that are speculative. In some instances, there may be later-expiring patents that cover particular forms or compositions of the drug, as well as methods of manufacture or methods of using the drug. Such patents may sometimes result in a favorable market position for the Company’s product, but product exclusivity cannot be predicted or assured.

* Indicates brand names of products, which are registered trademarks not owned by the Company or its subsidiaries.

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++ The Company does not currently market the product in the jurisdiction indicated.

(a) References to the EU throughout this Form 10-K include the following current 25 member states: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. In some instances the date of basic exclusivity loss will be different in various EU member states. In such instances, the earliest and latest dates of basic exclusivity loss are listed. For those EU countries where the basic patent was not obtained, there may be data protection available.

(b) EU basic exclusivity expired before BMS acquired the product.

Below is a summary of the indication, intellectual property position, licensing arrangements, if any, and third-party manufacturing arrangements, if any, for each of the above products in the United States and where applicable, the EU and Japan.

Cardiovascular
PLAVIX*	Clopidogrel bisulfate is a platelet aggregation inhibitor, which is approved for protection against fatal or non-fatal heart attack or stroke in patients with a history of heart attack, stroke, peripheral arterial disease or acute coronary syndrome.
	Clopidogrel bisulfate was codeveloped and is jointly marketed with Sanofi. The worldwide alliance operates under the framework of two geographic territories: one in the Americas and Australia (BMS’s primary territory) and the other in Europe and Asia (Sanofi’s primary territory).
	The composition of matter patent in the United States expires in 2011 (which includes a statutory patent term extension). This patent is currently the subject of litigation. The Company continues to believe that the patent is valid and that it is infringed, and with its alliance partner and patent-holder Sanofi, is vigorously pursuing the litigation. It is not possible at this time reasonably to assess the outcome of this litigation, or if there were an adverse determination in this litigation, the timing of potential generic competition for PLAVIX*. For more information about this litigation, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.” For more information about the potential effects of generic competition on PLAVIX*, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook.” In the EU, regulatory data exclusivity extends to 2008 and the key composition of matter patent expires in 2013.
	Bulk requirements for clopidogrel are supplied to each territory by Sanofi, which produces bulk clopidogrel in its own facilities and obtains a portion of the bulk clopidogrel requirements from a third party, under an arrangement that includes royalty payments based on product sales, and each territory then produces finished product for sale. For more information about the Company’s arrangements with Sanofi, see “—Strategic Alliances” below and “Item 8. Financial Statements—Note 2. Alliances and Investments.”
PRAVACHOL	Pravastatin sodium is an HMG Co-A reductase inhibitor indicated as an adjunct to diet and exercise for patients with primary hypercholesterolemia, for lowering the risk of a first heart attack in people without clinically evident coronary heart disease who have elevated cholesterol, and for reducing the risk of heart attack and stroke in patients with clinically evident coronary heart disease.
	The Company has licensed a patent covering pravastatin, marketed by the Company in the U.S. as PRAVACHOL, from Sankyo Company, Ltd. (Sankyo) of Japan, with the agreement expiring as

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	exclusivity expires on a market-by-market basis. Exclusivity in the U.S. under the patent (including pediatric extension) lasts until April 2006. Under the terms of the license, the Company may market and sell pravastatin throughout the world, excluding Japan, Korea, Taiwan and Thailand (markets in which Sankyo retains exclusive patent rights). Sankyo also copromotes and comarkets pravastatin in certain European and Latin American countries.
	The composition of matter patent was scheduled to expire in the United States in October 2005, but has been extended for six months to April 2006 under the law that provides exclusivity extensions for pediatric research. In the EU, the composition of matter patent was not obtained in Greece, Luxembourg or Portugal and expired in Spain in July 2002. The composition of matter patent expired in August 2004 in Belgium, Denmark, Finland, Germany, Ireland, the Netherlands and the United Kingdom. In Austria, expiration occurred in November 2004. In France and Sweden, expiration will occur in August and March 2006, respectively. In Italy, expiration will occur on January 1, 2008.
	The Company’s bulk requirements for pravastatin are supplied by Sankyo. The Company finishes the product in its own facilities.
AVAPRO*/AVALIDE*	Irbesartan/irbesartan-hydrochlorothiazide is an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy.
	Irbesartan was codeveloped and is jointly marketed with Sanofi. The worldwide alliance operates under the framework of two geographic territories: one in the Americas and Australia (BMS’s primary territory) and the other in Europe and Asia (Sanofi’s primary territory).
	The basic composition of matter patent in the United States expires in 2011 and in the EU in 2012. Data exclusivity in the EU expires in 2007.
	Irbesartan is manufactured by both the Company and Sanofi. Bulk irbesartan is sold to the territory joint ventures at a fixed price per kilogram. Under intellectual property license arrangements, Sanofi collects a royalty based on a percentage of net sales.
	For more information about the Company’s arrangements with Sanofi, see “—Strategic Alliances” below and “Item 8. Financial Statements—Note 2. Alliances and Investments.”
MONOPRIL	Fosinopril sodium is a second-generation angiotensin converting enzyme (ACE) inhibitor with once-a-day dosing indicated for the treatment of hypertension. MONOPRIL was developed internally.
	The basic composition of matter patent in the United States expired in June 2003. The basic composition of matter patent expired in Denmark, Greece and Portugal in 2001 and in Spain in October 2002. A composition of matter patent was not obtained in Finland. For the rest of the EU, the composition of matter patent expires on a country-by-country basis through 2008.
COUMADIN	Warfarin sodium is an oral anti-coagulant used predominantly in patients with atrial fibrillation or deep venous thrombosis/pulmonary embolism.
	Market exclusivity expired in the United States in 1997. Basic patent protection and regulatory data protection had expired before the Company acquired COUMADIN in 2001.
	The Company obtains its bulk requirements for warfarin from a third party and produces the majority of finished goods in its own facilities.
Virology
SUSTIVA	Efavirenz is an antiretroviral drug used in the treatment of HIV.
	Rights to market efavirenz in the United States, the United Kingdom, France, Germany, Ireland, Italy and Spain are licensed from Merck & Co., Inc. (Merck) for a royalty based on a percentage of net sales.
	The basic composition of matter patent expires in 2013 in the United States. A separate method of use patent expires in 2014. The basic composition of matter patents in the United Kingdom, Ireland, France, Germany, Italy and Spain expire in 2013. Data exclusivity in the EU expires in 2009.
	The Company obtains its bulk requirements for efavirenz from third parties and produces finished goods in its own facilities.
REYATAZ	Atazanavir sulfate is a protease inhibitor for the treatment of HIV. REYATAZ was launched in the United States in July 2003.
	The Company developed atazanavir under a worldwide license from Novartis AG (Novartis) for which it pays a royalty based on a percentage of net sales.

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VIDEX/VIDEX EC	Didanosine is an antiretroviral drug used in the treatment of adult and pediatric patients with HIV. Didanosine is marketed by the Company in three different formulations. The first is for use in an oral solution. The second is a reduced mass tablet. The third is an enteric coated capsule formulation (VIDEX EC).
	The Company has a license to the U.S. Government’s patent series that claims the method of using didanosine to treat HIV. This patent series covers the approved use of all three of the aforementioned formulations. The Company’s license became non-exclusive in October 2001. Another company has obtained a license from the U.S. Government and is marketing didanosine.
	The U.S. Government’s method of use patent expires in 2007 in the United States (which includes an earned pediatric extension) and Japan. In Europe, the U.S. Government was granted the use patent in Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Sweden, the United Kingdom and the patent is pending in Ireland. Expiration of this use patent in the EU occurs between 2006 and 2009 on a country-by-country basis. This method of use patent was not obtained by the U.S. Government in Denmark, Finland, Greece, Portugal or Spain.
	VIDEX (reduced mass formulation): the Company has patents covering the reduced mass formulation of VIDEX in the United States, EU and Japan that expire in 2012. Another company may attempt to develop a reduced mass formulation of didanosine that does not infringe these patents.
	VIDEX EC (enteric coated capsule): the Company also has pending patent applications that cover the VIDEX EC formulation in the United States, the EU and Japan. If these patents are issued, expiration will be in 2018.
	U.S. data exclusivity for VIDEX EC expired in May 2004. Japanese data exclusivity for VIDEX EC expires in March 2005.
	The Company obtains the materials necessary for bulk manufacture of didanosine from a third party and produces the finished product in its own facilities.
ZERIT	Stavudine is used in the treatment of HIV.
	The Company holds an exclusive patent license for ZERIT from Yale University pursuant to which it pays a royalty based on product sales. In Japan, the Company has an exclusive license for ZERIT from Yamasa Corporation pursuant to which it pays a royalty based on net sales in Japan.
	The use patent expires in the United States in June 2008. However, a pediatric extension has been earned, and thus, exclusivity is expected to expire in December 2008. This patent series expires in the EU from 2007 through 2011 (patent applications are pending in Denmark and Finland), and in Japan in December 2008.
Infectious Diseases
CEFZIL	Cefprozil is a semi-synthetic broad-spectrum cephalosporin antibiotic for the treatment of mild to moderately severe bacterial infections of the throat, ear, sinuses, respiratory tract and skin.
	Cefprozil was discovered and developed internally.
	The basic composition of matter patent protecting cefprozil in the United States (including patent term extension) expires December 23, 2005. In several European countries including Austria, Finland, Italy, Switzerland and United Kingdom, the composition of matter patent expires in 2008-2009 (including term extension). In Spain, the patent expired February 5, 2005, and for other European countries and Japan, the patent expired in 2004.
TEQUIN	Gatifloxacin is a broad-spectrum 8-methoxy fluoroquinolone antibiotic indicated for the treatment of respiratory tract infections in adults 18 years or older, such as acute bacterial exacerbation of chronic bronchitis, acute sinusitis and community-acquired pneumonia caused by indicated susceptible strains of gram-positive and gram-negative bacteria.
	Gatifloxacin is licensed from Kyorin Pharmaceuticals Co., Ltd. (Kyorin). The Company purchases bulk gatifloxacin, inclusive of a royalty, based on a percentage of net sales.
	The basic U.S. patent expires in 2007; however, it is expected that the patent will be eligible for a statutory patent term extension until 2009. This patent term extension is granted to compensate patent holders for a portion of the patent life lost during the regulatory approval process.

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	This patent is currently the subject of litigation. The Company believes that the patent is valid and that it is infringed, and with its partner and patent-holder Kyorin, is vigorously pursuing the litigation. It is not possible at this time reasonably to assess the outcome of this litigation, or if there were an adverse determination in this litigation, the timing of potential generic competition for TEQUIN. For more information about this litigation, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.”
	Gatifloxacin is manufactured by a third party.
Oncology
TAXOL®	Paclitaxel is used in the treatment of refractory ovarian cancer, first-line treatment of ovarian cancer in combination with cisplatin, second-line treatment of AIDS related Kaposi’s Sarcoma, treatment of metastatic breast cancer after failure of combination chemotherapy, adjuvant treatment of node positive breast cancer and in the treatment of non-small cell lung carcinoma with cisplatin.
	Paclitaxel was developed under a collaborative research and development agreement with the U.S. Government. Under the agreement, the Company obtained rights to the U.S. Government’s TAXOL® data.
	The active ingredient in TAXOL®, paclitaxel, did not have patent protection in the United States, the EU or Japan but did have regulatory protection in the form of data exclusivity. Data exclusivity in the United States expired in 1997. An initial approval for a U.S. generic version was granted in October 2000, revoked by the U.S. Food and Drug Administration (FDA) in November 2001 and then reinstated in January 2002. Data exclusivity in the EU expired in September 2003. Data exclusivity for TAXOL® in Japan expired in July 2003. A patent claiming the approved dosing and administration schedule expires in Japan in 2013. A nullity action was filed in November 2004 in the Japanese Patent Office seeking to have this patent invalidated and the Company is defending the patent. Numerous factors make it impossible to predict when loss of market exclusivity in Japan will actually occur.
	The Company is supplied with its bulk requirements for paclitaxel from third parties and produces finished goods in its own facilities.
PARAPLATIN	Carboplatin is a chemotherapeutic agent used in the treatment of ovarian cancer.
	The patent for carboplatin in the U.S. expired in April 2004, but was extended for six months to October 2004 under the law that provides exclusivity extensions for pediatric research. Prior to the expiration of the U.S. patent in October 2004, the Company held an exclusive patent license for carboplatin from Research Corporation Technologies and the University of Michigan under which the Company had rights to market PARAPLATIN worldwide and paid a royalty based on a percentage of product sales. In the EU, the basic patent covering carboplatin was obtained in France, Germany, the Netherlands, Sweden and the United Kingdom. The last patent to expire in these countries was France in 2000. In Japan, the basic patent expired in 1998.
	The Company entered into an agreement with Teva Pharmaceuticals USA, Inc. (Teva), allowing Teva’s authorized affiliate, Sicor Pharmaceuticals Sales, Inc., to distribute an unbranded version of carboplatin supplied by BMS commencing on June 24, 2004. This agreement expires in June 2005.
	The Company obtains its bulk requirements for carboplatin from a third party and produces finished goods in its own facilities.
ERBITUX*	ERBITUX* (cetuximab) is an IgG1 monoclonal antibody designed to exclusively target and block the Epidermal Growth Factor Receptor (EGFR), which is expressed on the surface of certain cancer cells in multiple tumor types as well as some normal cells. ERBITUX* was approved by the FDA in February 2004 for the treatment in combination with irinotecan of patients with EGFR-expressing metastatic colorectal cancer who had failed an irinotecan-based regimen and as monotherapy for patients who are intolerant of irinotecan.
	ERBITUX* is marketed in North America by the Company under a distribution and copromotion agreement with ImClone Systems Incorporated (ImClone). The Company and ImClone will share distribution rights to ERBITUX* with Merck KGaA in Japan. For a description of the Company’s alliance with ImClone, see “—Strategic Alliances” below and “Item 8. Financial Statements—Note 2. Alliances and Investments.”

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	There is no composition of matter patent that specifically claims ERBITUX*. ERBITUX* has been approved for monotherapy, for which there is no use patent. The use of ERBITUX* in combination with an anti-neoplastic agent is approved by the FDA. Such combination use is claimed in a granted U.S. patent that expires in 2017. For more information about biologics patents, see “—Intellectual Property and Product Exclusivity” below. The inventorship of this use patent is being challenged by three scientists from the Weizmann Institute who claim they should have been named as co-inventors. For more information about this litigation, see “Item 8. Financial Statements—Note 22. Legal Proceedings and Contingencies.” The European equivalent of this use patent has been opposed.
	The Company purchases all of its bulk requirements for ERBITUX* from ImClone, and ImClone and other third parties produce finished goods in their own facilities. For a description of the Company’s supply agreement with ImClone, see “—Manufacturing and Quality Assurance” below.
Affective (Psychiatric) Disorders
ABILIFY*	Aripiprazole is an atypical antipsychotic agent for patients with schizophrenia. ABILIFY* was introduced in the United States in November 2002 and has been approved for marketing in the EU and Switzerland. Applications are pending in other countries.
	Aripiprazole is copromoted in the United States by the Company and Otsuka. BMS’s rights to commercialize aripiprazole in the United States terminate in 2012. Thereafter, Otsuka has the sole right to commercialize aripiprazole in the United States. The Company also has the right to copromote ABILIFY* in several European countries (the United Kingdom, France, Germany and Spain) and to act as exclusive distributor for the product in the rest of the EU. The Company is the exclusive licensee for the product in the rest of the world, excluding Japan and certain other countries. The Company records alliance revenue for its contractual share of the net sales in these copromotion countries, excluding the United Kingdom, and records all expenses related to the product. Alliance revenue is recorded by the Company as net sales based upon 65% of Otsuka’s net sales in the copromotion countries. The Company recognizes this alliance revenue when ABILIFY* is shipped and all risks and rewards of ownership have transferred to Otsuka’s customers. In the UK, the Company records 100% of the net sales and related cost of products sold. In countries where the Company has an exclusive right to sell ABILIFY*, as sales commence, the Company will record 100% of the net sales and related cost of products sold. For more information about the Company’s arrangement with Otsuka, see “—Strategic Alliances” below and “Item 8. Financial Statements—Note 2. Alliances and Investments.”
	The basic U.S. composition of matter patent for ABILIFY* expires in 2009 (and may be extended until 2014 if a pending patent term extension is granted). In August 2004, Otsuka filed with the United States Patent and Trademark Office (USPTO) a Request for Reexamination of a U.S. composition of matter patent (U.S. Patent Number No. 5,006,528, the “‘528 Patent”) covering ABILIFY* (aripiprazole). The USPTO granted the request for reexam. Otsuka determined that the original ‘528 Patent application mistakenly identified a prior art reference by the wrong patent number. In addition, Otsuka has taken the opportunity to bring other citations to the attention of the USPTO. The Reexamination will allow the USPTO to consider the patentability of the patent claims in light of the correctly identified patent reference and newly cited documents. The USPTO is expected to make a final decision on the reexamination by 2006.
	The Company and Otsuka believe that the subject matter claimed in the ‘528 Patent is patentable over the prior art and expect that the USPTO will reconfirm that in the reexamination. However, there can be no guarantee as to the outcome. If the patentability of the ‘528 Patent were not reconfirmed following a reexamination, there may be sooner than expected loss of market exclusivity of ABILIFY* in the U.S. and the subsequent development of generic competition which would be material to the Company.
	There is no composition of matter patent in Austria, Belgium, Finland, Greece, Ireland, Luxembourg, Portugal, Latvia, Hungary, Cypress, Czech Republic, Slovenia, Slovakia, Poland, Malta and Lithuania. For the other EU member states, the composition of matter patent expires in 2009 (and may be extended until 2014 if pending supplemental protection certificates are granted).
	Otsuka supplies the bulk requirements for aripiprazole and both Otsuka and the Company produce the finished product in their own facilities.

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Metabolics
GLUCOVANCE*/ GLUCOPHAGE* IR/	Metformin hydrochloride/glyburide and metformin hydrochloride are oral anti-diabetic agents for type 2 diabetes.
GLUCOPHAGE* XR	Metformin was developed by Merck Sante S.A.S. Under the terms of the arrangement, the Company may market and sell metformin in the United States. The Company purchases bulk metformin at a price (including a royalty) based on a percentage of net sales.
	Data exclusivity for GLUCOPHAGE* IR expired in March 2000. Regulatory exclusivity expired for GLUCOPHAGE* XR in October 2003 and for GLUCOVANCE* in January 2004.
	The Company obtains its bulk requirements for metformin from Merck Sante and produces the finished product in its own facilities.

In addition to the pharmaceutical products discussed above, the Company’s Pharmaceuticals segment also includes the Company’s wholly owned UPSA business in Europe. The UPSA brand of acetaminophen, EFFERALGAN, is marketed for pain relief across the European continent. The Company also markets ASPIRINE UPSA, DAFALGAN and FERVEX in Europe and other overseas markets.

Strategic Alliances and Arrangements

The Company enters into strategic alliances and arrangements with third parties, which give the Company rights to develop, manufacture, market and/or sell pharmaceutical products, the rights to which are owned by such third parties. The Company also enters into strategic alliances and arrangements with third parties, which give such third parties the rights to develop, manufacture, market and/or sell pharmaceutical products, the rights to which are owned by the Company. These alliances and arrangements can take many forms, including licensing arrangements, codevelopment and comarketing agreements, copromotion arrangements and joint ventures. Such alliances and arrangements reduce the risk of incurring all research and development expenses that do not lead to revenue-generating products; however, the gross margins on alliance products are generally lower, sometimes substantially so, than the gross margins on the Company’s own products because profits from alliance products are shared with the Company’s alliance partners. While there can be no assurance that new alliances will be formed, the Company actively pursues such arrangements and views alliances as an important complement to its own discovery and development activities. The Company’s most significant current alliances and arrangements for the Company’s in-line products are those with Sanofi for PLAVIX* and AVAPRO*/AVALIDE*, Otsuka for ABILIFY*, ImClone for ERBITUX*, and Sankyo for PRAVACHOL. The Company’s most significant alliances and arrangements for products under development, subject to approval from regulatory authorities, are with Merck for muraglitazar, the rights to which are owned by the Company, with Pierre Fabre Medicament S.A. (Pierre Fabre) for JAVLOR*, the rights to which are owned by Pierre Fabre, with Medarex, Inc. (Medarex) for MDX-010, the rights to which are owned by Medarex, with Gilead Sciences, Inc. (Gilead) for a fixed dose combination of the Company’s product SUSTIVA and Gilead’s TRUVADA* and with Somerset Pharmaceuticals, Inc. (Somerset) for EMSAM*, the rights to which are owned by Somerset. Each of these significant alliances and arrangements are discussed in more detail below. Additionally, the Company has licensing arrangements with Yale for ZERIT, with the U.S. Government for VIDEX, with Novartis for REYATAZ and with Kyorin for TEQUIN. In general, the Company’s strategic alliances and arrangements are for periods co-extensive with the periods of market exclusivity protection on a country-by-country basis. Based on the Company’s current expectations with respect to the expiration of market exclusivity in the Company’s significant markets, the licensing arrangements with Yale for ZERIT are expected to expire in 2008 in the U.S., between 2007-2011 in the EU and in 2008 in Japan; with the U.S. Government for VIDEX, which by its terms became non-exclusive in 2001, are expected to expire in 2007 in the U.S. (which includes an earned pediatric extension) and Japan and in EU countries between 2006-2009; with Novartis for REYATAZ are expected to expire in 2017 in the U.S., the EU and Japan; and with Kyorin for TEQUIN are expected to expire in 2007 in the U.S. For further discussion of market exclusivity protection, including a chart showing net sales of key products together with the year in which basic exclusivity loss occurred or is expected to occur in the U.S., the EU and Japan, see “—Products” and “—Intellectual Property and Product Exclusivity.”

Each of the Company’s strategic alliances and arrangements with third parties who own the rights to manufacture, market and/or sell pharmaceutical products contain customary early termination provisions typically found in agreements of this kind and are generally based on the other party’s material breach or bankruptcy (voluntary or involuntary) and product safety concerns. The amount of notice required for early termination generally ranges from immediately upon notice to 90 days after receipt of notice. Termination immediately upon notice is generally available where the other party files a voluntary bankruptcy petition. Termination upon 30 to 90 days notice is generally available where an involuntary bankruptcy petition has been filed (and not been dismissed) or a material breach by the other party has occurred (and not been cured). Early termination due to product safety concerns typically arises when a product is determined to create significant risk of harm to patients due to concerns regarding the product’s efficacy or level of toxicity. The Company’s strategic alliances and arrangements typically do not otherwise contain any provisions that provide the other party the right to terminate the alliance on short notice. In general, where the other party to the Company’s strategic alliance and arrangement will continue to have exclusivity protection upon the expiration or termination of the alliance, the Company does not retain any rights to the product or to the other party’s intellectual property. The loss of rights to one or more products that are

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marketed and sold by the Company pursuant to strategic alliance arrangements with third parties in one or more countries or territories could be material to the Company’s results of operations and cash flows and, in the case of PLAVIX*, could be material to its financial condition and liquidity. As is customary in the pharmaceutical industry, the terms of the Company’s strategic alliances and arrangements generally is co-extensive with the exclusivity period, which as discussed above, may vary on a country-by-country basis. As discussed below, the Company’s strategic alliance with Otsuka expires in November 2012 in the United States and Puerto Rico, which may be prior to expiration of market exclusivity protection for ABILIFY* which is expected to expire in 2009 in the U.S. but may be extended until 2014 if a pending statutory patent term extension is granted.

Sanofi In 1993, the Company entered into codevelopment and commercialization agreements, which were subsequently restructured in 1997, with Sanofi for two products: AVAPRO*/AVALIDE* (irbesartan), an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy, which is copromoted in certain countries outside the U.S. under the tradename APROVEL* and comarketed in certain countries outside the U.S. by the Company under the tradename KARVEA; and PLAVIX* (clopidogrel), a platelet aggregation inhibitor, which is copromoted in certain countries outside the U.S. under the tradename PLAVIX* and comarketed in certain countries outside the U.S. by the Company under the tradename ISCOVER.

The worldwide alliance operates under the framework of three territorial partnerships: Territory A for PLAVIX* and AVAPRO*/AVALIDE* in Europe and Asia, Territory B for PLAVIX* in the Americas (principally the U.S., Canada, Puerto Rico and Latin American countries) and Australia and AVAPRO*/AVALIDE* in Australia and the Americas not including the U.S., and the U.S. for AVAPRO*/AVALIDE*. This last partnership was formed in the fourth quarter of 2001, when the Company and Sanofi modified their previous exclusive license to the Company for AVAPRO*/AVALIDE* in the U.S. to form a copromotion joint venture, as part of which the Company contributed the AVAPRO*/AVALIDE* intellectual property and Sanofi agreed to pay the Company a total of $200 million in 2001 and $150 million in 2002. The Company accounts for these as a sale of an interest in a license and defers and amortizes the total amount of $350 million into income over the expected life of the license, which is approximately eleven years.

The territory partnerships manage central expenses, such as marketing, research and development and royalties and supply finished product to the individual country marketing entities. At the individual country level, agreements either to copromote or to comarket are in place with the parties’ local affiliates.

The territory partnerships are governed by a series of committees with enumerated functions, powers and responsibilities. Each territory has two senior committees (Senior Committees) which have final decision making authority with respect to that territory as to the enumerated functions, powers and responsibilities within its jurisdiction.

The Company acts as the operating partner for the territory covering the Americas and Australia and owns a 50.1% majority controlling interest in this territory. As such, the Company consolidates all country partnership results for these territories and records Sanofi’s share of the results as a minority interest expense, net of taxes, which was $502 million in 2004, $351 million in 2003 and $292 million in 2002. The Company recorded sales in these territories and in comarketing countries (Germany, Italy, Spain and Greece) of $4,257 million in 2004, $3,224 million in 2003 and $2,476 million in 2002.

Sanofi acts as the operating partner for Territory A covering Europe and Asia and owns a 50.1% majority financial controlling interest in this territory. The Company’s ownership interest in this territory is 49.9%. The Company accounts for the investment in partnership entities in this territory under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s share of net income from these partnership entities before taxes was $269 million in 2004, $187 million in 2003 and $120 million in 2002. For further discussion of this matter, see “Item 8. Financial Statements - Note 2. Alliances and Investments.”

The agreements with Sanofi expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia, and (ii) the expiration of all patents and other exclusivity rights in the applicable territory.

The alliance arrangements may be terminated by the Company or Sanofi, either in whole or in any affected country or Territory, depending on the circumstances, in the event of (i) voluntary or involuntary bankruptcy or insolvency, which in the case of involuntary bankruptcy continues for 60 days or an order or decree approving same continues unstayed and in effect for 30 days; (ii) a material breach of an obligation under a major alliance agreement that remains uncured for 30 days following notice of the breach except where commencement and diligent prosecution of cure has occurred within 30 days after notice; (iii) deadlocks of one of the Senior Committees which render the continued commercialization of the product impossible in a given country or Territory or, in the case of AVAPRO*/AVALIDE* in the U.S., with respect to advertising and promotion spending levels or the amount of sales force commitment; (iv) an increase in the combined cost of goods and royalty which exceeds a specified percentage of the net selling price of the product; or (v) a good faith determination by the terminating party that commercialization of a product should be terminated for reasons of patient safety.

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In the case of each of these termination rights, the agreements include provisions for the termination of the relevant alliance with respect to the applicable product in the applicable country or territory or, in the case of a termination due to bankruptcy or insolvency or material breach, both products in the applicable territory. Each of these termination procedures is slightly different; however, in all events, the Company could lose all rights to either or both products, as applicable, in the relevant country or territory even in the case of a bankruptcy or insolvency or material breach where the Company is not the defaulting party.

Otsuka In 1999, the Company entered into a worldwide commercialization agreement with Otsuka, to codevelop and copromote ABILIFY* (aripiprazole) for the treatment of schizophrenia and related psychotic disorders, except in Japan, China, Taiwan, North Korea, South Korea, the Philippines, Thailand, Indonesia, Pakistan and Egypt. The Company began copromoting the product with Otsuka in the U.S. and Puerto Rico in November 2002. In June 2004, the Company received marketing approval from the European Commission. The product is currently copromoted with Otsuka in the United Kingdom and Germany, and the Company and Otsuka will also copromote it in France and Spain. The Company records alliance revenue for its contractual share of the net sales in these copromotion countries, excluding the United Kingdom, and records all expenses related to the product. Alliance revenue is recorded by the Company as net sales based upon 65% of Otsuka’s net sales in the copromotion countries. The Company recognizes this alliance revenue when ABILIFY* is shipped and all risks and rewards of ownership have transferred to Otsuka’s customers. In the UK, the Company records 100% of the net sales and related cost of products sold.

The Company also has an exclusive right to sell ABILIFY* in a number of other countries in Europe, the Americas and Asia. In these countries, as sales commence, the Company will record 100% of the net sales and related cost of products sold. Under the terms of the agreement, the Company purchases the product from Otsuka and performs finish manufacturing for sale by the Company to its customers. The agreement expires in November 2012 in the U.S. and Puerto Rico. For the countries in the European Union where the Company has the exclusive right to sell ABILIFY*, the agreement expires in June 2014. In each other country where the Company has the exclusive right to sell ABILIFY*, the agreement expires on the later of the tenth anniversary of the first commercial sale in such country or expiration of the applicable patent, if any, in such country. Early termination is available based on the other party’s voluntary or involuntary bankruptcy, failure to make minimum payments, failure to commence the first commercial sale with three months after receipt of all necessary approvals and material breach. The amount of notice required for early termination of the strategic alliance is immediately upon notice (i) in the case of voluntary bankruptcy, (ii) where minimum payments are not made to Otsuka, or (iii) if first commercial sale has not occurred within three months after receipt of all necessary approvals, 30 days where a material breach has occurred (and not been cured or commencement of cure has not occurred within 90 days after notice of such material breach) and 90 days in the case where an involuntary bankruptcy petition has been filed (and not been dismissed). In addition, termination is available to Otsuka upon 30 days notice in the event that the Company were to challenge Otsuka’s patent rights or, on a market-by-market basis, the Company were to market a product in direct competition with ABILIFY*. Upon termination or expiration of the alliance, the Company does not retain any rights to ABILIFY*.

The Company recorded total revenue for ABILIFY* of $593 million in 2004, $283 million in 2003 and $25 million in 2002. Total milestone payments made to Otsuka from 1999 through 2004 were $217 million, of which $157 million was expensed as acquired in-process research and development in 1999. The $60 million of capitalized payments are amortized into cost of products sold over the remaining life of the agreement in the U.S., which is approximately eight years. Included in the $60 million of capitalized payments is a $10 million payment made in July 2004 for attainment of marketing approval by the European Union.

ImClone In November 2001, the Company purchased 14.4 million shares of ImClone for $70 per share, or $1,007 million, which represented approximately 19.9% of the ImClone shares outstanding just prior to the Company’s commencement of a public tender offer for those ImClone shares. ImClone is a biopharmaceutical company focused on developing targeted cancer treatments, which include growth factor blockers, cancer vaccines, and anti-angiogenesis therapeutics. The equity investment in ImClone is part of a strategic agreement between the Company and ImClone that also included an arrangement expiring in September 2018 to codevelop and copromote the cancer drug, ERBITUX*, for a series of payments originally totaling $1 billion. The Company paid ImClone a milestone payment of $200 million in 2001, which was expensed. On March 5, 2002, the agreement with ImClone was revised to reduce the total payments to $900 million from $1 billion. In accordance with the agreement, the Company paid ImClone $140 million in March 2002, $60 million in March 2003, and $250 million in March 2004 upon the approval by the FDA of the Biologics License Application (BLA) for ERBITUX* for use in combination with irinotecan in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In June 2004, the FDA approved ImClone’s Chemistry, Manufacturing and Controls supplemental Biologics License Application (sBLA) for licensure of its BB36 manufacturing facility. An additional $250 million is payable upon FDA approval for use in treating another tumor type, which is anticipated to occur in late 2005. The Company also has codevelopment and copromotion rights in Canada and Japan to the extent the product is commercialized in such countries. In Japan, the Company and ImClone will share distribution rights to ERBITUX* with Merck KGaA. Under the agreement, ImClone will receive a distribution fee based on a flat rate of 39% of product revenues in North America. The Company will purchase all of its commercial requirements for bulk ERBITUX* from ImClone at a price equal to manufacturing cost plus 10%.

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Payments made subsequent to the March 2004 approval will be capitalized and amortized to cost of products sold over the remaining term of the agreement. With respect to the $200 million of milestone payments the Company paid ImClone in 2002 and 2003, $160 million was expensed in the first quarter of 2002 as acquired in-process research and development, and $40 million was recorded as an additional equity investment to eliminate the income statement effect of the portion of the milestone payment for which the Company has an economic claim through its ownership interest in ImClone. The Company accounts for the $250 million approval milestone paid in March 2004 as a license acquisition and amortizes the payment into cost of products sold over the expected useful life of the license, which is approximately fourteen years. The Company amortized into cost of products sold $14 million for 2004. The unamortized portion of the $250 million payment is recorded in intangible assets, net in the consolidated balance sheet and was $236 million as of December 31, 2004.

The Company determines its equity share in ImClone’s net income or loss by eliminating from ImClone’s results the milestone revenue ImClone recognizes for the pre-approval milestone payments that were recorded by the Company as additional equity investment. The Company recorded net income of $9 million in 2004, and net losses of $36 million and $40 million in 2003 and 2002, respectively, for its share of ImClone’s net income/losses. The Company records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company recorded net sales for ERBITUX* of $261 million since its approval by the FDA in February 2004.

The Company’s recorded investment in, and the market value of, ImClone common stock as of December 31, 2004 was $72 million and approximately $660 million, respectively. On a per share basis, the carrying value of the ImClone investment and the closing market price of the ImClone shares as of December 31, 2004 were $5.03 and $46.08, respectively.

Early termination is available based on material breach and is effective 60 days after notice of the material breach (and such material breach has not been cured or commencement of cure has not occurred). Upon termination or expiration of the alliance, the Company does not retain any rights to ERBITUX*.

The Company is the exclusive distributor of ERBITUX* in North America. Under the terms of an agreement with McKesson Corporation (McKesson) entered into in February 2004, McKesson provides warehousing, packing and shipping for filling orders for ERBITUX*. To maintain the integrity of the product, special storage conditions and handling are required. Accordingly, all sales of ERBITUX*, including purchase requests from other wholesalers, are processed through the Company, and McKesson will only ship ERBITUX* to end-users of the product and not to other intermediaries to hold for later sales. Either the Company or McKesson may unilaterally terminate the agreement on not less than six months prior notice to the other party. This agreement expires on March 31, 2005, however the Company has the option to extend the agreement to June 30, 2005.

For further discussion of the Company’s strategic alliance with ImClone, see “Item 8. Financial Statements—Note 2. Alliances and Investments.”

Sankyo The Company has licensed a patent covering pravastatin, marketed by the Company in the U.S. as PRAVACHOL, from Sankyo, with the agreement expiring as exclusivity expires on a market-by-market basis. Exclusivity in the U.S. under the patent (including pediatric extension) lasts until April 2006. Under the terms of the license, the Company may market and sell pravastatin throughout the world, excluding Japan, Korea, Taiwan and Thailand (markets in which Sankyo retains exclusive patent rights). Sankyo also copromotes and comarkets pravastatin in certain European and Latin American countries. Early termination is available based on the other party’s voluntary or involuntary bankruptcy and material breach. The amount of notice required for early termination of the strategic alliance is immediately upon notice in the case of either voluntary or involuntary bankruptcy and 90 days after notice in the case where a material breach has occurred (and not been cured or commencement of cure has not occurred). Upon termination or expiration of the alliance, the Company does not retain any patent or other exclusivity rights in relation to pravastatin.

In 2004, the Company entered into the following significant alliances and arrangements for products in clinical development:

Merck In April 2004, the Company entered into a collaboration agreement with Merck for worldwide codevelopment and copromotion for muraglitazar, the Company’s dual PPAR (peroxisome proliferator activated receptor) agonist, currently in Phase III clinical development for use in treating Type 2 diabetes. The Company and Merck will jointly develop the clinical and marketing strategy for muraglitazar, share equally in future development and commercialization costs and copromote the product to physicians on a global basis, with Merck to receive payments based on net sales levels. A New Drug Application (NDA) for muraglitazar was submitted to the FDA in December 2004 for United States regulatory approval. Under the terms of the agreement, the Company received a $100 million non-refundable upfront payment in May 2004 and was entitled to receive an additional $55 million milestone payment in December 2004, which was subsequently received in January 2005. The Company is entitled to receive $220 million in additional payments upon achievement of certain regulatory milestones.

The upfront payment of $100 million received in May 2004 was deferred and is being amortized into other income over the expected remaining useful life of the agreement, which is approximately sixteen years. In 2004, the Company recognized $4 million

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in other income. The $55 million milestone payment was deferred and recorded as a receivable in December 2004, and will be amortized into other income, beginning in January 2005, over the remaining useful life of the agreement. In addition, the Company records Merck’s share of codevelopment costs as a reduction to research and development expense and Merck’s share of copromotion costs as a reduction to advertising and product promotion expense.

The agreement expires on a product-by-product and country-by-country basis upon the latest of (i) the expiration of the last to expire Bristol-Myers Squibb patent or patent that is jointly funded in each case with respect to the applicable product in the applicable country, (ii) the expiration of any additional statutory or administrative protections that grant exclusivity with respect to the applicable product in the applicable country, and (iii) the cessation of the sale of the applicable product in the applicable country following first commercial sale of that product in that country. The basic composition of matter patent for muraglitazar in the United States expires in 2020. Patent applications in various countries in the European Union are pending. The Company also may be entitled to additional statutory or administrative protections in the United States and the European Union that would grant exclusivity with respect to muraglitazar beyond 2020.

In addition to customary termination provisions for cause, Merck also has the right to terminate the agreement for any reason upon not less than six months prior written notice to the Company. However, this right of termination can be exercised by Merck with respect to any product only during the period between the completion of Phase III clinical trials relating to such product and the time the NDA for such product is filed with the FDA. This right also can be exercised by Merck after the second anniversary of the date of filing of the NDA for such product with the FDA if the product has not been commercially launched in the United States at such time, or, if commercially launched in the United States, after the second anniversary of the commercial launch of such product in the United States. With respect to the European Union, Merck can exercise this right of termination after the second anniversary of the commercial launch of such product in the European Union or, if not commercially launched in the European Union, the third anniversary of the commercial launch of the product in the United States. Upon any early termination, the Company will retain control of all rights to muraglitazar.

The agreement also provides for certain standstill provisions which remain in effect for the term of the collaboration between the Company and Merck. Under such provisions, each party may not, directly or indirectly, without the consent of the other party: (i) acquire any beneficial ownership or interest in any voting securities of the other party; (ii) effect or initiate any (A) tender offer, merger, or other business combination involving the other party, or (B) any restructuring, dissolution, sale of all or substantially all of its assets or other extraordinary transaction with respect to the other party; (iii) make or participate in any solicitation of proxies to vote with respect to the other party; (iv) deposit any voting securities of the other party into a voting trust or subject any such securities to any voting arrangement or agreement; (v) initiate, propose or otherwise solicit stockholders of the other party for the approval of certain stockholder proposals; (vi) seek the election or removal of any member on the board of directors of the other party; (vii) call any meeting of the stockholders of the other party; (viii) request or obtain any list of holders of voting securities of the other party; (ix) form or participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of the other party; (x) seek to control the board of directors or influence the management of the other party except as it believes is required under applicable law; (xi) enter into any agreements, discussions or arrangements with any person other than the Company, Merck or an affiliate of either of them with respect to any of the foregoing; or (xii) seek to waive, amend or modify any of the provisions contained above.

The standstill provisions do not prohibit a party from acquiring voting securities of the other party by or through (i) a diversified mutual or pension fund managed by an independent investment adviser or pension plan established for the benefit of the employees, (ii) any employee benefit plan of such party, or (iii) any stock portfolios not controlled by such party that invest in the other party among other companies provided that such party does not request the trustee or administrator or investment adviser of such fund, plan or portfolio to acquire such voting securities and provided that no such fund, plan or portfolio acquires more than 5% of any class of voting securities of such other party. Further, the standstill provisions do not prevent any party from acquiring securities of another pharmaceutical or biotechnology company or other person that beneficially owns any securities of the other party.

The standstill provisions may be suspended solely to permit a party to take any of the actions described above to the extent the other party specifically invites such party to take such actions or to compete in certain transactions which would result in a direct or indirect divestiture of assets, tender or exchange offer, or any merger, consolidation or similar transaction that if consummated would result in any person or group beneficially owning 35% of the voting securities and/or market capitalization of such party if such transactions were publicly proposed by the other party or by an unaffiliated person.

Medarex In November 2004, the Company entered into a worldwide collaboration and share purchase agreement with Medarex to codevelop and copromote MDX-010, a fully human antibody currently in Phase III development for the treatment of metastatic melanoma. The agreement became effective in January 2005, after the companies received certain governmental clearances and approvals, and the receipt of consent from the U.S. Public Health Service of the sublicense to the Company of Medarex’s rights to MDX-1379 (gp100), a vaccine that is being developed in conjunction with MDX-010. The FDA has granted Fast Track status to MDX-010 in combination with MDX-1379 for treatment of patients with late stage unresectable metastatic melanoma who have

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failed or are intolerant to first line therapy. In January 2005, under the terms of the agreement, the Company made a cash payment of $25 million to Medarex which was expensed as research and development, and an additional $25 million equity investment in Medarex. Further milestone payments are expected to be made upon the successful achievement of various regulatory and sales related stages. The Company and Medarex will also share in future development and commercialization costs. Medarex could receive up to $205 million if all regulatory milestones are met, and up to $275 million in sales-related milestones. Medarex will have an option to copromote and receive 45% of the profits with the Company in the United States. The Company will receive an exclusive license outside of the U.S. and pay royalties to Medarex.

The agreement with Medarex does not expire unless and until one of the following events occurs: (1) the Company voluntarily terminates the agreement in its entirety, on a product-by-product basis (but only if a second product is then in GLP toxicology studies or later) or a country-by-country basis by providing Medarex with six months prior written notice depending on the circumstances; (2) the Company terminates Medarex’s co-promotion option and rights in the United States on sixty days written notice after the end of the second calendar year in the event Medarex provides less than sixty percent of certain performance obligations in any two out of three consecutive calendar years (such termination right to be exercised only with respect to those indications as to which Medarex failed to meet such performance obligation). Upon such termination by the Company, Medarex will no longer have a right to share in the profits and losses of the product and, instead the Company will pay Medarex royalties on net sales of the product; or (3) Medarex terminates the agreement with respect to all products on sixty days written notice if the Company provides less than sixty percent of certain performance obligations in any two out of three consecutive calendar years. Generally, upon termination, the Company will assign all rights to the product to Medarex and receive a royalty thereafter on intellectual property licensed by the Company to Medarex. Medarex may also elect not to copromote a product for one or more indications in the United States, in which event it will receive a royalty on sales of the product for such indication.

Pierre Fabre In April 2004, the Company and Pierre Fabre entered into three related agreements (a patent and know-how license agreement, a trademark license agreement and a supply agreement) to develop and commercialize JAVLOR* (vinflunine), a novel investigational anti-cancer agent. JAVLOR* is currently in Phase III clinical trials in Europe for the treatment of bladder and non-small cell lung cancer, and Phase II clinical trials in breast and ovarian cancer. An Investigational New Drug application for a Phase II clinical trial in bladder cancer was approved by FDA in November 2004. Under the terms of the agreement, the Company will receive an exclusive license to JAVLOR* in the United States, Canada, Japan, Korea and select Southeast Asian markets. Pierre Fabre will be responsible for the development and marketing of JAVLOR* in all other countries, including those of Europe, and will supply the Company’s requirements for the product. Under the terms of the agreement, the Company made and expensed upfront and milestone payments of $35 million in 2004, with the potential for an additional $175 million in milestone payments over time.

The patent and know-how license agreement, under which the Company licensed the right to market JAVLOR*, expires, on a country-by-country and product form-by-product form basis, on the date that is the later of: (i) the expiration of applicable patent or data exclusivity for a given Product form in a country, or (ii) the tenth anniversary of commercial sale of such product form in such country, at which time, the Company may exercise a royalty-free, nonexclusive right to market the product. The Agreement may be terminated sooner, as follows: (1) a party may terminate the agreement for voluntary or involuntary bankruptcy or insolvency of the other party that is not dismissed within a certain period of time; (2) a party may terminate for material breach by the other that is not cured with a specified period. Such termination shall relate only to the countries and product forms relating to the material breach, unless the product form is the IV form (in which case all forms can be terminated) and unless the breach pertains to the United States (in which case all countries can be terminated); (3) by Pierre Fabre, if Pierre Fabre terminates the supply agreement for material breach by the Company; (4) by either party, upon 60 days notice, if justifiable and demonstrable safety, efficacy, technical or regulatory reasons preclude development of the IV form for any indication, as determined by the Joint Steering Committee; (5) by Pierre Fabre, if (a) the Company fails to file or process a registrational filing required to be filed under the Agreement without justifiable and demonstrable safety, efficacy, technical or regulatory reasons; (b) if the Company does not launch the IV product form in a country within a time period required by the agreement (generally, ninety days) following receipt of regulatory (and if applicable, pricing) approval; (c) if the Company should challenge or contest Pierre Fabre Patent Rights; (d) if the Company makes an improper contract assignment; or (e) if the Company fails to meet certain minimum sales levels under the agreement.; or (6) by the Company, without cause, on a country-by-country basis, by giving Pierre Fabre at least (i) ninety days’ prior written notice, if such notice is given prior to the regulatory approval of the first approved indication in the United States, or (ii) one hundred eighty days’ prior written notice after regulatory approval of a first approved indication in the United States. Generally, for any termination made by Pierre Fabre or for termination by the Company without cause, the Company shall retain no rights to the product and all rights shall revert to Pierre Fabre.

Gilead In December 2004, the Company and Gilead entered into a joint venture to develop and commercialize the fixed-dose combination of the Company’s SUSTIVA (efavirenz) and Gilead’s TRUVADA* (emtricitabine and tenofovir disoproxil fumarate) in the United States. If approved by the FDA, the new product would be the first complete Highly Active Antiretroviral Therapy (HAART) treatment regimen for HIV available in the United States in a fixed-dose combination taken once daily. Fixed-dose combinations contain multiple medicines formulated together and may help simplify HIV therapy for patients and providers. Guidelines issued by the U.S. Department of Health and Human Services list the combination of emtricitabine, tenofovir disoproxil fumarate and efavirenz as one of the preferred non-nucleoside reverse transcriptase inhibitor (NNRTI)-based treatments for use in appropriate patients that have never taken anti-HIV medicines before.

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Through the joint venture, the Company and Gilead will work in partnership to complete development and U.S. regulatory filings for this fixed-dose combination regimen. Subject to receiving marketing approval of the fixed-dose combination regimen, the companies would share responsibility for commercializing the product in the United States. Both companies will provide funding and field-based sales representatives in support of promotional efforts for the combination product. The Company and Gilead will receive revenues from future net sales at percentages relative to the contribution represented by their individual products that comprise the fixed-dose combination.

The joint venture between the Company and Gilead will continue until terminated by mutual agreement of the parties or otherwise as described below. If no NDA for the combination product is filed by December 31, 2006, or no NDA is approved by the FDA by December 31, 2007, then either party may terminate the joint venture. In the event of a material breach by one party, the non-breaching party may terminate the joint venture only if both parties agree that it is both desirable and practicable to withdraw the combination product from the market in the United States. At such time as one or more generic versions of SUSTIVA appear on the market in the United States, Gilead will have the right to terminate the joint venture and thereby acquires all the rights to the combination product; however, the Company will continue for three years to receive a percentage of the net sales based on the contribution of SUSTIVA to the combination product.

Somerset In December 2004, the Company and Somerset, a joint venture between Mylan Laboratories Inc. and Watson Pharmaceuticals, Inc., entered into an agreement for the commercialization and distribution of Somerset’s EMSAM* (selegiline transdermal system), an investigational monoamine oxidase inhibitor administered as a transdermal patch for the acute and maintenance treatment of patients with major depressive disorder. Somerset received an approvable letter from the FDA for EMSAM* in February 2004, and if approved by the FDA, EMSAM* would be the first transdermal treatment for major depressive disorder.

Under the terms of the agreement, the Company receives exclusive distribution rights to commercialize EMSAM*, if approved, in the U.S. and Canada, with an opportunity to negotiate, within a specified time frame, rights in all or specific portions of the rest of the world. The Company made and expensed a $5 million upfront payment in December 2004 and will make a further payment following regulatory approval in the U.S. In addition to the upfront payment, Somerset will receive milestone payments based on achievement of certain sales levels, as well as reimbursement of certain development costs incurred over the terms of the agreement. Somerset will supply products to the Company and receive royalties on the Company’s sales of EMSAM*.

Unless earlier terminated or extended in accordance with its terms, the agreement will terminate on the fifth anniversary of the date of the first commercial sale of EMSAM*. The agreement may be earlier terminated by either party in the event of a material breach of the agreement by or the bankruptcy of the other party. In addition to the general rights of termination, the Company has the rights to terminate the agreement (i) prior to the date of first commercial sale of EMSAM* upon the imposition of certain regulatory requirements or restrictions relating to EMSAM*, the failure of the parties to agree with respect to the allocation of specified excess development costs or the failure of Somerset to deliver launch inventories, or (ii) at any time following the launch of a generic product, the occurrence of a material safety issue relating to EMSAM*, or after the date which is 30 months after the date of first commercial sale of EMSAM* upon 180 days prior notice. Somerset also has the right to terminate the agreement prior to the date of first commercial sale of EMSAM* upon failure of the parties to agree with respect to the allocation of specified excess development costs, or at any time following the occurrence of a material safety issue relating to EMSAM* or the failure of the Company to meet specified detailing requirements.

For information on alliances relating to drug discovery, see “—Research and Development” below.

Nutritionals Segment

The Nutritionals segment, through Mead Johnson, manufactures, markets, distributes and sells infant formulas and other nutritional products, including the entire line of ENFAMIL products. In 2002, the Company commenced sales of ENFAMIL LIPIL, the first infant formula in the United States to contain the nutrients DHA (docosahexaenoic acid) and ARA (arachidonic acid). Also naturally found in breast milk, DHA and ARA are believed to support infant brain and eye development. The Company obtains these nutrients from a sole provider pursuant to a non-exclusive worldwide licensing and supply arrangement, under which there is no guaranty of supply and pricing is subject to change. The agreement expires beginning in 2024 on a country-by-country basis 25 years after the Company commences sales in a country.

The Company’s Nutritionals products are generally sold by wholesalers and retailers and are promoted primarily to healthcare professionals. The Company also promotes Nutritionals products directly to consumers worldwide through advertising. The Company manufactures these products in the United States and in seven foreign countries. Nutritionals sales accounted for 10% of the Company’s sales in 2004, and 11% of the Company’s sales in 2003 and 2002. Domestic Nutritionals sales accounted for 48%, 54% and 53% of total Nutritionals sales in 2004, 2003 and 2002, respectively, while international Nutritionals sales accounted for 52%, 46% and 47% of total Nutritionals sales in 2004, 2003 and 2002, respectively. Approximately one-half of U.S. gross sales of infant

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formula are subject to rebates issued under the Women, Infants and Children (WIC) program. Sales subject to WIC rebates have much lower margins than those of non-WIC program sales.

Net sales of selected products and product categories in the Nutritionals segment were as follows:

	2004		2003		2002
	(dollars in millions)
ENFAMIL / ENFALAC	$	859	$	808	$	746
NUTRAMIGEN		167		138		127
Children’s Nutritional		468		421		383

In February 2004, the Company completed the divestiture of its Adult Nutritional business to Novartis for $386 million, including a $20 million contingent consideration achieved in 2004 and a $22 million upfront payment for a supply agreement. In 2003, Adult Nutritional products recorded sales of over $200 million.

Other Healthcare Segment

The Other Healthcare segment consists of ConvaTec, Medical Imaging and Consumer Medicines (North America and Japan). Other Healthcare sales accounted for 10% of the Company’s sales in 2004, 9% of the Company’s sales in 2003 and 10% of the Company’s sales in 2002. Domestic Other Healthcare sales accounted for 56%, 55% and 57% of total Other Healthcare sales in 2004, 2003 and 2002, respectively, while international Other Healthcare sales accounted for 44%, 45% and 43% of total Other Healthcare sales in 2004, 2003 and 2002, respectively.

ConvaTec

ConvaTec manufactures, distributes and sells ostomy and modern wound and skin care products. Principal brands of ConvaTec include NATURA, SUR-FIT, ESTEEM, AQUACEL and DUODERM. These products are marketed worldwide, primarily to hospitals, the medical profession and medical suppliers. The Company mainly relies on an internal sales force, and sales are made through various distributors around the world. The Company manufactures these products in the United States and the United Kingdom.

ConvaTec sales accounted for approximately 5% of the Company’s sales in 2004, 4% of the Company’s sales in 2003 and 5% of the Company’s sales in 2002. Domestic ConvaTec sales accounted for 32%, 33% and 34% of total ConvaTec sales in 2004, 2003 and 2002, respectively, while international ConvaTec sales accounted for 68%, 67% and 66% of total ConvaTec sales in 2004, 2003 and 2002, respectively.

In April 2004, the Company completed the acquisition of Acordis Speciality Fibres (Acordis) for $150 million, which is headquartered in the United Kingdom that licenses patent rights and supplies materials to ConvaTec for its Wound Therapeutics line.

Medical Imaging

Medical Imaging manufactures, distributes and sells medical imaging products including radiopharmaceuticals and an ultra-sound agent. Principal brands of Medical Imaging include CARDIOLITE and DEFINITY. These products are marketed through an internal sales force in the United States and sold worldwide, primarily to radiopharmacies, hospitals, clinics and the medical profession, in certain cases, using a small and concentrated network of radiopharmacies for distribution. In connection with the Company’s international business, Medical Imaging owns certain radiopharmacies outside the United States. CARDIOLITE is covered by a series of patents that claim its components. The patent coverage differs somewhat on a country-by-country basis. In the United States, these patents expire between December 2004 and 2008, and the Company’s currently expected year of basic exclusivity loss is 2008. In the EU, these patents expire between December 2006 through 2008. In Japan, these patents expire between August 2006 and 2008. The Company manufactures these products in the United States and Puerto Rico.

Medical Imaging sales accounted for 3% of the Company’s sales in each of 2004, 2003 and 2002. Domestic Medical Imaging sales accounted for 85% of total Medical Imaging sales in 2004 and 2003, and 84% of total Medical Imaging sales in 2002, while international Medical Imaging sales accounted for 15% of total Medical Imaging sales in 2004 and 2003, and 16% of total Medical Imaging sales in 2002. On January 1, 2004, the Company entered into a new license and supply agreement with Cardinal Health Nuclear Pharmacy Services, which provides Cardinal the right to sell CARDIOLITE in the U.S. from certain of its radiopharmacy locations. The Company also has entered into license and supply agreements with other radiopharmacies providing the right to sell CARDIOLITE in the U.S.

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Consumer Medicines

Consumer Medicines manufactures, distributes and sells over-the-counter health care products. Principal consumer healthcare brands include the EXCEDRIN brand of products for headache relief, BUFFERIN analgesics, COMTREX for cold, cough and flu, and the KERI line of moisturizers. In addition, the Company began marketing its ChoiceDM line of diabetic care products in August 2003. These products are generally sold to retailers and promoted primarily to consumers in the United States and Japan through advertising. These products are manufactured in the United States, Puerto Rico and Japan.

Consumer Medicines sales accounted for 2% of the Company’s sales in each of 2004, 2003 and 2002. North American Consumer Medicines sales accounted for 77% of Consumer Medicines sales in 2004 and 72% of Consumer Medicines sales in 2003 and 2002, while Consumer Medicines sales in Japan accounted for 23% of Consumer Medicines sales in 2004 and 28% of Consumer Medicines sales in 2003 and in 2002.

In January 2005, the Company announced its intent to divest its U.S. and Canadian Consumer Medicines business. The Company’s Consumer Medicines business in Japan, and other consumer medicines products in Asia Pacific, Latin America, Europe, Middle East and Africa which are included in the Pharmaceuticals segment, are not included in the planned divestiture.

Sources and Availability of Raw Materials

In general, the Company purchases its raw materials in the open market. Substantially all such materials are obtainable from a number of sources, and the loss of any one source of supply would not likely have a material adverse effect on the Company. For further discussion of sourcing, see “—Manufacturing and Quality Assurance” below and discussions of particular products.

Manufacturing and Quality Assurance

The Company seeks to design and operate its manufacturing facilities and maintain inventory in a way that will allow it to meet all expected product demand while maintaining flexibility to reallocate manufacturing capacity to improve efficiency and respond to changes in supply and demand. Pharmaceutical production processes are complex, highly regulated and vary widely from product to product. Shifting or adding manufacturing capacity can be a very lengthy process requiring significant capital expenditures and regulatory approvals. For further discussion of the regulatory impact on the Company’s manufacturing, see “—Government Regulation and Price Constraints” below.

Pharmaceutical manufacturing facilities require significant ongoing capital investment for both maintenance and to comply with increasing regulatory requirements. In addition, as the Company adds to its product line and realigns its focus over the next several years, the Company expects to close, partially close or modify many of its existing facilities and devote substantial resources in excess of historical levels to convert its facilities or to meet heightened processing standards that may be required for sterile or newly introduced products, in particular biologics. Biologics manufacturing involves more complex processes than those of traditional pharmaceutical operations. Although the Company does have the capacity to manufacture biologics for clinical trials and commercial launch, its capacity to manufacture larger commercial volumes of these products is limited. As biologics become more important to the Company’s product portfolio, the Company may continue to make arrangements with third-party manufacturers or may make substantial investments in facilities to increase and maintain its capacity to produce biologics on a commercial scale.

The Company relies on third parties to manufacture, or to supply it with active ingredients necessary for it to manufacture certain products, including PRAVACHOL, PLAVIX*, ABILIFY*, ERBITUX*, COUMADIN, PARAPLATIN, SUSTIVA, TAXOL^®, TEQUIN and VIDEX/VIDEX EC. To maintain a stable supply of these products, the Company takes a variety of actions designed to provide that there is a reasonable level of these ingredients held by the third-party supplier, the Company or both, so that the Company’s manufacturing operations are not interrupted. As an additional protection, in some cases, the Company takes steps to maintain an approved back-up source where available.

The Company also expects to rely initially on Lonza to manufacture abatacept (CTLA4Ig) and LEA29Y on a commercial scale if these products are commercialized. Abatacept and LEA29Y are investigational biologics compounds in late stage development. The Company has not made any filings with the FDA seeking approval for Lonza to manufacture these products. While the Company has filed a rolling BLA with the FDA for abatacept, the Company has not sought approval from the FDA to market and sell LEA29Y, and there can be no assurance that regulatory approval of either of these products will be obtained. However, the Company has entered into an agreement with Lonza to reserve a portion of Lonza’s biologics manufacturing capacity for the Company’s future requirements of these products if regulatory approval is obtained. The Company also has the capacity to supply limited quantities of abatacept and has filed a BLA for licensure of its manufacturing facility in Syracuse, New York. Pending such approval from the FDA, the Company will seek supplemental approval for Lonza to manufacture abatacept. For additional information about abatacept and LEA29Y, see “—Research and Development” below.

If the Company or any third-party manufacturer that the Company relies on for existing or future products is unable to maintain a stable supply of products, operate at sufficient capacity to meet its order requirements, comply with government regulations for

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manufacturing pharmaceuticals or meet the heightened processing requirements for biologics, the Company’s business performance and prospects could be negatively impacted. Additionally, if the Company or any of its third-party suppliers were to experience extended plant shutdowns or substantial unplanned increases in demand or suspension of manufacturing for regulatory reasons, the Company could experience an interruption in supply of certain products or product shortages until production could be resumed or expanded.

In connection with divestitures, licensing arrangements or distribution agreements of certain of the Company’s pharmaceuticals or in certain other circumstances, the Company has entered into agreements under which the Company has agreed to supply such products to third parties. In addition to liabilities that could arise from the Company’s failure to supply such products under the agreements, these arrangements could require the Company to invest in facilities for the production of non-strategic products, result in additional regulatory filings and obligations or cause an interruption in the manufacturing of its own products.

The Company’s success depends in great measure upon customer confidence in the quality of its products and in the integrity of the data that support their safety and effectiveness. Product quality arises from a total commitment to quality in all parts of the Company’s operations, including research and development, purchasing, facilities planning, manufacturing, and distribution. The Company maintains quality-assurance procedures relating to the quality and integrity of scientific information and production processes.

Control of production processes involves rigid specifications for ingredients, equipment and facilities, manufacturing methods, processes, packaging materials, and labeling. The Company performs tests at various stages of production processes and on the final product to assure that the product meets all regulatory requirements and the Company’s standards. These tests may involve chemical and physical chemical analyses, microbiological testing, or a combination of these along with other analyses. Quality control is provided by business unit/site quality assurance groups that monitor existing manufacturing procedures and systems used by the Company, its subsidiaries and third-party suppliers.

Intellectual Property and Product Exclusivity

The Company owns or is licensed under a number of patents in the United States and foreign countries primarily covering its pharmaceutical products. The Company has also developed many brand names and trademarks for products in all areas. The Company considers the overall protection of its patent, trademark, license and other intellectual property rights to be of material value and acts to protect these rights from infringement.

In the pharmaceutical industry, the majority of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the product’s sales. The rate of this decline varies by country and by therapeutic category. For a discussion of how generic versions of a product can impact that product’s sales, see “—Generic Competition” below.

A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled.

Patents are a key determinant of market exclusivity for most branded pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country.

Market exclusivity is also sometimes influenced by regulatory intellectual property rights. Many developed countries provide certain non-patent incentives for the development of medicines. For example, the United States, the EU and Japan each provide for a minimum period of time after the approval of a new drug during which the regulatory agency may not rely upon the innovator’s data to approve a competitor’s generic copy. Regulatory intellectual property rights are also available in certain markets as incentives for research on new indications, on orphan drugs and on medicines useful in treating pediatric patients.

Regulatory intellectual property rights are independent of any patent rights that the Company may possess and can be particularly important when a drug lacks broad patent protection. However, most regulatory forms of exclusivity do not prevent a competitor from gaining regulatory approval on the basis of the competitor’s own safety and efficacy data on its drug, even when that drug is identical to that marketed by the innovator.

The Company estimates the likely market exclusivity period for each of its products on a case-by-case basis. It is not possible to predict the length of market exclusivity for any of the Company’s products with certainty because of the complex interaction between

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patent and regulatory forms of exclusivity, and inherent uncertainties concerning patent litigation. There can be no assurance that a particular product will enjoy market exclusivity for the full period of time that the Company currently estimates or that the exclusivity will be limited to the estimate. The Company expects to have continued exclusivity challenges over the next several years. For further discussion of these exclusivity challenges, see “—Pharmaceuticals Segment” above and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook” below.

In addition to patents and regulatory forms of exclusivity, the Company also holds intellectual property in the form of trademarks, on products such as EXCEDRIN, ENFAMIL, THERAGRAN, KERI and BUFFERIN. Trademarks have no effect on market exclusivity for a product, but are considered to have marketing value. Worldwide, all of the Company’s important products are sold under trademarks that are considered in the aggregate to be of material importance. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely.

Specific aspects of the law governing market exclusivity for pharmaceuticals vary from country to country. The following summarizes key exclusivity rules in markets representing significant Company sales:

United States

A company seeking to market an innovative pharmaceutical in the United States must file a complete set of safety and efficacy data to the FDA. The type of application filed depends on whether the drug is a chemical (a small molecule) or a biological product (a large molecule). If the innovative pharmaceutical is a chemical, the company files a NDA. If the medicine is a biological product, a BLA is filed. The type of application filed affects regulatory exclusivity rights.

A competitor seeking to launch a generic substitute of a chemical innovative drug in the United States must file an Abbreviated New Drug Application (ANDA) with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA.

Medicines approved under an NDA can receive several types of regulatory data protection. An innovative chemical pharmaceutical (also known as a new chemical entity) is entitled to five years of regulatory data protection in the U.S., during which an ANDA cannot be filed with the FDA. If an innovator’s patent is challenged, as described below, the generic manufacturer may file its ANDA after the fourth year of the five-year data protection period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation or for a new indication on the basis of new clinical trials, receives three years of data protection. Finally, an NDA that is designated as an Orphan Drug, which is a drug that gains an indication for treatment of a condition that occurs only rarely in the United States, can receive seven years of exclusivity for the orphan indication. During this time period neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use.

Because a significant portion of patent life can be lost during the time it takes to obtain regulatory approval, the innovator can extend one patent to compensate the innovator for the lost patent term, at least in part. More specifically, the innovator may identify one patent, which claims the product or its approved method of use, and, depending on a number of factors, may extend the expiration date of that patent. There are two limits to these extensions. First, the maximum term a patent can be extended is 5 years, and second, the extension cannot cause the patent to be in effect for more than 14 years from the date of NDA approval.

A company may also earn six months of additional exclusivity for a drug where specific clinical trials are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. This six-month period extends most forms of exclusivity (patent and regulatory) that are listed with the FDA at the time the studies are completed and submitted to the FDA.

Currently, generic versions of biological products cannot be approved under U.S. law; however, the FDA is taking steps toward allowing generic versions of biologics, and these laws could change in the near future. Competitors seeking approval of biological products must file their own safety and efficacy data, and address the challenges of biologics manufacturing, which involves more complex processes and are more costly than those of traditional pharmaceutical operations.

Beyond the minimum period of regulatory exclusivity provided by U.S. law, many (but not all) innovative drugs are also covered by patents held by the NDA sponsor.

The innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the Orange Book. Absent a successful patent challenge, the FDA cannot approve an ANDA until after the innovator’s listed patents expire. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed. This allegation

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is commonly known as a “Paragraph IV certification.” The innovator then must choose whether to file suit against the generic manufacturer to protect its patents. If one or more of the NDA-listed patents are successfully challenged, or if the innovator chooses not to sue, the first filer of a Paragraph IV certification may be entitled to a 180-day period of market exclusivity as against all other generic manufacturers. From time to time ANDAs, including Paragraph IV certifications, are filed with respect to certain of the Company’s products. The Company evaluates these ANDAs on a case-by-case basis and, where warranted, files suit against the generic manufacturer to protect its patent rights.

Several recent developments in the United States have increased the likelihood of generic challenges to innovators’ intellectual property, and thus, increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. For a discussion of one such litigation related to patent challenges by generic companies, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies—PLAVIX* Litigation.” Second, new statutory and regulatory provisions in the United States limit the ability of an innovator company to prevent generic drugs from being approved and launched while patent litigation is ongoing. Third, the FDA is actively considering ways to expand the use of a regulatory mechanism that allows for regulatory approval of drugs that are similar to (but not generic copies of) innovative drugs on the basis of less extensive data than is required for a full NDA. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular Company product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. For more information about new legislation, see “—Government Regulation and Price Constraints” below.

European Union

In the EU, most innovative pharmaceuticals are entitled to ten years of regulatory data protection if marketing approval is obtained via the “centralized procedure.” A product that receives approval under the centralized procedure automatically receives approval in every member state of the EU. However, a company then must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. The pricing and reimbursement procedure can take months, and sometimes years, to obtain. Consequently, regardless of whether or not the innovative medicine is covered by patents, generic copies relying on the innovator’s data usually cannot be approved for a minimum of ten years after approval. For innovative pharmaceuticals that gain marketing approval using the non-centralized mutual recognition procedure, this period is six or ten years depending on the individual EU member state. However, regardless of regulatory exclusivity, competitors may obtain approval of an identical product on the basis of their own safety and efficacy data at any time. For more information regarding the regulation of pharmaceutical products in the EU, see “—Government Regulation and Price Constraints” below.

Patents on pharmaceutical products are generally enforceable in the EU. However, in contrast to the United States, patents are not listed with regulatory authorities. Generic copies can be approved after data protection expires, regardless of whether the innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. As in the United States, patents in the EU may be extended to compensate for the patent term lost during the regulatory review process. Such extensions are granted on a country-by-country basis.

In general, EU law treats chemically synthesized drugs and biologically derived drugs the same with respect to intellectual property and market exclusivity.

Japan

In Japan, medicines of new chemical entities are generally afforded six years of protection for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data protection and patent expirations. As in the United States, patents in Japan may be extended to compensate for the patent term lost during the regulatory review process.

In general, Japanese law treats chemically synthesized and biologically derived drugs the same with respect to intellectual property and market exclusivity.

Rest of World

In countries outside of the United States, the EU and Japan, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the United States (e.g., Canada) or the EU (e.g., Switzerland). Among less developed countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some less developed nations have formally adopted laws in order to comply with World Trade Organization (WTO) commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO obligations is a long process, and there is no assurance of the outcome. Thus, in assessing the likely future market exclusivity of

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the Company’s innovative drugs in less developed countries, the Company takes into account not only formal legal rights but political and other factors as well.

Marketing, Distribution and Customers

In the Company’s Pharmaceuticals and Nutritionals segments and in its ConvaTec and Medical Imaging businesses, the Company promotes its products in medical journals and directly to healthcare providers such as doctors, nurse practitioners, physician assistants, pharmacists, technologists, hospitals, Pharmacy Benefit Managers (PBMs), Managed Care Organizations (MCOs) and government agencies. The Company also markets directly to consumers in the United States through direct-to-consumer print, radio and television advertising. In addition, the Company sponsors general advertising to educate the public about its innovative medical research. For a discussion of the regulation of promotion and marketing of pharmaceuticals, see “—Government Regulation and Price Constraints” below.

Through the Company’s sales and marketing organizations, the Company explains the approved uses and advantages of its products to medical professionals. The Company works to gain access to health authority, PBM and MCO formularies (lists of recommended or approved medicines and other products) and reimbursement lists by demonstrating the qualities and treatment benefits of its products. Marketing of prescription pharmaceuticals is limited to the approved uses of the particular product, but the Company continues to develop information about its products and provides such information in response to unsolicited inquiries from doctors and other medical professionals. All drugs must complete clinical trials required by regulatory authorities to show they are safe and effective for treating one or more medical problems. A manufacturer may choose, however, to undertake additional studies, including comparative clinical trials with competitive products, to demonstrate additional advantages of a compound. Those studies can be costly and take years to complete, and the results are uncertain. Balancing these considerations makes it difficult to decide whether and when to undertake such additional studies. But, when they are successful, such studies can have a major impact on approved marketing claims and strategies.

The Company’s operations include several pharmaceutical marketing and sales organizations. Each organization markets a distinct group of products supported by a sales force and is typically based on particular therapeutic areas or physician groups. These sales forces often focus on selling new products when they are introduced, and promotion to physicians is increasingly targeted at specialists and high value primary care physicians. In addition, Ventiv Pharma Services, LLC, a division of Ventiv Health, Inc., provides the Company with a sales force of over 375 representatives focused on CEFZIL and TEQUIN.

The Company’s prescription pharmaceutical products are sold principally to wholesalers, but the Company also sells directly to retailers, hospitals, clinics, government agencies and pharmacies. In 2004, sales to three pharmaceutical wholesalers in the United States, McKesson, Cardinal and AmerisourceBergen Corporation (AmerisourceBergen) accounted for approximately 19%, 17% and 10%, respectively, of the Company’s total net sales. In 2003, sales to McKesson, Cardinal and AmerisourceBergen accounted for approximately 17%, 15% and 13%, respectively, of the Company’s total net sales. In 2002, sales to McKesson and AmerisourceBergen each accounted for approximately 16% of the Company’s total net sales and sales to Cardinal accounted for 15% of the Company’s total net sales. Sales to these U.S. wholesalers were concentrated in the Pharmaceuticals segment.

Through 2002, the Company experienced a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business. For further discussion see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restatement of Previously Issued Financial Statements.” In 2003, the Company took steps intended to moderate inventory buying by U.S. pharmaceutical wholesalers, which can result in sales fluctuations unrelated to consumer demand. In 2003, the Company entered into new inventory management agreements (IMAs) with AmerisourceBergen, Cardinal, McKesson and other wholesalers. The agreements have terms of 2 years, cancelable by either party after 1 year. The IMAs generally establish limits on inventory levels of BMS pharmaceutical products held by the wholesalers, permit limited buy-ins of BMS pharmaceutical products by the wholesalers after price increases at pre-price increase prices, and require the wholesalers to provide the Company with data relating to the wholesalers’ sales and inventory levels of BMS pharmaceutical products. The IMAs will expire between September 2005 and December 2005. The Company has had discussions with certain of its U.S. wholesaler customers about extending and renewing its agreements for periods beyond their current expiration. The Company expects these discussions to continue during 2005.

The Company is the exclusive distributor of ERBITUX* in North America. Under the terms of an agreement with McKesson, McKesson provides warehousing, packing and shipping for filling orders for ERBITUX*. To maintain the integrity of the product, special storage conditions and handling are required. Accordingly, all sales of ERBITUX*, including purchase requests from other wholesalers, are processed through the Company, and McKesson will only ship ERBITUX* to end-users of the product and not to other intermediaries to hold for later sales. This agreement expires March 31, 2005, however the Company has the option to extend the agreement to June 30, 2005.

For information on sales and marketing of consumer medicines and nutritionals, see “—Nutritionals Segment” and “—Other Healthcare Segment—Consumer Medicines” above.

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Competition

The markets in which the Company competes are generally broad-based and highly competitive. The principal means of competition vary among product categories and business groups.

The Company’s Pharmaceuticals segment competes with other worldwide research-based drug companies, many smaller research companies with more limited therapeutic focus and generic drug manufacturers. Important competitive factors include product efficacy, safety and ease of use, price and demonstrated cost-effectiveness, marketing effectiveness, product labeling, service and research and development of new products and processes. Sales of the Company’s products can be impacted by new studies that indicate a competitor’s product has greater efficacy for treating a disease or particular form of disease than one of the Company’s products. The Company’s sales also can be impacted by additional labeling requirements for better tolerability, safety or convenience that may be imposed on its products by the FDA or by similar regulatory agencies in different countries. If competitors introduce new products and processes with therapeutic or cost advantages, the Company’s products can be subject to progressive price reductions or decreased volume of sales, or both. For example, in the growing market for statins, which reduce cholesterol, PRAVACHOL, the Company’s second largest product ranked by 2004 net sales ($2.6 billion), experienced increased competition from established brands and new entrants. U.S. prescriptions for PRAVACHOL declined 10% in 2004 compared to 2003. PRAVACHOL has begun to lose exclusivity in Europe. Between now and its anticipated loss of U.S. exclusivity in April 2006, its expected rate of decline in sales and in share of the statin segment could be accelerated by increased competition.

To successfully compete for business with managed care and pharmacy benefits management organizations, the Company must often demonstrate that its products offer not only medical benefits but also cost advantages as compared with other forms of care. Most new products that the Company introduces must compete with other products already on the market or products that are later developed by competitors. Manufacturers of generic pharmaceuticals typically invest far less in research and development than research-based pharmaceutical companies and therefore can price their products significantly lower than branded products. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product. In certain countries outside the United States, patent protection is weak or nonexistent and the Company must compete with generic versions shortly after it launches its innovative product.

Many other companies, large and small, manufacture and sell one or more products that are similar to those marketed by the Company’s Nutritionals and Other Healthcare segments. Sources of competitive advantage include product quality and efficacy, brand identity, advertising and promotion, product innovation, broad distribution capabilities, customer satisfaction and price. Significant expenditures for advertising, promotion and marketing are generally required to achieve both consumer and trade acceptance of these products.

The Company believes its long-term competitive position depends upon its success in discovering and developing innovative, cost-effective products that serve unmet medical needs, together with its ability to manufacture the products efficiently and to market them effectively in a highly competitive environment. There can be no assurance that the Company’s research and development efforts will result in commercially successful products or that its products or processes will not become outmoded from time to time as a result of products or processes developed by its competitors.

Managed Care Organizations

The growth of MCOs in the United States has been a major factor in the competitive make-up of the healthcare marketplace. Over half the U.S. population now participates in some version of managed care. Because of the size of the patient population covered by MCOs, marketing of prescription drugs to them and the PBMs that serve many of those organizations has become important to the Company’s business. MCOs can include medical insurance companies, medical plan administrators, health-maintenance organizations, alliances of hospitals and physicians and other physician organizations. Those organizations have been consolidating into fewer, even larger entities, enhancing their purchasing strength and importance to the Company.

A major objective of MCOs is to contain and, where possible, reduce health care expenditures. They typically use formularies, volume purchases and long-term contracts to negotiate discounts from pharmaceutical providers. MCOs and PBMs typically develop formularies to reduce their cost for medications. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their generally lower cost, generic medicines are often favored. The breadth of the products covered by formularies can vary considerably from one MCO to another, and many formularies include alternative and competitive products for treatment of particular medical problems. MCOs use a variety of means to encourage patients’ use of products listed on their formularies.

Exclusion of a product from a formulary can lead to its sharply reduced usage in the MCO patient population. Consequently, pharmaceutical companies compete aggressively to have their products included. Where possible, companies compete for inclusion based upon unique features of their products, such as greater efficacy, better patient ease of use or fewer side effects. A lower overall

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cost of therapy is also an important factor. Products that demonstrate fewer therapeutic advantages must compete for inclusion based primarily on price. The Company has been generally, although not universally, successful in having its major products included on MCO formularies.

Generic Competition

One of the biggest competitive challenges that the Company faces in the United States and, to a less extent, internationally is from generic pharmaceutical manufacturers. Upon the expiration or loss of market exclusivity on a product, the Company can lose the major portion of sales of that product in a very short period of time. In the United States, the FDA approval process exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, and allows generic manufacturers to rely on the safety and efficacy of the pioneer product. Therefore, generic competitors operate without the Company’s large research and development expenses and its costs of conveying medical information about the product to the medical community. For more information about market exclusivity, see “—Intellectual Property and Product Exclusivity” above.

The rate of sales decline of a product after the expiration of exclusivity varies by country. In general, the decline in the U.S. market is more rapid than in most other developed countries. Also, the declines in developed countries tend to be more rapid than in less developed countries.

The rate of sales decline after the expiration of exclusivity has also historically been influenced by product characteristics. For example, drugs that are used in a large patient population (e.g., those prescribed by primary care physicians) tend to experience more rapid declines than drugs in specialized areas of medicine (e.g., oncology). Drugs that are more complex to manufacture (e.g., sterile injectable products) usually experience a slower decline than those that are simpler to manufacture.

As noted above, MCOs that focus primarily on the immediate cost of drugs often favor generics over brand-name drugs. Many governments also encourage the use of generics as alternatives to brand-name drugs in their healthcare programs. Laws in the United States generally allow, and in many cases require, pharmacists to substitute generic drugs that have been rated under government procedures to be therapeutically equivalent to a brand-name drug. The substitution must be made unless the prescribing physician expressly forbids it. These laws and policies provide an added incentive for generic manufacturers to seek marketing approval as the automatic substitution removes the need for generic manufacturers to incur many of the sales and marketing costs, which innovators must incur.

Research and Development

The Company invests heavily in research and development because it believes it is critical to its long-term competitiveness. Pharmaceutical research and development is carried out by the Bristol-Myers Squibb Pharmaceutical Research Institute, which has major facilities in Princeton, Hopewell and New Brunswick, New Jersey and Wallingford, Connecticut. Pharmaceutical research and development is also carried out at various other facilities in the United States and in Belgium, Canada, France, and the United Kingdom. Management continues to emphasize leadership, innovation, productivity and quality as strategies for success in the Pharmaceutical Research Institute.

The Company spent $2,500 million in 2004, $2,279 million in 2003 and $2,206 million in 2002 on Company sponsored research and development activities. Company sponsored pharmaceutical research and development spending (including certain payments under third-party collaborations and contracts), as a percentage of Pharmaceutical sales, was 14.8% in 2004, compared with 14.2% in 2003 and 16.5% in 2002. At the end of 2004, the Company employed approximately 7,300 people in research and development throughout the Company, including over 5,500 in the Pharmaceutical Research Institute, including a substantial number of physicians, scientists holding graduate or postgraduate degrees and higher skilled technical personnel.

The Company concentrates its pharmaceutical research and development efforts in the following ten critical disease areas: Affective (psychiatric) disorders, Alzheimer’s/dementia, atherosclerosis/thrombosis, diabetes, hepatitis, human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS), obesity, oncology, rheumatoid arthritis and related diseases and solid organ transplant. However, the Company continues to analyze and may selectively pursue promising leads in other areas. In addition to discovering and developing new molecular entities, the Company looks for ways to expand the value of existing products through new uses and formulations that can provide additional benefits to patients.

To supplement the Company’s internal efforts, the Company collaborates with independent research organizations, including educational institutions and research-based pharmaceutical and biotechnology companies, and contracts with others for the performance of research in their facilities. The Company uses the services of physicians, hospitals, medical schools and other research organizations worldwide to conduct clinical trials to establish the safety and effectiveness of new products. The Company actively seeks out investments in external research and technologies that hold the promise to complement and strengthen its own

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research efforts. These investments can take many forms, including licensing arrangements, codevelopment and comarketing agreements, copromotion arrangements and joint ventures.

Drug development is time-consuming, expensive and risky. In the development of human health products, industry practice and government regulations in the United States and most foreign countries provide for the determination of effectiveness and safety of new molecular entities through preclinical tests and controlled clinical evaluation. Before a new drug may be marketed in the United States, recorded data on preclinical and clinical experience are included in the NDA or the BLA to the FDA for the required approval. The development of certain other products is also subject to government regulations covering safety and efficacy in the United States and many foreign countries. There can be no assurance that a compound developed as a result of any program will obtain the regulatory approvals necessary for it to be marketed for any particular disease indication.

On average, only about one in ten thousand chemical compounds discovered by pharmaceutical industry researchers proves to be both medically effective and safe enough to become an approved medicine. The process from discovery to regulatory approval typically takes ten years or longer. Drug candidates can fail at any stage of the process, and even late-stage product candidates sometimes fail to receive regulatory approval. The Company believes its investments in research, both internally and in collaboration with others, have been rewarded by the number of new pharmaceutical compounds and indications it has in all stages of development.

The Company’s drug discovery program includes many alliances and collaborative agreements. These agreements bring new products into the pipeline or help the Company remain on the cutting edge of technology in the search for novel medicines.

Listed below are several investigational compounds that the Company has in the later stages of development. All of these compounds are in or entering Phase II or Phase III clinical trials. Whether or not any of these investigational compounds ultimately becomes one of the Company’s marketed products depends on the results of pre-clinical and clinical studies, the competitive landscape of the potential product’s market and the manufacturing processes necessary to produce the potential product on a commercial scale, among other factors. The Company filed applications to the FDA for entecavir in September 2004 and muraglitazar in December 2004. The Company also filed a rolling BLA for abatacept (CTLA4Ig) under the provisions of the FDA’s Continuous Marketing Application, Pilot 1 and expects that submission to be completed in early 2005. However, as noted above, there can be no assurance that the Company will seek regulatory approval of any of these compounds or that, if such approval is sought, it will be obtained. At this stage of development, the Company cannot determine all intellectual property issues or all the patent protection that may, or may not, be available for these investigational compounds. The patent coverage highlighted below does not include potential term extensions.

Abatacept	CTLA4Ig, a biological product which has been developed internally and is currently in Phase III clinical trials, is a fusion protein with novel immunosuppressive activity targeted initially at rheumatoid arthritis. Abatacept has been granted fast track status by the U.S. FDA and the Company is filing a rolling BLA for abatacept under the provisions of Continuous Marketing Application, Pilot 1. Complete Non-Clinical and Clinical sections have already been submitted to the FDA and the remaining sections will be submitted in early 2005. The Company has a series of patents covering CTLA4Ig and its method of use. The latest of the composition of matter patents expires in the United States in 2016. U.S. litigation with Repligen Corporation (Repligen) concerning the inventorship of CTLA4Ig has been concluded in favor of the Company. Repligen has received a U.S. patent that claims a use of CTLA4Ig to treat specific autoimmune diseases, including rheumatoid arthritis. For more information about this litigation, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.”
Entecavir	Entecavir, which has been developed internally and is currently under regulatory review, is a potent and selective inhibitor of hepatitis B virus. The Company submitted an NDA to the FDA and a marketing authorization application to the European Medicines Evaluation Agency in October 2004. The Company has a composition of matter patent that expires in the United States in 2010.
Muraglitazar	Muraglitazar, which has been developed internally and is currently under regulatory review, is a dual PPAR agonist for the treatment of type 2 diabetes and other metabolic disorders. The Company submitted an NDA to the FDA in December 2004. The product is being codeveloped and copromoted under a collaboration agreement with Merck. The Company has a composition of matter patent which expires in the United States in 2020.
EMSAM*	EMSAM*, an investigational monoamine oxidase inhibitor administered as a transdermal patch for the acute and maintenance treatment of patients with major depressive disorder, is being codeveloped with Somerset and has received an approvable letter from the FDA in February 2004.

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Ixabepilone	Ixabepilone, an epothilone, which has been developed internally and is currently in Phase III clinical trials, is a novel tubulin inhibitor for multiple tumor types. The Company has a composition of matter patent in the United States that expires in 2018.
JAVLOR*	Vinflunine, which is being codeveloped with Pierre Fabre and is currently in Phase III clinical trials, is a novel investigational anti-cancer agent. Pierre Fabre has a composition of matter patent that expires in the U.S. in 2014.
MDX-010	MDX-010, which is being codeveloped with Medarex and is currently in Phase III clinical trials, is a monoclonal antibody being investigated as a late-stage anticancer treatment. It is in a novel class of agents intended to potentiate elements of the immunologic response. The Company owns a composition of matter patent that expires in the U.S. in 2016 and has rights to method of use patents owned by Medarex that expire in the U.S. in 2015. The Company also has rights to pending Medarex patent applications covering composition of matter and method of use of MDX-010.
LEA29Y	LEA29Y, a biological product, which is being developed internally and is currently transitioning to Phase III clinical trials, is a fusion protein with novel immunosuppressive activity targeted at solid organ transplant. The Company has pending patent applications in the United States and Japan, and a granted patent application in the EU, covering LEA29Y.
Saxagliptin	Saxagliptin, which is being developed internally and is currently in Phase II clinical trials, is an oral compound for the potential treatment of diabetes. A patent application covering the composition of matter has been issued, and will expire in 2021 in the United States.
SRC/ABL	SRC/ABL, which is being developed internally and is currently transitioning to an accelerated Phase II program, is a kinase inhibitor for chronic myelosenous leukemia. The Company has a composition of matter patent which expires in 2020.

The Company will not pursue further development of Razaxaban, the Company’s first factor Xa inhibitor studied in patients. Although Razaxaban provided proof of principle for the molecular target in Phase II clinical trials for the prevention of deep vein thrombosis, the Company has identified another factor Xa inhibitor, which was a follow-on to Razaxaban, that has a more favorable profile. That factor Xa inhibitor is being developed internally for the prevention of deep vein thrombosis and is currently in Phase II clinical trials. The Company has one or more patent(s) and/or pending patent application(s) that cover the composition of matter, which expire (or, in the case of a pending patent application, will expire if issued), in the U.S. between 2019 and 2022.

The Company’s competitors also devote substantial funds and resources to research and development. In addition, the consolidation that has occurred in the pharmaceutical industry has created companies with substantial research and development resources. The extent to which the Company’s competitors are successful in their research could result in erosion of the sales of its products and unanticipated product obsolescence.

Government Regulation and Price Constraints

The pharmaceutical industry is subject to extensive global regulation by regional, country, state and local agencies. The Federal Food, Drug, and Cosmetic Act (FDC Act), other federal statutes and regulations, various state statutes and regulations, and laws and regulations of foreign governments govern to varying degrees the testing, approval, production, labeling, distribution, post-market surveillance, advertising, dissemination of information, and promotion of the Company’s products. The lengthy process of laboratory and clinical testing, data analysis, manufacturing, development, and regulatory review necessary for required governmental approvals is extremely costly and can significantly delay product introductions in a given market. Promotion, marketing, manufacturing, and distribution of pharmaceutical products are extensively regulated in all major world markets. In addition, the Company’s operations are subject to complex federal, state, local, and foreign environmental and occupational safety laws and regulations. The Company anticipates that the laws and regulations affecting the manufacture and sale of current products and the introduction of new products will continue to require substantial scientific and technical effort, time, expense and significant capital investment.

Of particular importance is the FDA in the United States. It has jurisdiction over virtually all of the Company’s businesses and imposes requirements covering the testing, safety, effectiveness, manufacturing, labeling, marketing, advertising and post-marketing surveillance of the Company’s pharmaceutical products. The FDA also regulates most of the Company’s Nutritionals and Other Healthcare products. In many cases, the FDA requirements have increased the amount of time and money necessary to develop new products and bring them to market in the United States.

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The Company’s pharmaceutical products are subject to pre-market approval requirements in the United States. New drugs are approved under, and are subject to, the FDC Act and related regulations. Biological drugs are subject to both the FDC Act and the Public Health Service Act (PHS Act), and related regulations. Biological drugs are licensed under the PHS Act.

The FDA mandates that drugs be manufactured, packaged and labeled in conformity with current Good Manufacturing Practices (cGMP) established by the FDA. In complying with cGMP regulations, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to ensure that the product meets applicable specifications and other requirements to ensure product safety and efficacy. The FDA periodically inspects drug manufacturing facilities to ensure compliance with applicable cGMP requirements. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product or voluntary recall of a product. Adverse experiences with the use of products must be reported to the FDA and could result in the imposition of market restrictions through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

The federal government has extensive enforcement powers over the activities of pharmaceutical manufacturers, including authority to withdraw product approvals, commence actions to seize and prohibit the sale of unapproved or non-complying products, to halt manufacturing operations that are not in compliance with cGMPs, and to impose or seek injunctions, voluntary recalls, and civil monetary and criminal penalties. Such a restriction or prohibition on sales or withdrawal of approval of products marketed by the Company could materially adversely affect its business, financial condition and results of operations.

Marketing authorization for the Company’s products is subject to revocation by the applicable governmental agencies. In addition, modifications or enhancements of approved products or changes in manufacturing locations are in many circumstances subject to additional FDA approvals, which may or may not be received and which may be subject to a lengthy application process.

The distribution of pharmaceutical products is subject to the Prescription Drug Marketing Act, known as “PDMA,” as part of the FDC Act, which regulates such activities at both the federal and state level. Under the PDMA and its implementing regulations, states are permitted to require registration of manufacturers and distributors who provide pharmaceuticals even if such manufacturers or distributors have no place of business within the state. States are also permitted to adopt regulations limiting the distribution of product samples to licensed practitioners. The PDMA also imposes extensive licensing, personnel record keeping, packaging, quantity, labeling, product handling and facility storage and security requirements intended to prevent the sale of pharmaceutical product samples or other diversions.

The marketing practices of all U.S. pharmaceutical manufacturers are subject to federal and state health care laws that are used to protect the integrity of government health care programs. The Office of Inspector General of the United States Department of Health and Human Services (OIG) oversees compliance with applicable federal laws, in connection with the payment for products by government funded programs (primarily Medicaid and Medicare.) These laws include the federal anti-kickback statute which criminalizes the offering of something of value to induce the recommendation, order or purchase of products or services reimbursed under a government health care program. The OIG has issued a series of Guidances to segments of the health care industry, including a recommendation that pharmaceutical manufacturers, at a minimum, adhere to the PhRMA Code, a voluntary industry code of marketing practices. The Company subscribes to the PhRMA Code, and has implemented a compliance program to address the requirements set forth in the OIG Guidance and its compliance with the health care laws. Failure to comply with these health care laws could subject the Company to administrative and legal proceedings, including actions by the state and federal government agencies. Such actions could result in the imposition of civil and criminal sanctions, which may include fines, penalties and injunctive remedies, the impact of which could materially adversely affect the Company’s business, financial condition and results of operations.

The Company is also subject to the jurisdiction of various other federal and state regulatory and enforcement departments and agencies, such as the Federal Trade Commission (FTC), the Department of Justice and the Department of Health and Human Services in the United States. The Company is also licensed by the U.S. Drug Enforcement Agency to procure and produce controlled substances. The Company is, therefore, subject to possible administrative and legal proceedings and actions by those organizations. Such actions may result in the imposition of civil and criminal sanctions, which may include fines, penalties and injunctive or administrative remedies.

Various federal and state agencies have regulatory authority regarding the manufacture, storage, transportation and disposal of many Medical Imaging products because of their radioactive nature.

The Company’s activities outside the United States are also subject to regulatory requirements governing the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of the Company’s products. These regulatory requirements vary from country to country. In the EU, there are two ways that a company can obtain marketing authorization for a pharmaceutical product. The first route is the “centralized procedure.” This procedure is compulsory for certain pharmaceutical products, in particular those using biotechnological processes, but also is available for certain new chemical compounds and products. The second route to obtain

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marketing authorization in the EU is the “mutual recognition procedure.” Applications are made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. As set forth above, pricing and reimbursement of the product continues to be the subject of member state law.

Whether or not FDA approval or approval of the European Medicines Evaluation Agency has been obtained for a product, approval of the product by comparable regulatory authorities of countries outside of the United States or the EU, as the case may be, must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country and the time required for approval may be longer or shorter than that required in the United States. Approval in one country does not assure that such product will be approved in another country.

In many markets outside the United States, the Company operates in an environment of government-mandated, cost-containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and/or enacted across-the-board price cuts as methods of cost control. Most European countries do not provide market pricing for new medicines, except the United Kingdom and Germany. Pricing freedom is limited in the United Kingdom by the operation of a profit control plan and in Germany by the operation of a reference price system. Companies also face significant delays, mainly in France, Spain, Italy and Belgium, in market access for new products, and more than two years can elapse before new medicines become available on some national markets. Additionally, member states of the EU have regularly imposed new or additional cost containment measures for pharmaceuticals. In recent years, Italy, for example, has imposed mandatory price decreases. The existence of price differentials within Europe due to the different national pricing and reimbursement laws leads to significant parallel trade flows.

In recent years, Congress and some state legislatures have considered a number of proposals and have enacted laws that could effect major changes in the healthcare system, either nationally or at the state level. Driven in part by budget concerns, Medicaid access and reimbursement restrictions have been implemented in some states and proposed in many others. Similar cost containment issues exist in many foreign countries where the Company does business.

On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act (MMA) was enacted to provide outpatient prescription drug coverage to senior citizens in the United States. Under the legislation, an interim drug discount card program began in June 2004 allowing Medicare beneficiaries to obtain a Medicare endorsed, drug-discount card from an MCO, PBM or other private sector provider, while the main drug benefit, eligibility for a stand-alone drug plan, is scheduled to begin in 2006. The new drug benefit will be administered regionally through private insurance plans or PBMs, and the law allows Medicare to negotiate directly with pharmaceutical companies in regions without a private drug benefit program. The legislation allows for the importation of less expensive prescription drugs from Canada, but only if the U.S. Department of Health and Human Services certifies that such importation would be safe and would result in savings to customers, which it has so far not done. There can be no assurance that this certification requirement will be maintained in future legislation or that the certification will continue to be withheld. Prior to the MMA, federal law would have permitted importation of medicines into the U.S. from a considerably larger group of developed countries, provided the U.S. Health and Human Services Department made the same safety and cost-savings certifications. The Company cannot predict the potential impact that this legislation will have on its business, because it is not clear how the law will be implemented by regulators or received by consumers and physicians. While usage of pharmaceuticals may increase as the result of the expanded access to medicines afforded by the partial reimbursement under Medicare, this may be offset by increased pricing pressures due to the enhanced purchasing power of the private sector providers that will negotiate on behalf of Medicare beneficiaries. The impact of this legislation was negative for the Company’s U.S. oncology business in 2004, as reimbursement levels have been reduced for certain oncology products administered in the outpatient setting, including PARAPLATIN. The impact could also be negative over the intermediate and longer term for the Company’s U.S. pharmaceutical business generally as greater federal involvement and budget constraints may increase the likelihood of pricing pressures or controls in the future.

Federal and state governments also have pursued direct methods to reduce the cost of drugs for which they pay. The Company participates in state government-managed Medicaid programs as well as certain other qualifying federal and state government programs whereby discounts and rebates are provided to participating state and local government entities. Rebates under Medicaid and related state programs reduced revenues by $673 million in 2004, $523 million in 2003 and $490 million in 2002. The Company also participates in prime vendor programs with government entities, the most significant of which are the U.S. Department of Defense and the U.S. Department of Veterans Affairs. These entities receive minimum discounts based off a defined “non-federal average manufacturer price” for purchases. Other prime vendor programs in which the Company participates provide discounts for outpatient medicines purchased by certain Public Health Service entities and “disproportionate share” hospitals (hospitals meeting certain criteria). The Company recorded discounts related to the prime vendor programs of $1,319 million in 2004, $1,228 million in 2003 and $1,028 million in 2002.

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In 2004, the Company conducted an analysis of its past and proposed systems for calculating prices for reporting under governmental rebate and pricing programs. The results of this analysis identified the need for revisions to the methodology and processes used for calculating past rebate amounts and reported pricing. In the third quarter of 2004, based on the results of the Company’s analysis to date, the Company recorded a liability, which was not material, equal to the estimated additional rebate liability resulting from these revisions. Upon completion of the analysis in the fourth quarter, the Company determined that this liability was not necessary and, consequently, has reversed it. The Company has remediated its internal controls over these processes and procedures the Company believes resulted in these proposed revisions to its rebate calculation methodology and continues to strengthen such internal controls. For additional information, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies—Pricing, Sales and Promotional Practices Litigation and Investigations.”

In the United States, governmental cost containment efforts have extended to the federally funded Special Supplemental Nutrition Program for WIC. All states participate in the WIC program and have sought and obtained rebates from manufacturers of infant formula whose products are used in the program. All states have conducted competitive bidding for infant formula contracts, which require the use of specific infant formula products by the state WIC program, unless a physician requests a non-contract formula for a WIC customer. States participating in the WIC program are required to engage in competitive bidding or to use other cost containment measures that yield savings equal to or greater than the savings generated by a competitive bidding system. Mead Johnson participates in this program and approximately half of its gross U.S. sales are subject to rebates under the WIC program.

Pending pharmaceutical legislation in the EU, which is expected to be implemented by the member states this year, will have an impact on the procedures for authorization of pharmaceutical products in the EU under both the centralized and mutual recognition procedures. In particular, the legislation contains new data protection provisions. All products (regardless of whether they have been approved under the centralized or the mutual recognition procedures) will be subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a marketing authorization application for that product with the health authorities. However, the generic company may not commercialize the product until after either ten or eleven years have elapsed from the initial marketing authorization granted to the innovator. The possible one year extension is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. There is a transitional provision for these new data protection requirements, and it is expected that these provisions will apply as new marketing authorization applications are submitted under the new legislation.

The merger of two separate Japanese pharmaceutical regulatory offices may lead to gains in efficiency and timeliness of drug registration in Japan. However, the pricing environment for pharmaceuticals in Japan remains challenging due to reference pricing and biennial government mandated price reductions.

Environmental Regulation

The Company’s facilities and operations are subject to extensive U.S. and foreign laws and regulations relating to environmental protection and human health and safety, including those governing discharges of pollutants into the air and water, the use, management and disposal of hazardous, radioactive and biological materials and wastes, and the cleanup of contamination. Pollution controls and permits are required for many of the Company’s operations, and these permits are subject to modification, renewal or revocation by the issuing authorities.

A corporate environment, health and safety group monitors operations around the world, providing the Company with an overview of regulatory requirements and overseeing the implementation of Company standards for compliance. The Company also incurs operating and capital costs for such matters on an ongoing basis. The Company expended approximately $60 million, $55 million and $27 million on capital environmental projects undertaken specifically to meet environmental requirements in 2002, 2003 and 2004, respectively, and expects to spend approximately $50 million in 2005. Although the Company believes that it is in substantial compliance with applicable environmental, health and safety requirements and the permits required for its operations, the Company nevertheless could incur additional costs, including civil or criminal fines or penalties, clean-up costs, or third-party claims for property damage or personal injury, for violations or liabilities under these laws.

Many of the Company’s current and former facilities have been in operation for many years, and, over time, the Company and other operators of those facilities have generated, used, stored or disposed of substances or wastes that are considered hazardous under environmental laws. As a result, the soil and groundwater at or under certain of these facilities is or may be contaminated, and the Company may be required to make significant expenditures to investigate, control and remediate such contamination. The Company is also potentially responsible for environmental conditions at a number of waste disposal or reprocessing facilities operated by third parties. Currently, the Company is involved in investigation or remediation activities at approximately 50 sites, and has been named as a potentially responsible party (PRP) under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at approximately 25 of these sites.

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CERCLA and similar state statutes may impose liability for the entire cost of investigation or remediation of contaminated sites on any party, regardless of fault or ownership at the time of the disposal or release. Generally, where there are multiple potentially responsible parties, liability has been apportioned based on the nature and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties.

Based on the Company’s current estimates of cleanup costs and its expected share of financial responsibility, the Company does not expect its expenditures in connection with CERCLA or other remediation matters to be material. Expenditures could rise in the future if substantial unknown contamination is discovered at one of the Company’s current or former facilities, applicable standards become more stringent, or if other PRPs fail to participate in cost-sharing at any site at which the Company has financial responsibility.

For additional information about these matters, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.”

Employees

The Company employed approximately 43,000 people at December 31, 2004.

Foreign Operations

The Company has significant operations outside the United States. They are conducted both through the Company’s subsidiaries and through distributors, and involve all three of the same business segments as the Company’s U.S. operations —Pharmaceuticals, Nutritionals and Other Healthcare.

Revenues from operations outside the United States of $8.8 billion accounted for 45% of the Company’s total revenues in 2004. In 2004, revenues exceeded $500 million in each of France, Japan, Germany, Spain, Italy, Canada, and the U.K. No single country outside the United States contributed more than 10% of the Company’s total revenues. For a geographic breakdown of net sales, see the table captioned Geographic in “Item 8. Financial Statements—Note 18. Segment Information” and for further discussion of the Company’s sales by geographic area see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Geographic Areas.”

International operations are subject to certain risks, which are inherent in conducting business abroad, including currency fluctuations, possible nationalization or expropriation, price and exchange controls, limitations on foreign participation in local enterprises and other restrictive governmental actions. The Company’s international businesses are also subject to government-imposed constraints, including laws on pricing or reimbursement for use of products.

Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or reduce the reported dollar value of the Company’s net assets and results of operations. In 2004, the change in foreign exchange rates had a net favorable impact on revenues. While the Company cannot predict with certainty future changes in foreign exchange rates or the effect they will have on it, the Company attempts to mitigate their impact through operational means and by using various financial instruments. See the discussion under “Item 8. Financial Statements—Note 17. Financial Instruments.”

Item 2. PROPERTIES.

The Company’s world headquarters is located at 345 Park Avenue, New York, New York, where it leases approximately 375,000 square feet of floor space, approximately 215,000 square feet of which is sublet to others.

The Company manufactures products at 38 major worldwide locations with an aggregate floor space of approximately 12.2 million square feet. All facilities are owned by the Company. The following table illustrates the geographic location of the Company’s significant manufacturing facilities by business segment.

	Total Company	Pharmaceuticals	Nutritionals	Other Healthcare
United States	12	8	2	2
Europe, Middle East and Africa	13	11	1	1
Other Western Hemisphere	6	4	2	—
Pacific	7	4	3	—
Total	38	27	8	3

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Portions of these facilities and other facilities owned or leased by the Company in the United States and elsewhere are used for research, administration, storage and distribution. For further information about the Company’s facilities, see “Item 1. Business—Manufacturing and Quality Assurance.”

Item 3. LEGAL PROCEEDINGS.

Information pertaining to legal proceedings can be found in “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies” and is incorporated by reference herein.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004.

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PART IA

Executive Officers of the Registrant

Listed below is information on executive officers of the Company as of February 28, 2005. Executive officers are elected by the Board of Directors for an initial term, which continues until the first Board meeting following the next annual meeting of stockholders and thereafter are elected for a one-year term or until their successors have been elected. All executive officers serve at the pleasure of the Board of Directors.

Name and Current Position	Age	Employment History for the Past 5 Years
Lamberto Andreotti Senior Vice President and President International Member of the Executive Committee	54	1999 to 2000 – Senior Vice President and General Manager of Italy, CEEI & European Oncology, a division of the Company. 2000 to 2002 – President, Europe, Worldwide Medicines Group, a division of the Company. 2002 to present – Senior Vice President and President International, Worldwide Medicines Group, a division of the Company.
Stephen E. Bear Senior Vice President, Human Resources, Corporate Staff Member of the Executive Committee	54	1998 to 1999 – Vice President, Strategic Business Development, Worldwide Beauty Care/Nutritionals & Medical Devices, Corporate Staff of the Company. 1999 to 2001 – Vice President, Marketing and Business Development of the New York Botanical Gardens, a non-profit organization. 2001 to present – Senior Vice President, Human Resources, Corporate Staff of the Company.
Andrew G. Bodnar, M.D. Senior Vice President, Strategy and Medical & External Affairs, Corporate Staff Member of the Executive Committee	57	1999 to 2000 – Vice President, Corporate Development, Worldwide Medicines Group, a division of the Company. 2000 to 2001 – Vice President, Medical and External Affairs, Corporate Staff of the Company. 2001 to 2002 – Senior Vice President, Medical and External Affairs, Corporate Staff of the Company. 2002 to present – Senior Vice President, Strategy and Medical & External Affairs, Corporate Staff of the Company.
Andrew R. J. Bonfield Senior Vice President and Chief Financial Officer, Corporate Staff Member of the Executive Committee	42	1999 to 2000 – Chief Financial Officer, SmithKline Beecham PLC. 2000 to 2002 – Executive Director, Finance, BG Group PLC. 2002 to present – Senior Vice President and Chief Financial Officer, Corporate Staff of the Company.
Carlo de Notaristefani, Ph.D. President, Pharmaceutical Group/Technical Operations Member of the Executive Committee	47	2000 to 2001 – Vice President, IO International, Aventis Pharma. 2001 to 2003 – Vice President, IO International, Latin America and Japan, Aventis Pharma. 2003 to 2004 – Senior Vice President, Global Finishing Solids, Aventis Pharma. 2004 to present – President, Pharmaceutical Group/Technical Operations, a division of the Company.
Wendy L. Dixon, Ph.D Chief Marketing Officer and President, Global Marketing Member of the Executive Committee	49	1996 to 2001 – Vice President, Marketing, Merck & Co. 2001 to 2001 – Senior Vice President, Merck & Co. 2001 to present, Chief Marketing Officer and President, Global Marketing, Worldwide Medicines Group, a division of the Company.

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Peter R. Dolan Chairman of the Board and Chief Executive Officer Member of the Executive Committee	49	1998 to 2000 – Senior Vice President, Strategy and Organizational Effectiveness, Corporate Staff of the Company. 2000 to 2001 – President and Director of the Company. 2001 to present – Chairman of the Board and Chief Executive Officer of the Company.
Edward M. Dwyer Vice President and Treasurer, Corporate Staff	48	1997 to 2004 – Vice President and Treasurer, AT&T. 2004 to present – Vice President and Treasurer, Corporate Staff of the Company.
Donald J. Hayden Executive Vice President and President, Americas Member of the Executive Committee	49	1998 to 2000 – Senior Vice President and President, Worldwide Medicines Group, a division of the Company. 2000 to 2001 – Executive Vice President, e-Business & Strategy, Corporate Staff of the Company. 2001 to 2001 – Executive Vice President, e-Business & Strategy, Investor Relations and Corporate Intelligence, Corporate Staff of the Company. 2001 to 2002 – Executive Vice President, Health Care Group, a division of the Company. 2002 to 2002 – Executive Vice President and President, North America Medicines, a division of the Company. 2002 to present – Executive Vice President and President, Americas, Worldwide Medicines Group, a division of the Company.
Anthony C. Hooper President, U.S. Pharmaceuticals Member of the Executive Committee	50	1999 to 2000 – Vice President and General Manager, Northern Europe, International Medicines, a division of the Company. 2000 to 2001 – President, Asia-Pacific, Middle East & Southern Africa, International Medicines, a division of the Company. 2001 to 2002 – President, Intercontinental, International Medicines, a division of the Company. 2002 to 2004 – President, Europe, Middle East & Africa, Worldwide Medicines Group, a division of the Company. 2004 to present – President, U.S. Pharmaceuticals, Worldwide Medicines Group, a division of the Company.
Tamar D. Howson Senior Vice President, Corporate and Business Development, Corporate Staff Member of the Executive Committee	56	1998 to 2000 – Senior Vice President and Director, Business Development of SmithKline Beecham Corporation. 2000 to 2001 – biotechnology consultant to chief executive officers and other business executives. 2001 to present – Senior Vice President, Corporate and Business Development, Corporate Staff of the Company.
Sandra Leung Vice President and Corporate Secretary, Corporate Staff	44	1999 to 2002 – Corporate Secretary, Corporate Staff of the Company. 2002 to present – Vice President and Corporate Secretary, Corporate Staff of the Company.
John L. McGoldrick Executive Vice President and General Counsel, Corporate Staff Member of the Executive Committee	64	1998 to 2000 – General Counsel and Senior Vice President, Corporate Staff of the Company and President, Medical Devices Group, a division of the Company. 2000 to 2001 – Executive Vice President and General Counsel, Corporate Staff of the Company and President, Medical Devices Group, a division of the Company. 2001 to present – Executive Vice President and General Counsel, Corporate Staff of the Company.

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Elliott Sigal, M.D., Ph.D. Chief Scientific Officer and President, Pharmaceutical Research Institute Member of the Executive Committee	53	1999 to 2001 – Senior Vice President, Early Discovery and Applied Technology, Pharmaceutical Research Institute, a division of the Company. 2001 to 2002 – Senior Vice President, Drug Discovery & Exploratory Development, Pharmaceutical Research Institute, a division of the Company. 2002 to 2004 – Senior Vice President, Global Clinical and Pharmaceutical Development, Pharmaceutical Research Institute, a division of the Company. 2004 to present – Chief Scientific Officer and President, Pharmaceutical Research Institute, a division of the Company.
David L. Zabor Vice President, Financial Operations and Controller, Corporate Staff	50	2000 to 2000 – Vice President, Assistant Treasurer, Corporate Staff of the Company. 2000 to 2001 – Vice President, Finance, Technical Operations, Worldwide Medicines Group, a division of the Company. 2001 to 2002 – Vice President, Financial Analysis, Corporate Staff of the Company. 2002 to 2002 – Vice President and Acting Controller, Corporate Staff of the Company. 2002 to 2003 – Vice President and Controller, Corporate Staff of the Company. 2003 to 2004 – Vice President and Operations Controller, Corporate Staff of the Company. 2004 to present – Vice President, Financial Operations and Controller, Corporate Staff of the Company.
Robert T. Zito Senior Vice President, Corporate Affairs Member of the Executive Committee	51	1999 to 2004 – Executive Vice President, Communications, New York Stock Exchange 2004 to present – Senior Vice President, Corporate Affairs, Corporate Staff of the Company.

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PART II

Item  5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Market Prices

Bristol-Myers Squibb common and preferred stocks are traded on the New York Stock Exchange and the Pacific Exchange, Inc. (symbols: BMY; BMYPR). A quarterly summary of the high and low market prices is presented below:

Common:
	2004				2003
	High		Low		High		Low
First Quarter	$	30.64	$	24.00	$	25.41	$	21.13
Second Quarter		26.18		24.02		28.86		21.85
Third Quarter		24.68		22.50		27.60		25.17
Fourth Quarter		25.83		22.95		28.60		24.25
Preferred:
	2004				2003
	High		Low		High		Low
First Quarter	$	525.00	$	485.00		*		*
Second Quarter		*		*	$	398.00	$	398.00
Third Quarter		*		*		433.00		430.00
Fourth Quarter		*		*		429.50		429.50

* During the first quarter of 2003, and the second, third and fourth quarters of 2004, there were no trades of the Company’s preferred stock. The preferred stock pays a quarterly dividend of $.50 per share.

Holders of Common Stock

The number of record holders of common stock at December 31, 2004 was 87,076.

The number of record holders is based upon the actual number of holders registered on the books of the Company at such date and does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.

Voting Securities and Principal Holders

Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to voting securities and principal holders, which is incorporated herein by reference and made a part hereof in response to the information required by this Item 5.

Dividends

Dividends declared per share in 2004 and 2003 were:

	Common				Preferred
	2004		2003		2004		2003
First Quarter	$	.28	$	.28	$	.50	$	.50
Second Quarter		.28		.28		.50		.50
Third Quarter		.28		.28		.50		.50
Fourth Quarter		.28		.28		.50		.50
	$	1.12	$	1.12	$	2.00	$	2.00

In December 2004, the Board of Directors of the Company declared a quarterly dividend of $.28 per share on the common stock of the Company, which was paid on February 1, 2005 to shareholders of record as of January 7, 2005.

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Item  6. SELECTED FINANCIAL DATA.

Five-Year Financial Summary

Income Statement Data:(1)(2)	2004		2003		2002		2001		2000
	(in millions, except per share data)
Net Sales	$	19,380	$	18,653	$	16,208	$	16,612	$	16,438
Earnings from Continuing Operations Before Minority Interest and Income Taxes		4,418		4,680		2,748		2,252		5,244
Earnings from Continuing Operations		2,378		3,097		2,059		1,866		3,675
Earnings from Continuing Operations per Common Share:
Basic	$	1.23	$	1.60	$	1.07	$	.96	$	1.87
Diluted	$	1.21	$	1.59	$	1.06	$	.95	$	1.84
Average common shares outstanding
Basic		1,942		1,937		1,936		1,940		1,965
Diluted		1,976		1,950		1,942		1,965		1,997
Dividends paid on common and preferred stock	$	2,174	$	2,169	$	2,168	$	2,137	$	1,930
Dividends declared per Common Share	$	1.12	$	1.12	$	1.12	$	1.11	$	1.01
Financial Position Data at December 31:(3)
Total Assets	$	30,435	$	27,448	$	25,106	$	27,864	$	17,924
Cash and cash equivalents		3,680		2,549		2,451		4,552		3,085
Marketable securities		3,794		3,013		1,622		1,102		300
Long-term debt		8,463		8,522		6,261		6,237		1,336
Stockholders’ Equity		10,202		9,786		8,756		8,762		7,634

(1) The Company recorded items that affected the comparability of results, which are set forth in the table under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Expenses” for the years 2004, 2003 and 2002. For a discussion of these items, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Expenses,” “Item 8. Financial Statements—Note 2. Alliances and Investments,” “—Note 3. Restructuring and Other Items,” “—Note 4. Acquisitions and Divestitures” and “—Note 5. Discontinued Operations.”

(2) Excludes discontinued operations of OTN in all years; and Clairol and Zimmer in 2000 through 2002.

(3) Includes discontinued operations for all years.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EXECUTIVE SUMMARY

About the Company

Bristol-Myers Squibb is a worldwide pharmaceutical and related healthcare products company whose mission is to extend and enhance human life. The Company is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceuticals and other healthcare related products. The Company employs approximately 43,000 people.

In 2004, the Company reported annual global sales from continuing operations of $19.4 billion. Sales increased 4% from the prior year level due to the favorable impact from foreign exchange rate fluctuations. U.S. sales remained constant at $10.6 billion, as increased sales of key brands and newer products were offset by exclusivity losses on older brands, while international sales increased 10%, to $8.8 billion including an 8% favorable foreign exchange impact. In 2004, two product lines achieved sales of over $2.5 billion each—PLAVIX* and PRAVACHOL. PLAVIX* sales grew 35%, including a 2% favorable foreign exchange impact, to $3.3 billion, while PRAVACHOL sales decreased 7%, including a 4% favorable foreign exchange impact, to $2.6 billion. An additional 44 product lines achieved more than $50 million each in annual sales, including 30 product lines with more than $100 million each in annual sales, of which 7 had annual sales in excess of $500 million each.

In the fourth quarter of 2004, the Company signed a definitive agreement to sell its Oncology Therapeutics Network (OTN) business, a distributor of pharmaceutical products to office-based oncologists. Further, in January 2005, the Company announced that it intends to divest its U.S. and Canadian Consumer Medicines businesses.

In support of its mission to extend and enhance human life by developing the highest-quality products, in 2004, the Company invested $2.5 billion in research and development, a 10% growth over 2003, and expects to increase spending on drug development in 2005 to accelerate the development of its late-stage pipeline. Research and development dedicated to pharmaceutical products, including milestone payments for in-licensing and development programs, was $2.3 billion and as a percentage of Pharmaceutical sales was 14.8% compared to 14.2% in 2003.

In August 2004, the Company announced it entered into a settlement with the United States Securities and Exchange Commission (SEC), concluding the SEC’s investigation regarding wholesaler inventory and accounting matters. The settlement was reached through a Consent Order under which the Company is currently operating. The SEC’s investigation arose from the Company’s announcement in April 2002 that the Company experienced a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business over several years, primarily in 2000 and 2001, and that the buildup was primarily due to sales incentives offered by the Company, as well as the Company’s subsequent restatement (2002 Restatement) of its consolidated financial statements for the period ended December 31, 2002 and prior periods in March 2003. For a discussion of these matters, see “—Restatement of Previously Issued Financial Statement” and “—SEC Consent Order” below.

To help ensure the circumstances that led to the need for financial restatement do not recur, the Company has taken steps to enhance the effectiveness of its disclosure controls and procedures, including internal control over financial reporting. After completing the 2002 Restatement, the Company continued to identify and implement actions to improve the effectiveness of its disclosure controls and procedures and internal controls over financial reporting. These actions contributed significantly to the Company identifying additional errors relating to prior periods not reflected in the 2002 Restatement and accordingly, the Company restated its consolidated financial statements in 2004 to correct these errors for the years 2001 and 2002. The Company continues to strengthen disclosure controls and procedures surrounding internal controls over financial reporting, specifically with respect to Section 404 of the Sarbanes-Oxley Act of 2002. These actions include the establishment of policies and procedures to enhance compliance and focus on risk management.

Business Environment

The pharmaceutical industry in which the Company conducts its business is highly competitive and subject to numerous government regulations. Sales of the Company’s products can be affected significantly by many competitive factors, including product efficacy, safety, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance of its manufacturing, operating and research and development of new products. To successfully compete for business in the healthcare industry, the Company must not only demonstrate that its products offer medical benefits, but also cost advantages. Currently, most of the new products introduced by the Company must compete with other products in the same therapeutic category already on the market. The Company manufactures branded products, which are subject to higher prices than generic products. Generic competition is one of the Company’s biggest challenges globally.

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In the pharmaceutical industry, the majority of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. When a product loses exclusivity, it is no longer protected by a patent and is subject to new competing products in the form of generic brands. Upon exclusivity loss of a product, the Company can lose a major portion of that product’s sales in a short period of time. For further discussion on product exclusivity, see “Item 1. Business–Intellectual Property and Product Exclusivity.”

Both in the U.S. and internationally, the healthcare industry is subject to various government-imposed regulations which authorize prices or price controls which could have an impact on the Company’s sales. In the U.S., Congress and some state legislatures have considered a number of proposals and have enacted laws that could effect major changes in the healthcare system, either nationally or at the state level. Driven in part by budget concerns, Medicaid access and reimbursement restrictions have been implemented in some states and proposed in many others. For example, in December 2003, the Medicare Prescription Drug Improvement and Modernization Act (MMA) was enacted to provide outpatient prescription drug coverage to senior citizens in the United States. The Company cannot predict the potential impact that this legislation will have on its business; however it could have a negative impact on the Company’s U.S. pharmaceutical business as greater federal involvement and budget constraints may increase the likelihood of pricing pressures or controls in the future. In many markets outside the United States, the Company operates in environments of government-mandated, cost-containment programs. Most European countries, except the United Kingdom and Germany, do not provide market pricing for new medicines. Pricing freedom is limited in the United Kingdom by the operation of a profit control plan and in Germany by the operation of a reference price system. Companies also face significant delays in market access for new products, and more than two years can elapse before new medicines become available on some national markets.

The growth of Managed Care Organizations (MCOs) in the U.S. has played a large role in the competition that surrounds the healthcare industry. MCOs seek to reduce healthcare expenditures for participants by making volume purchases and entering into long-term contracts to negotiate discounts with various pharmaceutical providers. Because of the market potential created by the large pool of participants, marketing prescription drugs to MCOs has become an important part of the Company’s strategy. Companies compete for inclusion in an MCO formulary and the Company has generally been successful in having its major products included.

Pharmaceutical production processes are complex, highly regulated and vary widely from product to product. Shifting or adding manufacturing capacity can be a lengthy process requiring significant capital expenditures and regulatory approvals. Biologics manufacturing involves more complex processes than those of traditional pharmaceutical operations. Although the Company does have the capacity to manufacture biologics for clinical trials and commercial launch, its current capacity to manufacture larger commercial volumes of these products is limited.

The Company has maintained a competitive position in the market and strives to uphold this position, which is dependent on its success in discovering and developing innovative, cost-effective products that serve unmet medical needs.

Strategy

The Company is implementing a new strategy to discover and develop innovative, cost-effective medicines that address significant unmet medical needs in ten critical disease areas. These areas are: Affective (psychiatric) disorders, Alzheimer’s/dementia, atherosclerosis/thrombosis, diabetes, hepatitis, human immunodeficiency virus/auto-immune immunodeficiency virus (HIV/AIDS), obesity, oncology, rheumatoid arthritis and related diseases and solid organ transplant. The Company continuously strives to create better treatments for patients by building a high quality drug discovery and development pipeline.

Since 2003, the Company has undergone a transition in its pharmaceutical product portfolio as older product lines, including the GLUCOPHAGE* franchise, MONOPRIL, TAXOL^® and PARAPLATIN, have experienced exclusivity loss. With the successful launches of newer products including ABILIFY* for the treatment of psychiatric disorders, REYATAZ for human immunodeficiency virus (HIV) and ERBITUX* for cancer, the portfolio is being refocused on growth brands which fall within the ten critical disease areas targeting specialists and high value primary care physicians. Sales of products within the ten disease areas have been increasing steadily, and are expected to comprise about half of pharmaceutical product sales by the end of 2005. The Company is making significant investments behind its new product launches, and re-deploying marketing and promotional spending from older products to its newer products.

In 2004, the Company submitted two New Drug Applications (NDAs) to the U.S. Food and Drug Administration (FDA) for regulatory approval, including entecavir for hepatitis B and muraglitazar for type 2 diabetes. A rolling Biologics License Application (BLA) for abatacept for the potential treatment of rheumatoid arthritis is also expected to be completed in early 2005. The successful launch of these investigational compounds will further enhance the Company’s strategy to transition its product portfolio to cover all of the ten disease areas discussed above.

While internal growth is vital to the Company’s future success, the Company is continually evaluating and pursuing external possibilities through alliances and other collaborative agreements. The Company has a notable record of executing successful

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licensing arrangements to supplement its own pipeline, and many of these arrangements have led to fruitful codevelopment, copromotion and comarketing agreements. The Company expects to continue to complement its pipeline in 2005 with additional licensed products. Another component of the Company’s strategy includes entry into the biologics business, which requires increased investments in manufacturing facilities and third-party manufacturing arrangements to meet future commercial demand expected to be generated from new product launches. In addition, the Company continues to maintain collaborations with major biotechnology and research institutions to enhance the life cycle of the Company’s product portfolio beyond initial approval/commercialization, such as offering combination therapy and product extensions.

Another major aspect of the Company’s strategy relates to how it does business, specifically in marketing and sales approaches. Specialists are playing an even greater role in decisions related to patient treatment and care, particularly in the ten critical disease areas where the Company is focusing its efforts. For this reason, the Company is recasting its business model to focus on specialists as well as with those primary care physicians who are involved in treating patients in these select disease areas. In order to achieve its strategic objectives, the Company also plans to moderate selling, general and administrative spending for the next several years, through the customer model noted above, as well as the elimination of organizational inefficiencies.

RESULTS OF OPERATIONS

The following discussion of the Company’s results of continuing operations excludes the results related to the OTN business, which have been segregated from continuing operations and are reflected as discontinued operations for all periods presented. See “—Discontinued Operations” below.

										% Change
	2004			2003			2002			2004 to 2003		2003 to 2002
	(dollars in millions)
Net Sales	$	19,380		$	18,653		$	16,208		4	%	15	%
Earnings from continuing operations before minority interest and income tax	$	4,418		$	4,680		$	2,748		(6	)%	70	%
% of net sales		22.8	%		25.1	%		17.0	%
Provision on income taxes	$	1,519		$	1,210		$	386		26	%	*	*
Effective tax rate		34.4	%		25.9	%		14.0	%
Earnings from continuing operations	$	2,378		$	3,097		$	2,059		(23	)%	50	%
% of net sales		12.3	%		16.6	%		12.7	%

** Change is in excess of 200%

Net Sales

Net sales from continuing operations for 2004 increased 4% to $19.4 billion due to the favorable impact from foreign exchange rate fluctuations. U.S. net sales in 2004 remained constant at $10.6 billion compared to 2003, with growth in prescription demand for key brands including PLAVIX*, AVAPRO*/AVALIDE* and SUSTIVA, and new product introductions including ABILIFY*, REYATAZ and ERBITUX*, offset by lower sales of other products as a result of exclusivity losses for MONOPRIL, PARAPLATIN and the GLUCOPHAGE* franchise. U.S. net sales increased 13% in 2003 from $9.4 billion in 2002 while international net sales increased 18% to $8.0 billion in 2003 from $6.8 billion in 2002, or 8% excluding favorable foreign exchange. International net sales increased 10% to $8.8 billion in 2004, or 2% excluding favorable foreign exchange. This 2% growth in sales was primarily attributable to increased sales of PLAVIX*, AVAPRO*/AVALIDE* and the launch of REYATAZ and ABILIFY* in Europe, offset by a decline in PRAVACHOL. In 2003, net sales from continuing operations increased 15% to $18.7 billion, including a 4% favorable impact from foreign exchange rate fluctuations.

The composition of the net increase in sales is as follows:

	2004		2003
Volume	—		9	%
Selling prices, net	—		2	%
Foreign exchange	4	%	4	%
Increase in sales	4	%	15	%

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In general, the Company’s business is not seasonal. For information on U.S. pharmaceuticals prescriber demand, reference is made to the table within Business Segments under the Pharmaceuticals section 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 the Company’s primary care pharmaceutical products.

The Company operates in three reportable segments—Pharmaceuticals, Nutritionals and Other Healthcare. In 2004, the Company signed a definitive agreement to sell OTN, which was previously presented as a separate segment. As such, the results of operations for OTN are presented as part of the Company’s results from discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, OTN results of operations in prior periods have been reclassified to discontinued operations to conform with current year presentations. The percent of the Company’s sales by segment were as follows:

	Net Sales									% Change
	2004			2003			2002			2004 to 2003		2003 to 2002
	(dollars in millions)
Pharmaceuticals	$	15,482		$	14,925		$	12,814		4	%	16	%
% of net sales		80	%		80	%		79	%
Nutritionals		2,001			2,023			1,821		(1	)%	11	%
% of net sales		10	%		11	%		11	%
Other Healthcare		1,897			1,705			1,573		11	%	8	%
% of net sales		10	%		9	%		10	%
Total	$	19,380		$	18,653		$	16,208		4	%	15	%

The Company recognizes revenue for sales when substantially all the risks and rewards of ownership have transferred to the customer, which generally occurs on the date of shipment. When substantially all the risks and rewards of ownership do not transfer, the Company uses a consignment model to recognize the revenue. Under this model, the Company does not recognize revenue upon shipment of product. Rather, upon shipment of product the Company invoices the wholesaler, records deferred revenue at gross invoice sales price and classifies the inventory held by the wholesalers as consignment inventory at the Company’s cost of such inventory. The Company recognizes revenue (net of the gross to net sales adjustments discussed below, all of which involve significant estimates and judgments) when the risks and rewards of ownership are transferred to the customer, which is not later than when such inventory is sold through to the wholesalers’ customers, on a first-in, first-out (FIFO) basis. The Company’s aggregate cost of pharmaceutical products that were accounted for using the consignment model (and accordingly, were reflected as consignment inventory on the Company’s consolidated balance sheet) were not significant at December 31, 2004 and 2003. The deferred revenue related to the inventory of pharmaceutical products accounted for using the consignment model was fully worked down by December 31, 2004. Deferred revenue recorded at gross invoice sales price was approximately $12 million at December 31, 2003. Approximately $10 million, $321 million and $1,397 million of deferred revenue was recognized in 2004, 2003 and 2002, respectively. The corresponding effect on earnings from continuing operations before minority interest and income taxes was an increase of $8 million, $237 million and $1,095 million in 2004, 2003 and 2002, respectively.

40

The Company recognizes revenue on a gross sales basis and deducts various sales adjustments to arrive at net sales as reported on the Consolidated Statement of Earnings. These adjustments are referred to as gross-to-net sales adjustments and are further described in “—Critical Accounting Policies” below. The following table summarizes the Company’s gross-to-net sales adjustments for each significant category:

	For the Year Ended December 31,
	2004			2003			2002
	(dollars in millions)
Gross Sales	$	23,896		$	22,992		$	20,117
Gross-to-Net Sales Adjustments
Prime Vendor Charge-Backs		(1,319	)		(1,228	)		(1,028	)
Women, Infants and Children (WIC) Rebates		(846	)		(854	)		(993	)
Managed Health Care Rebates and Other Contract Discounts		(660	)		(710	)		(503	)
Medicaid Rebates		(673	)		(523	)		(490	)
Cash Discounts		(311	)		(319	)		(281	)
Sales Returns		(276	)		(348	)		(345	)
Other Adjustments		(431	)		(357	)		(269	)
Total Gross-to-Net Sales Adjustments		(4,516	)		(4,339	)		(3,909	)
Net Sales	$	19,380		$	18,653		$	16,208

In 2004, the increase from 2003 for prime vendor charge-backs and Medicaid rebates were primarily due to a shift in sales to products with higher discounts in prime vendor and Medicaid programs while the decrease in sales returns were primarily attributable to higher sales returns in 2003 resulting from discontinued products and product conversions. The overall increase in gross-to-net sales adjustments in 2003 from 2002 was primarily due to sales growth and increases in managed care rebates principally due to a shift in sales to products with higher discounts, partially offset by a decrease in WIC rebates due to a decline in state WIC contracts.

The following table sets forth the activities and ending balances of each significant category of gross-to-net sales adjustments:

	Prime Vendor Charge- Backs			Women, Infants and Children (WIC) Rebates			Managed Healthcare Rebates and Other Contract Discounts			Medicaid Rebates			Cash Discounts			Sales Returns			Other Adjustments			Total
	(dollars in millions)
Balance at December 31, 2002	$	134		$	282		$	230		$	220		$	16		$	165		$	87		$	1,134
Provision related to sales made in current period		1,228			849			710			522			319			335			360			4,323
Provision related to sales made in prior periods		—			5			—			1			—			13			(3	)		16
Returns and payments		(1,261	)		(928	)		(692	)		(510	)		(305	)		(246	)		(322	)		(4,264	)
Impact of foreign currency translation		—			—			1			—			—			1			2			4
Balance at December 31, 2003		101			208			249			233			30			268			124			1,213
Provision related to sales made in current period		1,314			843			646			618			311			270			463			4,465
Provision related to sales made in prior periods		5			3			14			55			—			6			(32	)		51
Returns and payments		(1,314	)		(820	)		(711	)		(534	)		(308	)		(316	)		(385	)		(4,388	)
Impact of foreign currency translation		—			—			—			—			—			1			6			7
Balance at December 31, 2004	$	106		$	234		$	198		$	372		$	33		$	229		$	176		$	1,348

        In 2004, the Company recorded charges of $55 million for Medicaid rebates related to sales made in prior periods. These charges include $34 million for rebate claims from prior years by certain states, primarily in relation to Medicaid utilization of oncology products not previously reported to the Company, and other revisions resulting from the availability of additional information. In addition, the Company recorded $32 million for other adjustments as a result of lower than expected rebates to foreign governments. No other significant revisions were made to the estimates for gross-to-net sales adjustments in 2004 and 2003.

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Pharmaceuticals

The composition of the net increase in pharmaceutical sales is as follows:

			Analysis of % Change
	Total Change		Volume		Price		Foreign Exchange
2004 vs. 2003	4	%	1	%	(1	)%	4	%
2003 vs. 2002	16	%	9	%	2	%	5	%

In 2004, worldwide Pharmaceuticals sales increased 4% to $15,482 million due to favorable foreign exchange impact. Domestic sales in 2004 remained constant at $8,446 million compared to $8,431 million in 2003. Domestic sales were negatively affected by increased competition for PRAVACHOL, and exclusivity losses of PARAPLATIN and the GLUCOPHAGE* franchise, offset by increased sales of PLAVIX* and newer products, including ABILIFY*, REYATAZ and ERBITUX*. International sales in 2004 increased 8% to $7,036 million, or a decrease of 1% excluding favorable foreign exchange impact, primarily due to generic competition for PRAVACHOL and TAXOL^®, partially offset by the launches of ABILIFY*, REYATAZ and continued growth in PLAVIX* and AVAPRO*/AVALIDE*.

In 2003, worldwide Pharmaceuticals sales increased 16% to $14,925 million, or 11% excluding favorable foreign exchange impact. Domestic sales in 2003 increased 16% to $8,431 million primarily due to increased sales of PLAVIX*, PRAVACHOL, ABILIFY*, GLUCOVANCE* and PARAPLATIN and partly due to the impact on 2002 sales from the workdown of non-consignment wholesaler inventory, and the launch of REYATAZ in July 2003, partially offset by decreased sales of GLUCOPHAGE* IR and TAXOL^® primarily due to generic competition. International sales in 2003 increased 17% to $6,494 million, including an 11% favorable foreign exchange impact, primarily due to increased sales of PRAVACHOL, TAXOL^®, PLAVIX*, AVAPRO*/AVALIDE* and Analgesic products in Europe partially offset by price declines principally in Germany and Italy.

Key pharmaceutical products and their sales, representing 79%, 78% and 74% of total pharmaceutical sales in 2004, 2003 and 2002, respectively, are as follows:

							% Change
	2004		2003		2002		2004 to 2003		2003 to 2002
	(dollars in millions)
Cardiovascular
PLAVIX*	$	3,327	$	2,467	$	1,890	35	%	31	%
PRAVACHOL		2,635		2,827		2,266	(7	)%	25	%
AVAPRO*/AVALIDE*		930		757		586	23	%	29	%
MONOPRIL		274		470		426	(42	)%	10	%
COUMADIN		255		303		300	(16	)%	1	%
Virology
SUSTIVA		621		544		455	14	%	20	%
REYATAZ		414		88		—	*	*	—
VIDEX/VIDEX EC		274		267		262	3	%	2	%
ZERIT		272		354		443	(23	)%	(20	)%
Infectious Diseases
CEFZIL		270		327		287	(17	)%	14	%
TEQUIN		169		208		184	(19	)%	13	%
Oncology
TAXOL®		991		934		857	6	%	9	%
PARAPLATIN		673		905		727	(26	)%	24	%
ERBITUX*		261		—		—	—		—
Affective (Psychiatric) Disorders
ABILIFY* (total revenue)		593		283		25	110	%	*	*
Metabolics
GLUCOVANCE*		169		424		246	(60	)%	72	%
GLUCOPHAGE* IR		68		118		220	(42	)%	(46	)%
GLUCOPHAGE* XR		67		395		297	(83	)%	33	%

** Change is in excess of 200%

• Sales of PLAVIX*, a platelet aggregation inhibitor sold by the Company primarily in the U.S., increased 35%, including a 2% favorable foreign exchange impact, to $3,327 million in 2004 from 2003, primarily due to strong prescription growth of 24% in the U.S. market. Sales in 2003 were $2,467 million, an increase of 31%, including a 3% favorable foreign exchange impact, from $1,890 million in 2002, primarily due to strong prescription growth of 29% in the U.S. PLAVIX* is a cardiovascular product launched from the alliance between the Company and Sanofi-Aventis (Sanofi). Market exclusivity for PLAVIX* is expected to expire in 2011 in the U.S. and 2013 in the EU. Statements on exclusivity are subject to any adverse determination that may occur with respect to the PLAVIX* patent litigation. For additional information on the PLAVIX* patent litigation, see “Item 1. Financial Statements—Note 21. Legal Proceedings and Contingencies.”

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• Sales of the PRAVACHOL, an HMG Co-A reductase inhibitor, decreased 7%, including a 4% favorable foreign exchange impact, to $2,635 million in 2004. Domestic sales decreased 12% to $1,420 million in 2004, as total U.S. prescription demand decreased 10%. International sales decreased 1%, including a 10% favorable foreign exchange impact, to $1,215 million due to exclusivity loss in select European markets, including Germany and the UK. Sales for PRAVACHOL increased 25% to $2,827 million in 2003 from $2,266 million in 2002 primarily due to wholesaler workdown of inventory in the U.S. in 2002 and continued growth in Europe, particularly in France, the UK and Italy. Market exclusivity protection for PRAVACHOL is expected to expire in April 2006 in the U.S. Market exclusivity in the EU expired in 2004, with the exception of France and Sweden, for which expiration will occur in August and March 2006, respectively, and in Italy, for which expiration will occur in January 2008.

• Sales of AVAPRO*/AVALIDE*, an angiotensin II receptor blocker for the treatment of hypertension, increased 23%, including a 5% favorable foreign exchange impact, to $930 million in 2004 driven by increased sales in Europe and strong U.S. prescription growth of approximately 15%. Sales increased 29%, including a 6% favorable foreign exchange impact, to $757 million in 2003 from $586 million in 2002, primarily due to strong U.S. prescription growth and price increases. AVAPRO*/AVALIDE* are cardiovascular products launched from the alliance between the Company and Sanofi. Market exclusivity for AVAPRO*/AVALIDE* (known in the EU as APROVEL/KARVEA) is expected to expire in 2011 in the U.S. and 2012 in countries in the EU; AVAPRO*/AVALIDE* is not currently marketed in Japan.

• Sales of MONOPRIL, a second generation angiotesin converting enzyme (ACE) inhibitor for the treatment of hypertension, decreased 42%, including a 4% favorable foreign exchange impact, to $274 million due to the impact of market exclusivity loss. Sales in 2003 were $470 million, an increase of 10%, including a 5% favorable foreign exchange impact, from $426 million in 2002, resulting from the introduction of a branded generic product and a new government contract. Market exclusivity protection for MONOPRIL expired in 2003 in the U.S. and has expired or is expected to expire between 2001 and 2008 in countries in the EU. MONOPRIL is not currently marketed in Japan.

• Sales of COUMADIN, an oral anti-coagulant used predominately in patients with atrial fibrillation or deep venous thrombosis/pulmonary embolism, decreased 16% to $255 million in 2004 compared to 2003 sales, due to increased generic competition. Sales in 2003 increased 1% to $303 million from $300 million in 2002. Market exclusivity for COUMADIN expired in the U.S. in 1997.

• Sales of SUSTIVA, a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV, increased 14%, including a 5% favorable foreign exchange impact, to $621 million in 2004 from the prior year primarily due to increased demand in 2004 and higher prices. U.S. sales increased 9% to $364 million in 2004, while total U.S. prescription growth increased by 4% in 2004. International sales of SUSTIVA increased 22%, including a 13% favorable foreign exchange impact, to $257 million in 2004 driven by increased sales in Spain, the UK, France and Italy. In 2003, SUSTIVA sales increased 20% to $544 million from $455 million in 2002, primarily due to the workdown of U.S. wholesaler inventory in the third quarter of 2002. Market exclusivity protection for SUSTIVA is expected to expire in 2013 in the U.S. and in countries in the EU; the Company does not (but others do) market SUSTIVA in Japan.

• Sales of REYATAZ, a protease inhibitor for the treatment of HIV, which was launched in the U.S. in the third quarter of 2003 and in Europe in the second quarter of 2004, were $414 million compared with $88 million in 2003. REYATAZ has achieved a weekly new prescription share of the U.S. protease inhibitors market of approximately 28%. Market exclusivity for REYATAZ is expected to expire in 2017 in the U.S., in countries in the EU and Japan.

• Sales of VIDEX/VIDEX EC, an antiretroviral agent used in the treatment of HIV, increased 3%, or decreased 3% excluding a 6% favorable foreign exchange impact, to $274 million in 2004. VIDEX/VIDEX EC sales increased 2% to $267 million in 2003 from $262 million in 2002, due to increased sales in Europe, partially offset by sales declines in the U.S. The Company has a licensing arrangement with the U.S. Government for VIDEX/VIDEX EC, which by its terms became non-exclusive in 2001. The U.S. Government’s method of use patent expires in 2007 in the U.S. (which includes an earned pediatric extension) and in Japan, and between 2006 and 2009 in countries in the EU. The license to the Company is non-exclusive, which has allowed another company to obtain a license from the U.S. Government and receive approval for marketing. With respect to VIDEX/VIDEX EC, the Company has patents covering the reduced mass formulation of VIDEX/VIDEX EC that expire in 2012 in the U.S., the EU and Japan. However, these patents apply only to the type of reduced mass formulation specified in the patent. Other reduced mass formulations may exist. There is currently no issued patent covering the VIDEX EC formulation.

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• Sales of ZERIT an antiretroviral agent used in the treatment of HIV, decreased 23%, including a 4% favorable foreign exchange impact, to $272 million in 2004, primarily as a result of continued decrease in demand due to potential adverse side effects. ZERIT sales decreased 20%, including a 5% favorable foreign exchange impact, to $354 million in 2003 from $443 million in 2002, primarily as a result of decreased demand due to potential adverse side effects. Market exclusivity protection for ZERIT is expected to expire in 2008 in the U.S., between 2007 and 2011 in countries in the EU and 2008 in Japan.

• Sales of CEFZIL, an antibiotic for the treatment of mild to moderately severe bacterial infections, decreased 17%, including a 2% favorable foreign exchange impact, to $270 million in 2004, primarily due to decreased domestic demand, partially offset by higher international sales. CEFZIL sales increased 14% to $327 million in 2003 from $287 million in 2002. Market exclusivity is expected to expire in 2005 in the U.S., between 2007 and 2009 in the EU and expired in 2004 in Japan.

• TEQUIN, an antibiotic used for the treatment of respiratory tract infections, had sales of $169 million in 2004, a decrease of 19% compared 2003 sales. In 2003, sales increased 13% to $208 million from $184 million in 2002. TEQUIN is a seasonal product with sales increasing during the flu season. The sales fluctuations from 2002 to 2004 were due to a strong flu season in 2003 and a weak flu season in 2004. The basic U.S. patent expires in 2007; however, it is expected that the patent will be eligible for a statutory patent term extension until 2009.

• Sales of TAXOL^®, the Company’s leading anti-cancer agent, were $991 million in 2004 compared to $934 million in 2003. Sales of TAXOL^®, which are almost exclusively international, increased 6%, or decreased 3% excluding favorable foreign exchange, primarily as a result of generic competition in Europe. Generic competition for TAXOL^® in a majority of the major European markets began in the second quarter of 2004 and increased in the second half of 2004. In 2003, TAXOL^® sales increased 9% or decreased 3% excluding favorable foreign exchange to $934 million from $857 million in 2002, primarily due to generic competition in the U.S., partially offset by strong sales in Japan and France. Market exclusivity protection for TAXOL^® expired in 2002 in the U.S., in 2003 in the EU and is expected to expire between 2003 and 2013 in Japan.

• Sales of PARAPLATIN, an anticancer agent, decreased 26%, including a 1% favorable foreign exchange impact, to $673 million due to generic competition in the U.S. which began in mid-2004 and increased with the entry of multiple generic competitors in the fourth quarter. Domestic sales of PARAPLATIN decreased 30% to $537 million. In 2003, PARAPLATIN sales increased 24%, with no significant foreign exchange impact, to $905 million from $727 million in 2002, primarily due to the introduction of a new formulation of PARAPLATIN in 2003 and price increases. Market exclusivity protection for PARAPLATIN expired in October 2004 in the U.S., in 2000 in the EU and in 1998 in Japan.

• ERBITUX*, an injection used in combination with irinotecan in the treatment of patients with Epidermal Growth Factor Receptor (EGFR)-expressing metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and as a single agent in the treatment of patients with EGFR-expressing metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy, was approved by the FDA in February 2004. Sales of ERBITUX*, which is sold almost exclusively in the U.S., were $261 million for the year ended December 31, 2004. A patent relating to combination therapy with ERBITUX* expires in 2017. The Company’s right to market ERBITUX* in North America and Japan expires in September 2018. The Company does not, but others do, market ERBITUX* in countries in the EU.

• Total revenue for ABILIFY*, which is primarily domestic alliance revenue for the Company’s 65% share of net sales in copromotion countries with Otsuka Pharmaceutical Co., Ltd. (Otsuka), was $593 million in 2004, compared with $283 million and $25 million in 2003 and 2002, respectively, due to continued growth in prescription demand since its launch. The schizophrenia agent was introduced in the United States in November 2002 and by December 2004, had achieved more than a 10% weekly new prescription share of the U.S. antipsychotic market. The European Commission granted marketing authorization for ABILIFY* in June 2004 and total revenue has reached $26 million since public sales commenced in June 2004. In September 2004, the FDA approved ABILIFY* for the treatment of acute bipolar mania in the U.S. Market exclusivity protection for ABILIFY* is expected to expire in 2009 in the U.S. (and may be extended until 2014 if a pending patent term extension is granted). The Company also has the right to copromote ABILIFY* in several European countries (the United Kingdom, France, Germany and Spain) and to act as exclusive distributor for the product in the rest of the European Union (EU). Market exclusivity protection for ABILIFY* is expected to expire in 2009 for the EU (and may be extended until 2014 if pending supplemental protection certificates are granted). The Company’s right to market ABILIFY* expires in November 2012 in the U.S. and Puerto Rico and, for the countries in the EU where the Company has the exclusive right to market ABILIFY* in June 2014. For additional information on revenue recognition of ABILIFY*, see “Item 8. Financial Statements-Note 2. Alliances and Investments.”

• GLUCOPHAGE* franchise sales decreased 65% to $336 million in 2004, compared to a 22% increase to $948 million in 2003 from $778 million in 2002. The decrease in sales in 2004 primarily resulted from increased generic competition.

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GLUCOPHAGE* IR, an oral medication for treatment of non-insulin dependent (type 2) diabetes, experienced a sales decrease of 42% to $68 million. Sales decreased 46% to $118 million in 2003 from $220 million in 2002. GLUCOVANCE*, an oral combination drug, and GLUCOPHAGE* XR (Extended Release) tablets had sales in 2004 of $169 million and $67 million, respectively, compared with sales in 2003 of $424 million and $395 million, respectively, and sales in 2002 of $246 million and $297 million, respectively. Market exclusivity protection expired in March 2000 for GLUCOPHAGE* IR, in October 2003 for GLUCOPHAGE* XR, and in January 2004 for GLUCOVANCE*. The Company does not (but others do) market these products in the EU and Japan.

In most instances, the basic exclusivity loss date indicated above is the expiration date of the patent that claims the active ingredient of the drug or the method of using the drug for the approved indication. In some instances, the basic exclusivity loss date indicated is the expiration date of the data exclusivity period. In situations where there is only data exclusivity without patent protection, a competitor could seek regulatory approval by submitting its own clinical trial data to obtain marketing approval. The Company assesses the market exclusivity period for each of its products on a case-by-case basis. The length of market exclusivity for any of the Company’s products is difficult to predict with certainty because of the complex interaction between patent and regulatory forms of exclusivity and other factors. There can be no assurance that a particular product will enjoy market exclusivity for the full period of time that the Company currently anticipates. For further discussion of market exclusivity protection, including a chart showing net sales of key products together with the year in which basic exclusivity loss occurred or is expected to occur in the U.S., the EU and Japan, see “Item 1. Business—Products” and “—Intellectual Property and Product Exclusivity.”

The following table sets forth a comparison of reported net sales changes and the estimated total U.S. prescription growth (for both retail and mail order customers) for certain of the Company’s U.S. pharmaceutical prescription products. The estimated prescription growth amounts are based on third-party data provided by IMS Health, a supplier of market research to the pharmaceutical industry. A significant portion of the Company’s domestic pharmaceutical sales is made to wholesalers. Where changes in reported net sales differ from prescription growth, this change in net sales may not reflect underlying prescriber demand.

	2004				2003				2002
	% Change in U.S. Net Sales(a)		% Change in U.S. Total Prescriptions(b)		% Change in U.S. Net Sales(a)		% Change in U.S. Total Prescriptions(b)		% Change in U.S. Net Sales(a)		% Change in U.S. Total Prescriptions(b)
PLAVIX*	36		24		27		29		63		35
PRAVACHOL	(12	)	(10	)	22		2		1		5
AVAPRO*/AVALIDE*	19		15		24		15		16		13
MONOPRIL	(85	)	(77	)	16		(16	)	2		(8	)
COUMADIN	(18	)	(17	)	1		(15	)	**		(16	)
SUSTIVA	9		4		13		17		**		16
VIDEX/VIDEX EC	(3	)	(4	)	(11	)	3		15		13
ZERIT	(32	)	(29	)	(29	)	(25	)	(13	)	(11	)
CEFZIL	(31	)	(30	)	14		(4	)	(7	)	(14	)
GLUCOVANCE*	(61	)	(51	)	72		3		(9	)	48
GLUCOPHAGE*XR	(83	)	(78	)	33		(3	)	29		81

** In excess of 200%.

^(a) Reflects change in net sales in dollar terms, including change in average selling prices and wholesaler buying patterns.

^(b) Reflects change in total prescriptions in unit terms, based on third-party data.

The following table sets forth for each of the Company’s key pharmaceutical products sold by the Company’s U.S. Pharmaceuticals business, the amount of the U.S. Pharmaceuticals business’s net sales of the applicable product for the year ended December 31, 2004 and the estimated number of months on hand of the applicable product in the U.S. wholesaler distribution channel as of December 31, 2004.

	Net Sales (in millions)		Months on Hand
PLAVIX*	$	2,833	0.8
PRAVACHOL		1,420	0.8
AVAPRO*/AVALIDE*		562	0.7
ABILIFY		554	0.7
PARAPLATIN		537	1.2
SUSTIVA		364	0.6
GLUCOPHAGE* Franchise		315	0.9
REYATAZ		305	0.6
COUMADIN		228	0.8
TEQUIN		124	0.6
ZERIT		119	0.7
VIDEX/VIDEX EC		106	0.6
MONOPRIL		34	0.8

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The Company determines the above months on hand estimates by dividing the estimated amount of the product in the wholesaler distribution channel by the estimated amount of out-movement of the product over a period of four weeks calculated as described below. Factors that may influence the Company’s estimates include generic competition, seasonality of products, wholesaler purchases in light of increases in wholesale list prices, new product launches, new warehouse openings by wholesalers and new customer stockings by wholesalers.

PARAPLATIN lost exclusivity in October 2004 and demand has since decreased significantly, resulting in the estimated months on hand of greater than one month. The value of PARAPLATIN inventory over one month on hand at December 31, 2004 was approximately $4 million. The Company plans to continue to monitor PARAPLATIN sales with the intention of working down wholesaler inventories to less than one month on hand.

The Company maintains inventory management agreements (IMAs) with most of its U.S. wholesalers which account for nearly 100% of total gross sales of U.S. Pharmaceutical products. Under the current terms of the IMAs, these wholesalers provide the Company with information with respect to inventory levels of product on hand and the amount of out-movement of products. The inventory information received from wholesalers is a product of their record-keeping process and excludes inventory held by intermediaries to whom they sell, such as retailers and hospitals. The Company determines the amount of out-movement of a product over a period of one month by using the most recent prior four weeks of out-movement of a product as provided by these wholesalers. The Company also determines months on hand estimates by using such factors as historical sales made to those wholesalers and from third-party market research data related to prescription trends and patient demand.

Nutritionals

The composition of the net increase in nutritional sales is as follows:

			Analysis of % Change
	Total Change		Volume		Price		Foreign Exchange
2004 vs. 2003	(1	)%	(7	)%	6	%	—
2003 vs. 2002	11	%	7	%	5	%	(1	)%

Key Nutritional product lines and their sales, representing 94%, 84% and 85% of total Nutritional sales in 2004, 2003 and 2002, respectively, are as follows:

							% Change
	2004		2003		2002		2004 to 2003		2003 to 2002
	(dollars in millions)
Infant Formulas	$	1,405	$	1,284	$	1,172	9	%	10	%
Toddler/Children’s Nutritionals		468		421		383	11	%	10	%

Worldwide Nutritional sales decreased 1% to $2,001 million in 2004 from 2003. Excluding the impact of the Adult Nutritional business that was divested during the first quarter of 2004, worldwide sales increased 9% to $1,973 million from $1,817 million in 2003.

International sales, excluding the impact of the Adult Nutritional business, increased 15%, primarily due to increased sales of infant formula and children’s nutritional products. The increase in international sales is primarily due to a 15% increase in ENFAGROW, a toddler and children’s nutritional product, and a 15% increase in ENFAMIL, the Company’s largest-selling infant formula, including a 2% favorable foreign exchange impact. Domestic sales, excluding the impact of the Adult Nutritional business, increased 3% to $945 million in 2004 from $920 million in 2003, primarily due to increased sales of ENFAMIL.

In 2003, Nutritionals sales were $2,023 million, an increase of 11%, including a 1% unfavorable impact from foreign exchange, over 2002. International sales increased 9%, including a 2% unfavorable foreign exchange impact, to $938 million from $862 million in 2002 while domestic sales increased 13% to $1,085 million from $959 million in 2002. Worldwide infant formula sales increased

46

10% to $1,284 million in 2003, primarily due to increased sales of ENFAMIL. International sales of ENFAMIL increased 5% to $239 million in 2003 from $228 million in 2002 and domestic sales of ENFAMIL increased 10% to $569 million in 2003 from $518 million in 2002. Worldwide toddler and children’s nutritionals sales increased 10%, including a 5% unfavorable foreign exchange impact, to $421 million in 2003 from $383 million in 2002, as a result of a 29% increase in sales of ENFAGROW, primarily throughout the Pacific region, to $156 million in 2003.

Other Healthcare

The Other Healthcare segment includes ConvaTec, the Medical Imaging business and Consumer Medicines in the United States and Japan. The composition of the net increase in other healthcare sales is as follows:

			Analysis of % Change
	Total Change		Volume		Price		Foreign Exchange
2004 vs. 2003	11	%	6	%	1	%	4	%
2003 vs. 2002	8	%	2	%	1	%	5	%

Other Healthcare sales by business and their key products for the years ended December 31, were as follows:

							% Change
	2004		2003		2002		2004 to 2003		2003 to 2002
	(dollars in millions)
ConvaTec	$	954	$	843	$	734	13	%	15	%
Ostomy		551		512		453	8	%	13	%
Wound Therapeutics		391		319		273	23	%	17	%
Medical Imaging		589		508		462	16	%	10	%
CARDIOLITE		406		324		299	25	%	8	%
Consumer Medicines		354		354		377	—		(6	)%

• In 2004, the increase in ConvaTec sales was due to a 6% increase in volume, an 8% increase due to foreign exchange partially offset by a 1% decrease from changes in selling prices. The increase over 2003 was a result of increased worldwide sales of wound therapeutics products, which increased 23%, including an 8% favorable foreign exchange impact, to $391 million. Ostomy sales were flat, excluding an 8% increase due to foreign exchange impact. In 2003, the increase in ConvaTec sales over 2002 was due to a 13% increase in worldwide sales of ostomy products to $512 million and strong growth of worldwide wound therapeutics products, which increased 17% to $319 million. Foreign exchange contributed 9% to the sales increase in 2003.

• In 2004, the increase in Medical Imaging sales was due to a 9% increase in volume, a 6% increase from changes in selling prices and a 1% increase due to foreign exchange. The increase in Medical Imaging sales in 2004 and 2003 were primarily driven by increased sales of CARDIOLITE. This increase was partially due to a change in the timing of revenue recognition as a result of new distribution agreements entered into in January 2004.

• Consumer Medicines sales remained flat at $354 million in 2004 compared to 2003 and declined from $377 million in 2002. In 2004, the sales increase in the U.S., primarily driven by higher sales of EXCEDRIN, was offset by decreased sales in Japan, primarily due to lower sales of BUFFERIN and other over-the-counter medicines. The sales decline in 2003 was in part due to distributors reducing U.S. inventory levels to more desirable levels.

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Geographic Areas

At least some of the Company’s products are available in most countries in the world. The largest markets are in the United States, France, Japan, Spain, Germany, Italy, Canada, and the UK The Company’s sales by geographic areas were as follows:

										% Change
	2004			2003			2002			2004 to 2003		2003 to 2002
	(dollars in millions)
United States	$	10,613		$	10,656		$	9,450		—		13	%
% of Total		55	%		57	%		58	%
Europe, Middle East and Africa		5,470			4,985			4,041		10	%	23	%
% of Total		28	%		27	%		25	%
Other Western Hemisphere		1,425			1,333			1,215		7	%	10	%
% of Total		7	%		7	%		8	%
Pacific		1,872			1,679			1,502		11	%	12	%
% of Total		10	%		9	%		9	%
Total	$	19,380		$	18,653		$	16,208		4	%	15	%

Sales in the United States remained constant in 2004, with growth in prescription demand for key brands including PLAVIX*, AVAPRO*/AVALIDE*, and SUSTIVA, and newer products including ABILIFY*, REYATAZ, and ERBITUX*, offset by lower sales of other products as a result of exclusivity losses for MONOPRIL, PARAPLATIN, and the GLUCOPHAGE* franchise. In 2003, sales in the United States increased 13%, primarily due to increased sales of PLAVIX*, PRAVACHOL, ABILIFY*, GLUCOVANCE* and PARAPLATIN. These sales increases were partially offset by the continued impact of generic competition in the United States on GLUCOPHAGE* IR and TAXOL^® and the result of loss of exclusivity and a label change indicating a potential serious side effect of SERZONE.

Sales in Europe, Middle East and Africa increased 10%, or decreased 1% excluding the impact from foreign exchange, as a result of sales decline of PRAVACHOL due to exclusivity loss in select markets, including Germany and the UK, and TAXOL^®, where generic competition in a majority of the major European markets began in the second quarter of 2004. This decrease in sales was mostly offset by increased sales of PLAVIX* in Germany and Spain, AVAPRO*/AVALIDE* in Italy and Spain, and SUSTIVA in the majority of the major markets. In 2003, sales increased 23%, including a 16% increase from foreign exchange, as a result of sales growth of PRAVACHOL in France, TAXOL^® in France, Germany, Spain and Italy, analgesics in France, PLAVIX* in Germany and Spain, AVAPRO*/AVALIDE* in Italy and SUSTIVA in Spain.

Sales in the Other Western Hemisphere countries increased 7%, including a 2% increase from foreign exchange, primarily due to increased sales of PLAVIX* and AVAPRO*/AVALIDE* in Canada. In 2003, sales increased 10%, including a 5% decrease from foreign exchange, primarily due to increased sales of PLAVIX* in Canada.

Pacific region sales increased 11%, including a 5% increase from foreign exchange in 2004, as a result of increased sales of TAXOL^® and PARAPLATIN in Japan, and PLAVIX* and AVAPRO*/AVALIDE* in Australia. In 2003, sales increased 12%, including a 6% increase from foreign exchange, as a result of increased sales of TAXOL^® in Japan and increased sales of ENFAGROW throughout the region.

Expenses

										% Change
	2004			2003			2002			2004 to 2003		2003 to 2002
	(dollars in millions)
Cost of products sold	$	5,989		$	5,406		$	4,691		11	%	15	%
% of net sales		30.9	%		29.0	%		28.9	%
Marketing, selling and administrative	$	5,016		$	4,620		$	4,081		9	%	13	%
% of net sales		25.9	%		24.8	%		25.2	%
Advertising and product promotion	$	1,411		$	1,415		$	1,142		—		24	%
% of net sales		7.3	%		7.6	%		7.0	%
Research and development	$	2,500		$	2,279		$	2,206		10	%	3	%
% of net sales		12.9	%		12.2	%		13.6	%
Acquired in-process research and development	$	63		$	—		$	169		—		(100	)%
% of net sales		—			—			1.0	%
Provision for restructuring and other items, net	$	104		$	26		$	14		**		86	%
% of net sales		0.5	%		0.1	%		0.1	%
Litigation charges, net	$	420		$	199		$	659		111	%	(70	)%
% of net sales		2.2	%		1.1	%		4.1	%
Equity in net income of affiliates	$	(273	)	$	(151	)	$	(80	)	(81	)%	(89	)%
% of net sales		(1.4	)%		(0.8	)%		(0.5	)%
Other expense, net	$	52		$	179		$	229		(71	)%	(22	)%
% of net sales		0.3	%		1.0	%		1.4	%
Total Expenses, net	$	14,962		$	13,973		$	13,460		7	%	4	%
% of net sales		77.2	%		74.9	%		83.0	%

** Change is in excess of 200%

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• Cost of products sold, as a percentage of sales, increased over the last 2 years to 30.9% in 2004 compared with 29.0% in 2003 and 28.9% in 2002. The increase is primarily due to an increase in accelerated depreciation of $36 million to $100 million, a $75 million increase in product liability reserves and the unfavorable impact of U.S. Pharmaceutical sales mix due to the impact of generic competition in the U.S. for the GLUCOPHAGE* franchise and PARAPLATIN and launch of lower margin ERBITUX*, partially offset by sales growth of ABILIFY*, REYATAZ, and PLAVIX*. Cost of products sold also included $26 million of commercial litigation expense and $25 million of product liability insurance recovery. In 2003, cost of products sold included $53 million of accelerated depreciation of assets in manufacturing facilities in North America expected to be closed by the end of 2006 and a $14 million charge for asset impairment and other restructuring expenses. Cost of products sold in 2002 included a $15 million reversal of prior period reserves for inventory write-offs related to cancelled actions.

• Marketing, selling and administrative expenses, as a percentage of sales, were 25.9% in 2004, 24.8% in 2003, and 25.2% in 2002. In 2004, marketing, selling and administrative expenses increased 9% to $5,016 million from 2003, primarily due to increased sales and marketing support for newer products, including additional sales representatives supporting ABILIFY*. In addition, the increase was also related to costs associated with the compliance with the Sarbanes-Oxley Act of 2002 and unfavorable foreign exchange driven by the strengthening of the euro. Marketing, selling and administrative expenses increased 13% to $4,620 million in 2003 from $4,081 million in 2002, primarily due to increased sales support for ABILIFY* and AVAPRO*/AVALIDE*, higher pension costs, higher charges related to system infrastructure, higher insurance premiums, and unfavorable foreign exchange impact, principally related to the Euro.

• Advertising and product promotion expenditures remained constant at $1.4 billion as compared to 2003, with increased investments in ABILIFY*, REYATAZ and PLAVIX*, offset by lower spending on in-line and non-exclusive products. In 2003, advertising and promotion expenses increased 24% to $1,415 million from $1,142 million in 2002, primarily as a result of promotional support for the ABILIFY* and REYATAZ launches and PLAVIX* in the U.S., and additional support for in-line products and unfavorable foreign exchange impact in Europe.

• The Company’s investment in research and development totaled $2,500 million in 2004, an increase of 10% over 2003 and an increase from 2003 of 3% over 2002, and as a percentage of sales were 12.9% in 2004 compared with 12.2% in 2003 and 13.6% in 2002. In 2004, the increase in research and development expenses was primarily due to higher spending on new development projects, including investments in late-stage development, including muraglitazar, a dual PPAR agonist for diabetes; abatacept for the potential treatment of rheumatoid arthritis; and entecavir for hepatitis B, and investments in the area of biologics, partially offset by Merck’s share of codevelopment costs related to muraglitazar. Research and development costs also included $58 million consisting primarily of upfront and milestone payments in 2004, $102 million of charges related to the upfront payments for licensing agreements in 2003 and $69 million of accelerated depreciation on research facilities in 2002. In 2004, research and development spending dedicated to pharmaceutical products increased to 14.8% of Pharmaceuticals sales compared with 14.2% in 2003 and decreased compared with 16.5% in 2002. The increase reflects the Company’s strategic focus on ten critical disease areas – affective (psychiatric) disorders, Alzheimer’s/dementia, atherosclerosis/thrombosis, diabetes, hepatitis, HIV/AIDS, obesity, oncology, rheumatoid arthritis and related diseases and solid organ transplant. The Company is focusing its research and development activities so that it can fully realize the value of its research and development pipeline. The new priorities include rebalancing drug discovery and development to increase support for the Company’s full late-stage development pipeline and closing unnecessary facilities. They also include devoting greater resources to ensuring successful near-term product launches and increasing the Company’s efforts on in-licensing opportunities.

• In 2004, the $63 million charge for acquired in-process research and development was related to the purchase of Acordis, a UK-based company which is expected to strengthen the Company’s leadership position in wound therapeutics. In 2002, the charges related to acquired in-process research and development were $169 million, primarily related to milestone payments to ImClone Systems Incorporated (ImClone) for ERBITUX*. Of the $200 million milestone payment to ImClone, $160 million was expensed as acquired in-process research and development in the first quarter of 2002. The

49

remaining $40 million was recorded as an additional equity investment to eliminate the income statement effect of the portion of the milestone payment for which the Company has an economic claim through its ownership interest in ImClone.

• Restructuring programs have been implemented to downsize, realign and streamline operations in order to increase productivity, reduce operating expenses and to rationalize the Company’s manufacturing network, research facilities, and the sales and marketing organizations. Actions under the 2004 restructuring program are expected to be complete by 2006 while actions under the 2003 restructuring programs have been substantially completed, and actions under the 2002 restructuring programs were completed at December 31, 2004. As a result of these actions, the Company expects the future annual benefit to earnings from continuing operations before minority interest and income taxes to be approximately $186 million, $64 million and $150 million for the 2004, 2003 and 2002 programs, respectively. For additional information on restructuring, see “Item 8. Financial Statements—Note 3. Restructuring and Other Items.”

• Litigation charges, net of settlement income, were $420 million in 2004, compared to $199 million in 2003 and $659 million in 2002. The $420 million in 2004 consisted of $336 million related to private litigation and governmental investigations related to wholesaler inventory issues and accounting matters, $50 million related to the Platinol litigation settlement and $34 million related to pharmaceutical pricing and sales practices. In 2003, the Company established reserves for liabilities in the total amount of $250 million, comprised of $150 million in relation to wholesaler inventory issues and certain other accounting matters, and $100 million in relation to pharmaceutical pricing and sales and marketing practices. In addition, the Company recorded charges of $31 million for other litigation matters and recognized income of $82 million. The $82 million income consists primarily of $30 million of income for patent defense cost reimbursement, $27 million in litigation settlement income and $21 million from the settlement of anti-trust litigation involving vitamin manufacturers. The 2002 charges of $659 million primarily related to BUSPAR and TAXOL^® settlements. For additional information on litigation, see “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies.”

• Equity in net income of affiliates for 2004 was $273 million, compared with $151 million and $80 million in 2003 and 2002, respectively. Equity in net income of affiliates principally related to the Company’s joint venture with Sanofi and investment in ImClone. In 2004 and 2003, the increases in equity in net income of affiliates primarily reflects higher net income in the Sanofi joint venture. For additional information on equity in net income of affiliates, see “Item 8. Financial Statements—Note 2. Alliances and Investments.”

• Other expenses, net of income were $52 million, $179 million and $229 million in 2004, 2003 and 2002, respectively. Other expenses include net interest expense, foreign exchange gains and losses, income from third-party contract manufacturing, royalty income, and gains and losses on disposal of property, plant and equipment. The favorability in 2004 was primarily due to higher income from third-party contract manufacturing, lower net interest expense and lower net foreign exchange losses. The decrease in expenses in 2003 from 2002 was primarily due to net gains from interest rate swaps.

During the years ended December 31, 2004, 2003 and 2002, the Company recorded several items that affected the comparability of results of the periods presented herein, which are set forth in the following table. For a discussion of these items, see “Item 8. Financial Statements—Note 2. Alliances and Investments,” “—Note 3. Restructuring and Other Items,” “—Note 4. Acquisitions and Divestitures” and “—Note 5. Discontinued Operations.”

Year ended December 31, 2004

	Cost of products sold			Research and development		Acquired in- process research and development		Gain on sale of business			Provision for restructuring and other items, net		Litigation settlement expense / (income)		Other expense, net		Total
Litigation Matters:	(dollars in millions)
Private litigation and governmental investigations (a)	$	—		$	—	$	—	$	—		$	—	$	336	$	—	$	336
Product liability		75			—		—		—			—		—		11		86
Pharmaceutical pricing and sales litigation (b)		—			—		—		—			—		34		—		34
Commercial litigation		26			—		—		—			—		—		—		26
Anti-trust litigation		—			—		—		—			—		50		—		50
Product liability insurance recovery		(25	)		—		—		—			—		—		—		(25	)
		76			—		—		—			—		420		11		507
Other:
Gain on sale of Adult Nutritional business		—			—		—		(320	)		—		—		—		(320	)
Accelerated depreciation		100			3		—		—			—		—		4		107
Downsizing and streamlining of worldwide operations		1			—		—		—			104		—		—		105
Upfront and milestone payments		—			55		—		—			—		—		—		55
Acordis IPR&D write-off		—			—		63		—			—		—		—		63
	$	177		$	58	$	63	$	(320	)	$	104	$	420	$	15		517
Income taxes on items above																		(130	)
Deferred taxes in anticipation of repatriation of foreign earnings																		575
Other tax adjustments																		10
Reduction to Net Earnings from Continuing Operations																	$	972

^(a) relates to wholesaler inventory and accounting matters consisting of $16 million of reserves recorded in the fourth quarter and $320 million disclosed by the Company in the second quarter of 2004. These amounts are incremental to the $150 million recorded last year, bringing the total reserve to $486 million.

^(b) incremental to the $100 million reserve recorded by the Company last year, bringing the total reserve to $134 million.

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Year ended December 31, 2003

	Cost of products sold		Research and development		Provision for restructuring and other items, net			Litigation settlement expense / (income)			Total
	(dollars in millions)
Litigation Matters:
Private litigation and governmental investigations	$	—	$	—	$	—		$	150		$	150
Product liability		—		—		—			15			15
Pharmaceutical pricing and sales litigation		—		—		—			100			100
Litigation settlement income		—		—		—			(66	)		(66	)
		—		—		—			199			199
Other:
Upfront payments for licensing agreements		—		102		—			—			102
Accelerated depreciation and asset impairment charges		64		—		—			—			64
Termination benefits and other exit costs		—		—		53			—			53
Relocation and retention		3		—		13			—			16
Change in estimates		—		—		(40	)		—			(40	)
	$	67	$	102	$	26		$	199			394
Income taxes on items above												(36	)
Reduction to Net Earnings from Continuing Operations											$	358

Year ended December 31, 2002

	Cost of products sold			Research and development		Acquired in- process research and development		Provision for restructuring and other items, net		Litigation settlement expense / (income)		Asset Impairment		Other expense/ (income)			Total
	(dollars in millions)
Litigation Matters:
Anti-Trust Litigation	$	—		$	—	$	—	$	—	$	635	$	—	$	—		$	635
Commercial Litigation		—			—		—		—		18		—		—			18
Other Litigation		—			—		—		—		6		—		—			16
		—			—		—		—		659		—		—			659
Other:
Sale of Product rights		—			—		—		—		—		—		(30	)		(30	)
Termination benefits and other exit costs		(15	)		69		—		14		—		—		—			68
Acquired in-Process research and development		—			—		169		—		—		—		—			169
Asset Impairment charge		—			—		—		—		—		379		—			379
	$	(15	)	$	69	$	169	$	14	$	659	$	379	$	(30	)		1,245
Income taxes on items above																		(472	)
Settlement of prior year tax matters																		(261	)
Reduction to Net Earnings from Continuing Operations																	$	512

Earnings

	Earnings From Continuing Operations Before Minority Interest and Income Taxes									% Change
	2004			2003			2002			2004 to 2003		2003 to 2002
	(dollars in millions)
Pharmaceuticals	$	4,257		$	4,369		$	3,187		(3	)%	37	%
Nutritionals		586			542			486		8	%	12	%
Other Healthcare		573			408			427		40	%	(4	)%
Total segments		5,416			5,319			4,100		2	%	30	%
Corporate/Other		(998	)		(639	)		(1,352	)	(56	)%	53	%
Total	$	4,418		$	4,680		$	2,748		(6	)%	70	%

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In 2004, earnings from continuing operations before minority interest and income taxes decreased 6% to $4,418 million from $4,680 million in 2003. Contributing to the decrease in 2004 were increases in costs of products sold as a result of a change in product mix, products losing exclusivity, increased investment in research and development, and income and expenses that affected the comparability of results as discussed above, partially offset by higher international sales. Net earnings from continuing operations decreased 23% in 2004 to $2,378 million from $3,097 million in 2003. In 2004, basic earnings per share from continuing operations decreased 23% to $1.23 from $1.60 in 2003, while diluted earnings per share from continuing operations decreased 24% to $1.21 from $1.59 in 2003.

In 2003, earnings from continuing operations before minority interest and income taxes increased 70% to $4,680 million from $2,748 million in 2002. The increase was primarily a result of increased sales and charges of $1,207 million recorded in 2002 for litigation settlements, asset impairments and write-offs for in-process research and development. This increase was partially offset by increased investment in advertising and promotion, and in marketing, selling and administrative expenses. Earnings from continuing operations increased 50% in 2003 to $3,097 million from $2,059 million in 2002. In 2003, basic and diluted earnings per share from continuing operations increased 50% each to $1.60 and $1.59, respectively, from $1.07 and $1.06 in 2002, respectively.

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was 34.4% in 2004 compared with 25.8% in 2003 and 14.0% in 2002. The higher effective tax rate in 2004 is attributable primarily to a $575 million charge for estimated deferred taxes taken in the fourth quarter in anticipation of repatriating in 2005 approximately $9 billion in special dividends from the Company’s non-U.S. subsidiaries, pursuant to the American Jobs Creation Act of 2004, an increase in estimates for contingent tax matters in 2004 compared to 2003, and a charge related to the establishment of a valuation allowance against certain charitable contribution carryforwards. This increase was partially offset by the favorable resolution of certain tax refund claims, increased foreign tax credits, and in 2003, the effect of certain litigation reserves as non-deductible in 2003. The Company’s estimate of the tax cost related to the dividend repatriation at December 31, 2004 was based on tax laws then in effect. The estimate may be revised as a result of additional guidance or clarifying language that may be issued by Congress and/or the Department of the Treasury, or any changes in the Company’s factual assumptions that may occur. The increase in the 2003 effective tax rate over the 2002 effective tax rate was primarily due to the decrease in effective tax rate benefit from operations in Ireland, Puerto Rico and Switzerland, the treatment of provisions for certain litigation reserves as non-deductible, and an increase in estimates for contingent tax matters in 2003 compared to 2002. The Company has recorded valuation allowances for certain state net deferred tax assets, state net operating loss and tax credit carryforwards, foreign net operating loss and tax credit carryforwards, and charitable contribution carryforwards. The Company currently believes that the state net deferred tax assets, state net operating loss and tax credit carryforwards, foreign net operating loss and tax credit carryforwards, and charitable contribution carryforwards for which valuation allowances have been provided, more likely than not, will not be realized in the future.

Pharmaceutical

Earnings before minority interest and income taxes of $4,257 million in 2004 decreased from $4,369 million in 2003 primarily driven by gross margin erosion due to generic competition and product mix, additional sales representatives supporting ABILIFY*, increased spending on research and development, higher non-clinical grants and litigation settlement income in 2003, partially offset by higher sales. Earnings before minority interest and income taxes in 2002 were $3,187 million. The increase in 2003 from 2002 was primarily due to increased sales, partially offset by increased advertising and product spending on new and existing in-line products.

Nutritional

Earnings before minority interest and income taxes increased to $586 million in 2004 from $542 million in 2003. This increase is primarily due to increased global infant formula sales, a price increase in the infant formula line, favorable manufacturing variances and tight operating expense management. In 2003, earnings before minority interest and income taxes in the Nutritionals segment increased from $486 million in 2002 as a result of increased sales of ENFAMIL.

Other Healthcare

Earnings before minority interest and income taxes in the Other Healthcare segment increased to $573 million in 2004 from $408 million in 2003, primarily due to sales growth in the ConvaTec and Medical Imaging businesses, in addition to favorable pricing and product mix. In 2003, earnings before minority interest and income taxes in this segment decreased from $427 million in 2002, primarily as a result of unfavorable product mix and inventory write-offs for EXCEDRIN QUICKTABS in the Consumer Medicines business.

Discontinued Operations

In December 2004, the Company committed to a plan to sell OTN and entered into a definitive sale agreement with One Equity Partners LLC. OTN was formerly reported as a distinct operating segment. The transaction is expected to be completed in the first half of 2005. The sale price will be equal to $210 million, plus certain price adjustments based on OTN’s excess of current assets

52

over current liabilities on the closing date. The sale will result in a pre-tax gain of $40 to $50 million, subject to certain price adjustments and other post-closing matters. The gain from the sale of OTN will be recognized on the closing date. For further discussions of OTN, see “Item 8. Financial Statements-Note 5. Discontinued Operations.”

The following amounts related to the OTN business have been segregated from continuing operations and are reflected as discontinued operations for all periods presented:

	Year ended December 31,
	2004		2003		2002
	(dollars in millions)
Net sales	$	2,506	$	2,241	$	1,898
Earnings before income taxes		15		14		13
Net earnings from discontinued operations		10		9		8

The net earnings from discontinued operations of $40 million reflected in the 2002 statement of earnings primarily reflects a reduction of $32 million in the tax contingency reserve related to the spin-off of Zimmer Holdings, Inc. in 2001.

Developments

In January 2005, the Company announced that it intends to divest its U.S. and Canadian Consumer Medicines business. The Company’s primary consumer medicine brands in the U.S. and Canada are EXCEDRIN, KERI, CHOICE and COMTREX. For the year ended December 31, 2004, sales of consumer medicines brands in the U.S. and Canada totaled approximately $270 million. The Company’s consumer medicines businesses in Japan, Asia Pacific, Latin America, Europe, Middle East and Africa are not included in this divestiture.

In December 2004, the Company provided an update on the rolling BLA for abatacept submitted under the provisions of FDA’s Continuous Marketing Application, Pilot 1. Abatacept is an investigational biologic drug for the treatment of rheumatoid arthritis and its development program was granted Fast Track status by the FDA. Complete Non-Clinical and Clinical sections of the BLA have already been submitted to the FDA and the remaining section is expected to be submitted early this year.

In December 2004, the Company and Somerset Pharmaceuticals, Inc. (Somerset), a joint venture between Mylan Laboratories Inc. and Watson Pharmaceuticals, Inc., entered into an agreement for the commercialization and distribution of Somerset’s EMSAM^® (selegiline transdermal system), an investigational monoamine oxidase inhibitor administered as a transdermal patch for the acute and maintenance treatment of patients with major depressive disorder. Somerset received an “Approvable” letter from the FDA for EMSAM^® in February 2004, and if approved by the FDA, EMSAM^® would be the first transdermal treatment for major depressive disorder.

In December 2004, the Company and Corgentech Inc. announced top-line results from the first of two Phase 3 clinical trials for edifoligide (E2F Decoy). In a trial involving patients undergoing peripheral artery vein grafts, the primary and secondary endpoints failed to show a benefit in the edifoligide-treated group compared to the placebo group as defined as the rate of vein graft failure over the 12 months following surgery. Edifoligide is an investigational product to prevent vein graft failure in the coronary and peripheral arteries.

In December 2004, the Company and Gilead Sciences, Inc. (Gilead) entered into a joint venture to develop and commercialize a fixed-dose combination of the Company’s SUSTIVA and Gilead’s TRUVADA* (emtricitabine and tenofovir disoproxil fumarate) in the United States. If approved, the new product would be the first complete Highly Active Antiretroviral Therapy (HAART) treatment regimen for HIV available in a fixed-dose combination taken once daily.

In November 2004, the Company and Medarex, Inc. (Medarex) entered into a worldwide collaboration to develop and commercialize MDX-010, a fully human antibody investigational product targeting the CTLA-4 receptor. MDX-010 was developed by Medarex and is currently in Phase III clinical development for the treatment of metastatic melanoma. The collaboration agreement became effective in January 2005, at which time the Company made a cash payment of $25 million to Medarex which was expensed as research and development, and an additional $25 million equity investment in Medarex.

In September 2004, the Company completed the submission of a NDA to the FDA for entecavir, an investigational antiviral agent under development for the treatment of chronic Hepatitis B. In addition, the FDA granted the Company a priority review for entecavir. The Company also submitted a marketing authorization application for entecavir to the European Medicines Evaluation Agency.

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In August 2004, the FDA approved the Company’s supplemental New Drug Application (sNDA) to include new long-term virologic and clinical data from BMS Study 006 in its prescribing information related to SUSTIVA (efavirenz). The new data demonstrate the long-term durability of virologic response in people living with HIV-1 who are naive to protease inhibitors, lamivudine (3TC) and non-nucleoside reverse transriptase inhibitors (NNRTI) through more than three years of treatment on a combination regimen containing SUSTIVA.

In July 2004, the FDA approved the Company’s sNDA to include new scientific data and dosing in its package insert or labeling related to REYATAZ. With the sNDA, the REYATAZ labeling now includes data indicating that combination HIV treatments containing REYATAZ/ritonavir and Kaletra (lopinavir/ritonavir; Abbott Laboratories, Inc.) were similar for the primary efficacy outcome measurement of time-averaged difference in change from baseline in HIV RNA level in HIV-infected patients previously taking anti-HIV medicines.

In June 2004, the Company and Otsuka announced that the European Commission granted marketing authorization for ABILIFY*, an antipsychotic medication, for the treatment of schizophrenia. Otsuka Pharmaceutical Europe Ltd., Otsuka’s European holding company, holds the marketing authorization for ABILIFY* in Europe. The Company and Otsuka currently copromote ABILIFY* in the United Kingdom and Germany, and will also copromote it in France and Spain. In addition, the Company also has an exclusive right to sell ABILIFY* in a number of other countries in Europe. In the U.S., the FDA approved ABILIFY* for the treatment of acute bipolar mania in September 2004, and in December 2004, the Company and Otsuka received approval from the FDA for an oral solution formulation of ABILIFY*. The oral solution became available in U.S. pharmacies in February 2005.

In May 2004, the Company entered into a worldwide codevelopment and cocommercialization agreement with Solvay Pharmaceuticals (Solvay) to codevelop and copromote the investigational compound SLV319 which is currently in Phase I development with potential for use in treating obesity and other metabolic disorders. The Company may also elect to develop and market two additional investigational compounds selected from Solvay’s pool of eligible compounds. The Company paid Solvay an upfront milestone payment of $10 million in July 2004, which was expensed as research and development. Further milestone payments are expected to be made upon the successful outcome of certain development and regulatory stages.

In April 2004, the Company entered into a collaboration agreement with Merck for worldwide codevelopment and copromotion for muraglitazar, the Company’s dual PPAR (peroxisome proliferator activated receptor) agonist, currently in Phase III clinical development for use in treating Type 2 diabetes. An NDA for muraglitazar was submitted to the FDA in December 2004 for U.S. regulatory approval. Under the terms of the agreement, the Company received a $100 million upfront payment in May 2004, and received an additional $55 million milestone payment in January 2005 for the filing of the NDA. The Company is entitled to receive $220 million in additional payments upon achievement of certain regulatory milestones. The Company and Merck will jointly develop the clinical and marketing strategy for muraglitazar, share equally in future development and commercialization costs and copromote the product to physicians on a global basis, with Merck to receive payments based on net sales levels.

In April 2004, the Company and Pierre Fabre Medicament S.A. (Pierre Fabre), entered into an agreement to develop and commercialize JAVLOR*^* (vinflunine), a novel investigational anti-cancer agent. JAVLOR* is currently in Phase III clinical trials in Europe for the treatment of bladder and non-small cell lung cancer, and Phase II clinical trials in breast and ovarian cancer. Under the terms of the agreement, the Company received an exclusive license to JAVLOR* in the United States, Canada, Japan, Korea, and select Southeast Asian markets. Pierre Fabre will be responsible for the development and marketing of JAVLOR* in all other countries, including Europe. Under the agreement, the Company made and expensed upfront and milestone payments of $35 million in 2004, with the potential for an additional $175 million in milestone payments over time.

In April 2004, the Company announced the completion of the acquisition of Acordis for $158 million. Acordis is a privately held company based in the U.K. that licenses patent rights and supplies materials to ConvaTec for its Wound Therapeutics line. The acquired business was incorporated as part of the Company’s ConvaTec division. This acquisition will enable ConvaTec to strengthen its position in the field of wound care management and continue to provide new treatment options for patients with acute or chronic wound care needs. See “Item 1. Financial Statements—Note 4. Acquisitions and Divestitures.”

In March 2004, the Company announced that its Medical Imaging business entered into an agreement with Kereos, Inc. (Kereos) for the development and commercialization of novel molecular imaging agents. Under the terms of the agreement, the companies will work together to develop molecular imaging agents for cardiovascular diseases and cancer using Kereos’ core technology. Medical Imaging has obtained exclusive worldwide rights to develop and commercialize select cardiovascular molecular imaging agents for magnetic resonance imaging (MRI). Kereos has obtained exclusive worldwide rights to use a family of Medical Imaging targeting molecules with Kereos’ core technology to develop and commercialize molecular cancer imaging agents and targeted therapeutics, including KI-001 — Kereos’ lead candidate for early MRI detection of tumors.

In February 2004, the FDA approved the BLA for ERBITUX*, the anticancer agent that the Company is developing in partnership with ImClone. ERBITUX* Injection is for use in combination with irinotecan in the treatment of patients with Epidermal

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Growth Factor Receptor (EGFR)-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In accordance with the agreement, the Company paid ImClone $250 million in March 2004 as a milestone payment for the approval of ERBITUX* by the FDA. The FDA also approved ImClone’s Chemistry, Manufacturing and Controls supplemental BLA for licensure of its BB36 manufacturing facility for ERBITUX* in June 2004.

Financial Position, Liquidity and Capital Resources

Cash, cash equivalents and marketable securities totaled approximately $7.5 billion at December 31, 2004, compared with $5.6 billion at December 31, 2003. The Company continues to maintain a high level of working capital, which was $5.0 billion at December 31, 2004, increasing from $4.5 billion at December 31, 2003. In 2005, the Company expects cash generated by its U.S. operations, together with borrowings from the capital markets, to sufficiently cover cash needs for working capital, capital expenditures, milestone payments and dividends paid in the United States. Cash and cash equivalents, marketable securities, the conversion of other working-capital items and borrowings are expected to fund near-term operations.

As of December 31, 2004, the Company had approximately $16.9 billion of undistributed earnings of foreign subsidiaries. The Company accrued a provision for $575 million of estimated deferred taxes in the fourth quarter of 2004 which is expected to be paid in 2005, in anticipation of repatriating approximately $9 billion of the undistributed earnings in 2005 pursuant to the American Jobs Creation Act of 2004 (AJCA). Taxes were not provided on the balance of undistributed earnings of approximately $7.9 billion, as the Company has invested or expects to invest these undistributed earnings permanently offshore. If in the future these earnings are repatriated to the United States, or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided.

The AJCA, which President Bush signed into law on October 22, 2004, provides for a temporary 85 percent dividends received deduction for certain cash distributions of the earnings of foreign subsidiaries. The deduction would result in a federal tax rate of approximately 5.25% on the repatriated earnings (assuming a marginal federal tax rate of 35% on those earnings). To qualify for the deduction, the repatriated earnings must be reinvested in the United States pursuant to a domestic reinvestment plan approved by a company’s chief executive officer and subsequently by its board of directors. In January 2005, the Department of Treasury issued guidelines for permitted investments under the plan. The Company expects to meet the requirements and criteria to qualify for the deduction. However, several provisions in the AJCA require further clarification which may be addressed in the coming months by the Treasury or Congress. The Company’s estimate of the tax cost related to the repatriation at December 31, 2004 was based on tax laws then in effect. To the extent the tax laws and guidance changes, the estimate will be revised. The Company’s estimate may also be revised as a result of any changes in the Company’s factual assumptions that may occur.

Cash and cash equivalents at December 31, 2004 primarily consisted of U.S. dollar denominated bank deposits with an original maturity of three months or less. Marketable securities at December 31, 2004 primarily consisted of U.S. dollar denominated floating rate instruments with a ‘AAA/aaa’ credit rating. Due to the nature of these instruments, the Company considers it reasonable to expect that their fair market values will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash at short notice. The average interest yield on cash and cash equivalents was 2.3% and 1.2% at December 31, 2004 and 2003, respectively, while interest yields on marketable securities averaged 2.5% and 1.3%, respectively.

Long-term debt at December 31, 2004 was denominated primarily in U.S. dollars but also included Japanese yen debt of $187 million. Long-term debt remained constant at $8.5 billion at December 31, 2004 and 2003. A majority of the Company’s debt is fixed rate. The Company, however, has entered into fixed to floating interest rate swaps for $6.2 billion of its long-term debt. Interest expense, net of interest swap gains, was $310 million, $277 million, and $364 million, in 2004, 2003 and 2002, respectively. The increase in interest expense in 2004 over 2003 was primarily due to increased short-term borrowings and higher interest rates; the decrease in 2003 over 2002 was driven by the net gains from interest rate swaps. U.S. commercial paper outstanding at December 31, 2004 was $1.6 billion with an average interest rate of 2.3%. There was no U.S. commercial paper outstanding at December 31, 2003. The average interest rate for the year ended December 31, 2004 and 2003, on international short-term borrowings were 9.3% and 8.0%, respectively, and on current installments of long-term debt were 2.8% and 1.3%, respectively.

In December 2004, the Company replaced its prior $1 billion revolving credit facilities with a new $2 billion five year revolving credit facility from a syndicate of lenders, which is extendable on the anniversary date with the consent of the lenders. The availability of the facility is subject to the Company’s ability at the time of borrowing to meet certain conditions, including a financial covenant in which net debt to capital cannot exceed 50%. This facility does not contain a material adverse change representation in the Company’s business as a condition to borrowing. As of December 31, 2004, the Company had a ratio of consolidated net debt to consolidated capital of 14%, and has been in compliance with this covenant since the inception of the facility. Changes in public

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credit ratings will not affect the availability of the credit facility. There were no borrowings outstanding under the revolving credit facilities at December 31, 2004 and 2003. The Company also had unused short-term lines of credit with foreign banks of $158 million and $363 million at December 31, 2004 and 2003, respectively.

In April 2003, Moody’s Investors Service (Moody’s) lowered the Company’s long-term credit rating from Aa2 to A1 and in March 2003, affirmed the Prime-1 short-term credit rating for the Company. In July 2003, Standard & Poor’s (S&P) lowered its long-term credit rating on the Company from AA to AA- and affirmed its A-1+ short-term rating. In March 2004, S&P placed both long-term and short-term ratings of the Company on watch with negative implications. In August 2004, S&P downgraded the short-term credit rating for the Company to A1 and the long-term credit rating of the Company to A+. Both Moody’s and S&P’s long-term credit rating remains on negative outlook.

The following is a discussion of working capital and cash flow activities:

	2004			2003			2002
	(dollars in millions)
Working capital	$	4,958		$	4,536		$	1,573
Cash flow from:
Operating activities		3,176			3,512			945
Investing activities		(1,622	)		(2,419	)		(2,030	)
Financing activities		(463	)		(1,031	)		(1,033	)

• The increase in working capital of $422 million from 2003 was primarily due to: increased receivables resulting from higher sales and higher foreign withholding taxes expected to be refunded; higher inventories resulting from new product introductions and higher demand for existing key brands; partially offset by higher accounts payable due to higher purchasing activities in 2004; and higher accrued expenses, rebates and returns mainly due to increases in royalties, higher unrealized losses from derivatives and Medicaid rebates.

• Net cash provided by operating activities was $3.2 billion in 2004, $3.5 billion in 2003 and $0.9 billion in 2002. The decrease in net cash provided by operating activities for 2004 is mainly attributable to lower earnings and higher usage of working capital. The significant changes in operating assets and liabilities between 2004 and 2003 are: a $260 million increase in inventory primarily due to the introduction of new products including REYATAZ and ERBITUX* and higher demand for key brands including PLAVIX*, AVAPRO*/AVALIDE* and SUSTIVA; a $350 million decrease in deferred revenue on consigned inventory due to the workdown of the consignment inventory in 2003; and a $146 million decrease in accounts payable and accrued expenses including advertising and promotion, deferred revenue for ABILIFY* and milestone payments. The increase in 2003 over 2002 was primarily due to income tax payment in 2002 related to the gain arising from the sale of the Clairol business, increase in earnings, higher rate of decrease in deferred revenue on consigned inventory due to the workdown of the consignment inventory, higher accounts payable and accrued expenses, partially offset by reduction in accounts receivable and increased litigation settlement payments.

• Net cash used in investing activities was $1.6 billion in 2004 compared to $2.4 billion in 2003 and $2.0 billion in 2002. The decrease in net cash used in investing activities is mainly attributable to $364 million cash proceeds from the sale of the Company’s Adult Nutritional business, lower purchases in marketable securities and $261 million of lower capital spending, partially offset by a milestone payment of $250 million to ImClone, $150 million payment for the Acordis acquisition and increased purchases of trademarks, patents and licenses.

• Net cash used in financing activities was $0.5 billion in 2004, and $1.0 billion in both 2003 and 2002. The decrease in 2004 from 2003 was mainly attributable to an increase in short-term borrowings in 2004 partially offset by the proceeds received from the issuance of convertible debt in 2003.

Cash provided from operations and borrowings were primarily used over the past three years to pay dividends of $6.5 billion. The Company has also invested $2.7 billion over the past three years in capital expansion to improve plant efficiency and maintain superior research facilities.

During 2004 and 2003, the Company did not repurchase any of its common stock. The Company repurchased 5 million shares of common stock at a cost of $164 million in 2002, bringing the total shares acquired since the share repurchase program’s inception to 372 million shares. The share repurchase program authorizes the Company to purchase common stock from time to time in the open market or through private transactions as market conditions permit. This program is intended to reduce the increase in shares outstanding from option exercises and to obtain shares for general corporate purposes.

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Dividends declared per common share were $1.12 for each of 2004, 2003, and 2002. In December 2004, the Company declared a quarterly dividend of $.28 per common share and indicated a dividend for the full year 2005 of $1.12 per share. Dividend decisions are made on a quarterly basis by the Board of Directors.

The Company’s financial condition and liquidity could be affected by obligations to make milestone or other one-time payments and by the outcome of pending litigations and investigations, including the challenge to the PLAVIX* patent. For more information, see “Item 1. Business—Strategic Alliances and Arrangements,” “Item 8. Financial Statements—Note 2. Alliances and Investments” and “—Note 21. Legal Proceedings and Contingencies.”

Contractual Obligations

Payments due by period for the Company’s contractual obligations at December 31, 2004, are as follows:

	Obligations Expiring by Period
	Total		2005		2006		2007		2008		2009		Later Years
	(dollars in millions)
Short-term borrowings	$	1,883	$	1,883	$	—	$	—	$	—	$	—	$	—
Long-term debt(1)		8,463		—		2,512		2		1,735		1		4,213
Operating leases		485		123		99		78		65		62		58
Purchase obligations		1,237		364		230		185		129		115		214
Stand-by letters of credit		61		61		—		—		—		—		—
Other liabilities		1,300		191		241		209		199		198		262
Total	$	13,429	$	2,622	$	3,082	$	474	$	2,128	$	376	$	4,747

⁽¹⁾ 2005 long-term debt obligations are included in short-term borrowings on the Company’s consolidated balance sheet at December 31, 2004 and all balances represent the outstanding nominal long-term debt values. The contractual obligations table above excludes interest payment obligations.

In addition to the above, the Company has committed to make potential future “milestone” payments to third-parties as part of in-licensing and development programs. Payments under these agreements generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, such contingencies have not been recorded on the Company’s consolidated balance sheet.

For a discussion of contractual obligations, reference is made to “Item 8. Financial Statements—Note 15. Short-Term Borrowings and Long-Term Debt,” “—Note 17. Financial Instruments,” “—Note 19. Leases” and “—Note 20. Pension and Other Postretirement Benefit Plans.”

Restatement of Previously Issued Financial Statements

As previously disclosed, the Company experienced a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business in 2000 and 2001. This buildup was primarily due to sales incentives offered by the Company to its wholesalers. These incentives were generally offered towards the end of a quarter in order to incentivize wholesalers to purchase products in an amount sufficient to meet the Company’s quarterly sales projections established by the Company’s senior management. In April 2002, the Company disclosed this substantial buildup, and developed and subsequently undertook a plan to work down in an orderly fashion these wholesaler inventory levels by reducing the amount of sales made by the Company to wholesalers relative to the amount of sales made by wholesalers to customers, thereby reducing the inventories of the Company’s products held by wholesalers.

In October 2002, based on further review and consideration of the previously disclosed buildup of wholesaler inventories in the Company’s U.S. pharmaceuticals business and the incentives offered to certain wholesalers, and on advice from PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, the Company determined that it was required to restate its sales and earnings to correct errors in timing of revenue recognition for certain sales made to the two largest wholesalers of the U.S. pharmaceuticals business. The Company determined that these sales should be accounted for under the consignment model, based, in part, on the relationship between the amount and nature of incentives offered to these wholesalers and the amount of inventory held by these wholesalers.

Following that determination, the Company also determined that it would correct its historical accounting policies to conform the accounting to GAAP and known errors made in the application of GAAP that were previously not recorded because in each such case the Company believed the amount of any such error was not material to the Company’s consolidated financial statements. In addition, as part of the restatement process, the Company investigated its accounting practices in areas that involved significant judgment and determined to restate additional items with respect to which the Company concluded errors were made in the application of GAAP, including revisions of inappropriate accounting.

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In March 2003, the Company completed the restatement of its financial statements for these items and restated its financial statements for the three years ended December 31, 2001 (2002 Restatement).

After completing the 2002 Restatement, the Company continued to identify and implement actions to improve the effectiveness of its disclosure controls and procedures and internal controls over financial reporting. In connection with this effort, the Company (i) has substantially strengthened the organization and personnel of the senior financial and control functions, (ii) adopted more rigorous policies and procedures with respect to its balance sheet review process, (iii) focused its internal audit function on financial reporting controls, (iv) engaged a consultant to assist in the evaluation and documentation of certain financial reporting and disclosure processes throughout the Company, in particular with respect to designing standard operating procedures and implementing tools to ensure that disclosure issues are effectively identified, managed and controlled globally and (v) engaged a consultant to assist the Company’s personnel to conduct a comprehensive and detailed review of certain of the Company’s tax reporting and accounting, in particular with respect to developing more effective processes for establishing and monitoring deferred income taxes, valuation allowances and the Company’s annual effective tax rate. In addition, at the request of the Company’s Audit Committee, an independent registered public accounting firm performed more extensive procedures with respect to the Company’s interim financial information during 2003 and, based on the auditors’ assessment of the Company’s risk profile, expanded the scope and amount of field work to be performed for certain areas in connection with its audit of the Company for 2003. These actions contributed significantly to the Company identifying additional errors relating to prior periods not reflected in the 2002 Restatement. In March 2004, the Company corrected these errors by restating its financial statements for the two years ended December 31, 2002.

SEC Consent Order

As previously disclosed, on August 4, 2004, the Company entered into a final settlement with the SEC, concluding an investigation concerning certain wholesaler inventory and accounting matters. The settlement was reached through a Consent, a copy of which was attached as Exhibit 10s to the Company’s quarterly report on Form 10-Q for the period ended September 30, 2004. In the Consent, the Company agreed, without admitting or denying any liability, not to violate certain provisions of the securities laws. The Company also agreed to establish a $150 million fund for a class of shareholders to be distributed under the court’s supervision. The $150 million fund, which included a $100 million civil penalty, will be distributed to certain Company shareholders under a plan of distribution established by the SEC.

Under the terms of the Consent, the Company has agreed, subject to certain defined exceptions, to limit sales of all products sold to its direct customers (including wholesalers, distributors, hospitals, retail outlets, pharmacies and government purchasers) based on expected demand or on amounts that do not exceed approximately one month of inventory on hand, without making a timely public disclosure of any change in practice. The Company has established a company-wide policy to limit its sales to direct customers for the purpose of complying with the Consent. This policy includes the adoption of various procedures to monitor and limit sales to direct customers in accordance with the terms of the Consent. These procedures include a governance process to escalate to appropriate management levels any potential questions or concerns regarding compliance with the policy and timely resolution of such questions or concerns. In addition, compliance with the policy will be monitored on a regular basis.

The Company maintains inventory management agreements (IMAs) with most of its U.S. pharmaceutical wholesalers which account for nearly 100% of total gross sales of U.S. pharmaceuticals products. Under the current terms of the IMAs, these wholesalers provide the Company with information about the inventory levels of product on hand and the amount of out-movement of products. The information received from these wholesalers is a product of their own record-keeping process and excludes inventory held by intermediaries to whom they sell, such as retailers and hospitals. The Company determines the outmovement of a product over a period of one-month by using the most recent prior four weeks of out-movement of a product as provided by these wholesalers. The Company also determines the months on hand estimates for its U.S Pharmaceuticals business by using such factors as historical sales made to those wholesalers and from third party market research data related to prescription trends and patient demand.

In contrast, for the Company’s pharmaceuticals business outside of the United States, nutritionals and other healthcare business units around the world, the Company has 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. Accordingly, the Company relies on a variety of methods to estimate direct customer product level inventory and to calculate months on hand for these business units. The Company expects to complete its analysis of direct customer inventory levels in these businesses in the first quarter of 2005 and will provide additional disclosure of information with respect to direct customer inventory levels. The Company has and will continue to enhance its methods to estimate direct customer product level inventory and months on hand for these business units, taking into account the complexities described above.

The Company will continue to disclose for each of its key pharmaceutical products sold by the U.S. Pharmaceutical business the amount of net sales and the estimated number of months on hand in the U.S. wholesaler distribution channel as of the end of the immediately preceding quarter and as of the end of the applicable quarter in its quarterly and annual reports on Forms 10-Q and 10-K. For all other business units, the Company expects to disclose on a quarterly basis the key product level inventories. The information

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required to estimate months on hand in the direct customer distribution for the non-U.S. Pharmaceuticals business is not available prior to the time the Company is required to file quarterly reports on Form 10-Q. Accordingly, the Company expects to disclose this information on its website approximately 60 days after the end of each quarter. In addition to the foregoing quarterly disclosure, the Company will include all the foregoing information for all business units for each quarter in its Annual Report on Form 10-K.

The Company believes the above-described procedures provide a reasonable basis to ensure compliance with the Consent Order and provides sufficient information to comply with disclosure requirements.

The Company has agreed in the Consent to certain measures that it has implemented or will implement including: (a) establishing a formal review and certification process of its annual and quarterly reports filed with the SEC; (b) establishing a business risk and disclosure group; (c) retaining an outside consultant to comprehensively study and help re-engineer the Company’s accounting and financial reporting processes (d) publicly disclosing any sales incentives offered to direct customers for the purpose of inducing them to purchase products in excess of expected demand; and (e) ensuring that the Company’s budget process gives appropriate weight to inputs that come from the bottom to the top, and not just those that come from the top to the bottom, and adequately documenting that process.

The Company also agreed in the Consent to retain an “Independent Adviser” through the date that the Company’s Form 10-K for the year ended 2005 is filed with the SEC. The Consent defines certain powers and responsibilities of the Independent Adviser. The Consent includes a process for the Independent Adviser to make recommendations regarding the Company’s compliance with applicable federal securities laws and corporate obligations. The Company has agreed in the Consent to adopt the Independent Adviser’s recommendations regarding compliance with applicable federal securities laws and corporate obligations.

The settlement does not resolve the ongoing investigation by the SEC of the activities of certain current and former members of the Company’s management in connection with the wholesaler inventory issues and other accounting matters, which investigation is ongoing. In addition, an investigation by the U.S. Attorney’s Office for the District of New Jersey concerning the inventory and accounting matters covered by the Company’s settlement with the SEC is continuing. The Company is continuing to cooperate with those investigations.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued a revised Statement of Financial Accounting Standards (SFAS) No. 123 (SFAS No. 123R), Share-Based Payment. This standard eliminates the ability to account for share-based compensation transactions using the intrinsic value-based method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. SFAS No. 123R is effective for financial statements issued for the first interim period beginning after June 15, 2005. Currently, the Company discloses the pro forma net income and related pro forma income per share information in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation Costs—Transition and Disclosure. The Company is evaluating the impact of this statement which could have a material impact on its results of operations.

In December 2004, the FASB issued a final staff position (FSP) No. 109-1—Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The effect of the adoption of FSP No. 109-1 is not material to the Company’s consolidated financial statements. See “Item 8. Financial Statements—Note 1. Accounting Policies-Income Taxes.”

In December 2004, the FASB issued FAS 153, Exchanges of Nonmonetary Assets. The provisions of this Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this Statement should be applied prospectively, and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. The adoption of this accounting pronouncement is not expected to have a material effect on the consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs – an Amendment of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility and related expenses to be recognized as current period charges and also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact that this statement will have on its financial position and results of operations.

In June 2004, the FASB issued FSP No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act). The Medicare Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP No. 106-2 requires that the effects of the new law be accounted for under SFAS No.

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106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. The Company adopted FSP No. 106-2 in the third quarter of 2004, retroactive to January 1, 2004. There was a reduction in net periodic benefit cost for other benefits of $8 million for 2004, based on the re-measurement of the accumulated postretirement benefit obligation as of January 1, 2004. The effect of the adoption of FSP No. 106-2 was not material to the Company’s consolidated financial statements. See “Item 8. Financial Statements—Note 20. Pension and Other Postretirement Benefit Plans.”

In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-06, Participating Securities and the Two-Class Method Under FAS 128, which requires the use of the two-class method of computing earnings per share for those enterprises with participating securities or multiple classes of common stock. The consensus is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF No. 03-06 did not affect the Company’s consolidated financial statements.

In December 2003, the FASB revised Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 (as revised) apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. This accounting pronouncement did not have a material effect on the consolidated financial statements.

Critical Accounting Policies

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company’s critical accounting policies are those that are both most important to the Company’s financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may vary from these estimates.

The Company believes that the following discussion represents its critical accounting policies. Management and the Company’s independent registered public accounting firm have discussed the Company’s critical accounting policies with the Audit Committee of the Board of Directors.

Revenue Recognition

The Company recognizes revenue in accordance with SAB No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition. The Company’s accounting policy for revenue recognition has a substantial impact on its reported results and relies on certain estimates that require difficult, subjective and complex judgments on the part of management. The Company recognizes revenue for sales when substantially all the risks and rewards of ownership have transferred to the customer, which generally occurs on the date of shipment, with the exceptions described below.

In previous years, certain transactions with the Company’s U.S. Pharmaceuticals wholesalers were accounted for using the consignment model. In the case of sales made to wholesalers (1) as a result of incentives, (2) in excess of the wholesaler’s ordinary course of business inventory level, (3) at a time when there was an understanding, agreement, course of dealing or consistent business practice that the Company would extend incentives based on levels of excess inventory in connection with future purchases, and (4) at a time when such incentives would cover substantially all, and vary directly with, the wholesaler’s cost of carrying inventory in excess of the wholesaler’s ordinary course of business inventory level, substantially all the risks and rewards of ownership do not transfer upon shipment, and accordingly, such sales should be accounted for using the consignment model. The determination of when, if at all, sales to a wholesaler meet the foregoing criteria involves evaluation of a variety of factors and a number of complex judgments. Under the consignment model, the Company did not recognize revenue upon shipment of product. Rather, upon shipment of product the Company invoiced the wholesaler, recorded deferred revenue at gross invoice sales price, and classified the inventory held by the wholesalers as consignment inventory at the Company’s cost of such inventory. The Company recognized revenue (net of the gross to net sales adjustments discussed below, all of which involve significant estimates and judgments) when the consignment inventory is no longer subject to the incentive arrangements described above, but not later than when such inventory is sold through to the wholesalers’ customers, on a FIFO basis.

In the case of new products for which the product introduction is not an extension of an existing line of product or where the Company determines that there are not products in a similar therapeutic category, such that the Company cannot reliably estimate

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expected returns of the new product, the Company defers recognition of revenue until the right of return no longer exists or until the Company has developed sufficient historical experience to estimate sales returns.

For discussions on revenue recognition, see “Item 8. Financial Statements-Note 1. Accounting Policies—Revenue Recognition,” “-Sales Rebate and Return Accruals” and “—Note 11. Consignment.”

Gross to Net Sales Adjustments

The Company has the following significant categories of gross to net sales adjustments which impact the Company’s three reportable segments: prime vendor charge-backs, WIC rebates, managed health care rebates and other contract discounts, Medicaid rebates, cash discounts, sales returns, and other adjustments, all of which involve significant estimates and judgments and require the Company to use information from external sources. The Company accounts for these gross to net sales adjustments in accordance with EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products), and SFAS 48, Revenue Recognition When Right of Return Exists (SFAS 48), as applicable. See “—Net Sales” section above for reconciliations of the Company’s gross sales to net sales by each significant category of gross-to-net sales adjustments.

Prime vendor charge-backs

The Company’s U.S. businesses participate in prime vendor programs with government entities, the most significant of which are the U.S. Department of Defense and the U.S. Department of Veterans Affairs, and other parties whereby pricing on products is extended below wholesaler list price to participating entities. These entities purchase products through wholesalers at the lower prime vendor price, and the wholesalers charge the difference between their acquisition cost and the lower prime vendor price back to the Company. The Company accounts for prime vendor charge-backs by reducing accounts receivable in an amount equal to the Company’s estimate of charge-back claims attributable to a sale. The Company determines its estimate of the prime vendor charge-backs primarily based on historical experience regarding prime vendor charge-backs and current contract prices under the prime vendor programs. The Company considers prime vendor payments, levels of inventory in the distribution channel, and the Company’s claim processing time lag and adjusts the reduction to accounts receivable periodically throughout each quarter to reflect actual experience.

WIC rebates

The Company’s U.S. Nutritionals business participates on a competitive bidding basis in nutrition programs sponsored by states, tribal governments, the Commonwealth of Puerto Rico and the Territory of Guam for women, infants, and children (WIC). Under these programs, the Company reimburses these entities for the difference between wholesaler list price and the contract price on eligible products. The Company accounts for WIC rebates by establishing an accrual in an amount equal to the Company’s estimate of WIC rebate claims attributable to a sale. The Company determines its estimate of the WIC rebate accrual primarily based on historical experience regarding WIC rebates and current contract prices under the WIC programs. The Company considers levels of inventory in the distribution channel, new WIC contracts, terminated WIC contracts, changes in existing WIC contracts, and WIC participations and adjusts the accrual periodically throughout each quarter to reflect actual experience.

Managed health care rebates and other contract discounts

The Company offers rebates and discounts to managed health care organizations in the U.S. and globally to other contract counterparties such as hospitals and group purchasing organizations. The Company accounts for managed health care rebates and other contract discounts by establishing an accrual in an amount equal to the Company’s estimate of managed health care rebates and other contract discounts attributable to a sale. The Company determines its estimate of the managed health care rebates and other contract discounts accrual primarily based on historical experience regarding these rebates and discounts and current contract prices. The Company considers the sales performance of products subject to managed health care rebates and other contract discounts and levels of inventory in the distribution channel and adjusts the accrual periodically throughout each quarter to reflect actual experience.

Medicaid rebates

The Company’s U.S. businesses participate in state government-managed Medicaid programs as well as certain other qualifying federal and state government programs whereby discounts and rebates are provided to participating state and local government entities. Discounts and rebates provided through these latter programs are included in the Company’s Medicaid rebate accrual and are considered Medicaid rebates for the purposes of this discussion. The Company accounts for Medicaid rebates by establishing an accrual in an amount equal to the Company’s estimate of Medicaid rebate claims attributable to a sale. The Company determines its estimate of the Medicaid rebates accrual primarily based on historical experience regarding Medicaid rebates, as well as any expansion on a prospective basis of its participation in the non-mandatory aspects of the qualifying federal and state government programs, legal interpretations of the applicable laws related to the Medicaid and qualifying

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federal and state government programs, and any new information regarding changes in the Medicaid programs’ regulations and guidelines that would impact the amount of the rebates. The Company considers outstanding Medicaid claims, Medicaid payments, and levels of inventory in the distribution channel and adjusts the accrual periodically throughout each quarter to reflect actual experience.

Cash Discounts

In the U.S. and certain other countries, the Company offers cash discounts, generally approximately 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the full amount of the discounts. The Company considers payment performance and adjusts the accrual to reflect actual experience.

Sales Returns

The Company accounts for sales returns in accordance with SFAS 48 by establishing an accrual in an amount equal to the Company’s estimate of sales recorded for which the related products are expected to be returned. In 2004, 2003 and 2002, provision for sales returns were $276 million, $348 million and $345 million, respectively, or 1%, 2% and 2%, respectively, of gross sales.

For returns of established products, the Company determines its estimate of the sales return accrual primarily based on historical experience regarding sales returns but also considers other factors that could impact sales returns. These factors include levels of inventory in the distribution channel, estimated shelf life, product recalls, product discontinuances, price changes of competitive products, introductions of generic products and introductions of competitive new products. The Company considers all of these factors and adjusts the accrual periodically throughout each quarter to reflect actual experience.

The Company considers the level of inventory in the distribution channel and determines whether it believes an adjustment to the sales return accrual is appropriate. For example, if levels of inventory in the distribution channel increase, the Company analyzes the reasons for the increase and if the reasons indicate that sales returns will be larger than expected, the Company adjusts the sales return accrual, taking into account historical experience, the Company’s returned goods policy and the shelf life of the Company’s products, which ranges, on average, from approximately 12 to 48 months. In situations where the Company is aware of products in the distribution channel nearing their expiration date, the Company analyzes the situation and if the analysis indicates that sales returns will be larger than expected, the Company adjusts the sales return accrual, taking into account historical experience, the Company’s returned goods policy, and levels of inventory in the distribution channel.

In the event of a product recall or product discontinuance, the Company considers the reasons for and impact of such actions and adjusts the sales return accrual as appropriate, taking into account historical experience, levels of inventory in the distribution channel and, for product discontinuances, estimates of continuing demand.

Although the Company considers price changes of competitive products, introductions of generic products and introductions of competitive new products, the Company generally does not believe that these factors impact sales returns based on historical experience and the Company’s returned goods policy.

Returns from new products are significantly more difficult for the Company to assess. The Company determines its estimate of the sales return accrual primarily based on the historical sales returns experience of similar products, such as those within the same line of product or those within the same or similar therapeutic category. In limited circumstances, where the new product is not an extension of an existing line of product or where the Company has no historical experience with products in a similar therapeutic category, such that the Company cannot reliably estimate expected returns of the new product, the Company defers recognition of revenue until the right of return no longer exists or until the Company has developed sufficient historical experience to estimate sales returns. The Company also considers the shelf life of new products and determines whether it believes an adjustment to the sales return accrual is appropriate. The shelf life in connection with new products tends to be shorter than the shelf life for more established products because the Company may still be developing an optimal manufacturing process for the new product that would lengthen its shelf life, or an amount of launch quantities may have been manufactured in advance of the launch date to ensure sufficient supply exists to satisfy market demand. In those cases, the Company assesses the reduced shelf life, together with levels of inventory in the distribution channel and projected demand, and determines whether it believes an adjustment to the sales return accrual is appropriate.

Other adjustments

In addition to the significant gross to net sales adjustments described above, the Company makes other gross to net sales adjustments. For example, the Company offers sales discounts, most significantly in its non-U.S. businesses, and also offers consumer coupons and rebates, most significantly in its U.S. Nutritionals, Consumer Medicines and Pharmaceuticals businesses. In addition, in a number of countries outside the U.S., including major European countries, the Company provides rebates to government entities.

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The Company generally accounts for these other gross to net adjustments by establishing an accrual in an amount equal to the Company’s estimate of the adjustments attributable to a sale. The Company generally determines its estimates of the accruals for these other gross to net sales adjustments primarily based on historical experience, performance on commitments to government entities and other relevant factors, including levels of inventory in the distribution channel in some cases, and adjusts the accruals periodically throughout each quarter to reflect actual experience.

Use of Information from External Sources

The Company uses information from external sources to estimate its significant gross to net sales adjustments. The Company’s estimates of inventory at the wholesalers and deferred revenue on consigned inventory are based on the projected prescription demand-based sales for its products and historical inventory experience, as well as the Company’s analysis of third-party information, including written and oral information obtained from certain wholesalers with respect to their inventory levels and sell-through to customers and third-party market research data, and the Company’s internal information. The inventory information received from wholesalers is a product of their record-keeping process and excludes inventory held by intermediaries to whom they sell, such as retailers and hospitals. The Company receives information from IMS Health, a supplier of market research to the pharmaceutical industry, which it uses to project the prescription demand-based sales for many of its U.S. Pharmaceutical products. The Company also uses information from external sources to identify prescription trends, patient demand and average selling prices. The Company’s estimates are subject to inherent limitations of estimates that rely on third-party information, as certain third-party information was itself in the form of estimates, and reflect other limitations including lags between the date as of which third-party information is generated and the date on which the Company receives third-party information.

Retirement Benefits

The Company’s pension plans and postretirement benefit plans are accounted for using actuarial valuations required by SFAS No. 87, Employers’ Accounting for Pensions, and SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. The Company considers accounting for retirement plans critical because management is required to make significant subjective judgments about a number of actuarial assumptions, including discount rates, salary growth, long-term return on plan assets, retirement, turnover, health care cost trend rates, and mortality rates. Depending on the assumptions and estimates used, the pension and postretirement benefit expense could vary within a range of outcomes and have a material effect on reported earnings. In addition, the assumptions can materially affect accumulated benefit obligations and future cash funding.

Plan Description

The Company and certain of its subsidiaries have defined benefit pension plans and defined contribution plans for regular full-time employees. The principal defined benefit pension plan is the Bristol-Myers Squibb Retirement Income Plan and the principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program.

Approximately 80% of total Company defined benefit pension plan assets and liabilities are held in U.S. plans. The assets for the U.S. plans are held in a single trust with a common asset allocation. Unless specified otherwise, the references in this section are to total Company plans (i.e., U.S. plans together with international plans).

Benefits under the Company’s defined benefit pension plans are based primarily on years of credited service and on participants’ compensation. Assets under the Company’s defined benefit plans consist primarily of equity and fixed-income securities. At December 31, 2004, the fair market value of plan assets for the Company’s defined benefit plans increased to $4,602 million from $4,085 million at December 31, 2003. For the U.S. plans, assets were allocated 70% to equity securities (compared to 71% at the end of 2003), 23% to fixed income securities (compared to 23% at the end of 2003) and 7% to private equity and other investments (compared to 6% at the end of 2003). Bristol-Myers Squibb common stock represented less than 1% of assets for the U.S. plans at the end of 2004 and 2003.

The Company provides comprehensive medical and group life benefits for substantially all U.S. retirees who elect to participate in the Company’s comprehensive medical and group life plans. The asset allocation for these postretirement plans is identical to the asset allocation described above for the U.S. defined benefit pension plans.

Accrual Accounting and Significant Assumptions

Consistent with the requirements of SFAS No. 87, Employers’ Accounting for Pensions, the Company accounts for pension benefits using the accrual method, recognizing pension expense before the payment of benefits to retirees. The accrual method of accounting for pension benefits necessarily requires actuarial assumptions concerning future events that will determine the amount and timing of the benefit payments.

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The Company’s key assumptions used in calculating its cost of pension benefits are the discount rate, the rate of compensation increase, and the expected long-term rate of return on plan assets. The Company, in consultation with its actuaries, evaluates the key actuarial assumptions and other assumptions used in calculating its cost of pension benefits, such as retirement, turnover and mortality rates, based on expectations or actual experience, as appropriate, and determines such assumptions on December 31 of each year to calculate liability information as of that date and pension expense for the following year. Depending on the assumptions used, the pension expense could vary within a range of outcomes and have a material effect on reported earnings. In addition, the assumptions can materially affect accumulated benefit obligations and future cash funding. Actual results in any given year may differ from those estimated because of economic and other factors.

The assumed discount rate used by the Company for determining future pension obligations under the U.S. plans is based on indice of AA-rated corporate bonds. The indices of high quality corporate bonds selected reflect the weighted-average remaining period of benefit payments. The assumed rate of compensation increase used by the Company for determining future pension obligations reflects an estimate of the change in actual future compensation levels due to general price levels, productivity, seniority and other factors.

In 2004, net pension expense for the Company’s defined benefit pension plans included in earnings before minority interest and income taxes was $276 million compared to $136 million in 2003.

The U.S. plans pension expense for 2004 was determined using a 6.25% assumed discount rate and a 3.56% assumed rate of compensation increase. The present value of benefit obligations at December 31, 2004 for the U.S. plans was determined using a 5.75% assumed discount rate and the same salary increase rate. If the assumed discount rate used in determining the U.S. plans pension expense for 2004 had been reduced by 0.5%, such expense would have increased by approximately $30.2 million. If the assumed rate of compensation increase used in determining the U.S. plans pension expense for 2004 had been reduced by 0.25%, such expense would have decreased by approximately $8.5 million. If the assumed discount rate used in determining the accumulated benefit obligation at December 31, 2004 had been reduced by 0.5%, the accumulated benefit obligation would have increased by $251.9 million.

The U.S. plans pension expense for 2004 was determined using a 9% expected long-term rate of return on plan assets. If the expected long-term rate of return on plan assets used in determining the U.S. plans pension expense for 2004 had been reduced by 1%, such expense would have increased by $33 million.

Actual rates of return earned on U.S. plan assets for each of the last ten years were as follows:

Year	Return		Year	Return
2004	12.6	%	1999	18.2	%
2003	25.0	%	1998	13.3	%
2002	(13.4	)%	1997	22.2	%
2001	(6.1	)%	1996	17.0	%
2000	3.5	%	1995	23.0	%

As discussed below, GAAP provides that differences between expected and actual returns are recognized over the average future service of employees.

At December 31, 2004, the Company lowered its assumed discount rate for U.S. plans from 6.25% to 5.75% and maintained its assumed rate of compensation increase at 3.56%. Compensation is assumed to increase on a scale with different rates for different ages. The 3.56% rate disclosed at December 31, 2004 is the single rate which, if used at each age, would produce the same present value of benefit obligations. The reduction in the discount rate had the effect of increasing the present value of benefit obligations and, accordingly, will have the effect of increasing pension expense for 2005. In addition, the Company revised, based upon a review of experience, its assumption for lump sum utilization. This revision had the effect of increasing the present value of benefit obligations, and accordingly, will have the effect of increasing pension expense for 2005.

Following many years of strong performance, the global equity market fell sharply in 2000 through 2002 (e.g., the S&P 500 declined by a cumulative 37.6%). This was reversed in 2003-2004 (e.g., the S&P 500 rose by a cumulative 42.7%). The Company reduced the expected rate of return on U.S. plan assets from 9% in 2004 to 8.75% for 2005. This revision will have the effect of increasing pension expense for 2005.

The Company expects that the net pension expense for its defined benefit pension plans included in earnings before minority interest and income taxes will be approximately $75 million higher in 2005 than the $276 million in 2004, reflecting, among other things, the decrease in the assumed discount rate.

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The Company has used the same assumed discount rates and expected long-term rates of return on plan assets in calculating its cost of pension benefits and its cost of other postretirement benefits for U.S. plans except in the case of the discount rates at December 31, 2004 and 2003. Rates of 5.75% and 6.25% were used for pension benefits versus 5.50% and 6.00%, respectively, for other postretirement benefits to reflect the shorter duration of the other postretirement liabilities.

U.S. health care costs for the retiree population are assumed to increase 9.0% in 2005 and then trend down to an expected increase of 4.5% per year by 2012. If actual costs are higher than those assumed, this will likely put significant upward pressure on the Company’s expense for retiree health care.

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The effects of the Medicare Act are reflected in 2004 net periodic postretirement benefit cost (a reduction of $8 million) and accumulated postretirement benefit obligation at December 31, 2004 (a reduction of $58 million).

Delayed Recognition of Actuarial Gains and Losses

At December 31, 2004 and 2003, unrecognized net actuarial losses for the Company’s defined benefit plans were $2,017 million and $1,676 million, respectively, based on the fair market value of plan assets. These unrecognized net actuarial losses reflect in large part the steady reduction of the weighted-average discount rate over the years.

SFAS No. 87 provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated plan benefit obligations due to changes in the assumed discount rate, differences between the actual and expected returns on plan assets, and other assumption changes. SFAS No. 87 requires that unrecognized net actuarial gain or loss, determined based on the market-related value of plan assets (which differs from fair market value and is a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years), be amortized in pension income or expense for the year to the extent that such unrecognized net actuarial loss or gain exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets at the beginning of the year. These net gains and losses are recognized as pension income or expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans (approximately 10 years) to the extent that they are not offset by losses and gains in subsequent years.

At December 31, 2004, the unrecognized net actuarial loss, determined based on the market-related value of plan assets, was $2,278 million. This amount exceeded 10% of the greater of the projected benefit obligation or the market related value of plan assets by $1,730 million. Unless offset by future unrecognized gains from higher discount rates or higher than expected returns on plan assets, amortization of this unrecognized loss is expected to increase pension expense for each of the following ten years by approximately $173 million per year, which amount is reflected in the higher expense expected in 2005. At December 31, 2003, the unrecognized net actuarial loss, determined based on the market-related value of plan assets, was $1,717 million. This amount exceeded 10% of the greater of the projected benefit obligation or the market related value of plan assets by $1,241 million.

In the event the fair market value of pension plan assets of a particular plan is less than the accumulated benefit obligation for such plan at year-end, GAAP may require an additional minimum liability, and in such circumstances, a reduction in stockholders’ equity or an establishment of an intangible asset. At December 31, 2004, the fair market value of the Company’s defined benefit pension plan assets was $4,602 million and the related accumulated benefit obligation was $4,828 million. The Company recognized an additional minimum liability of $146 million (cumulatively $349 million) at December 31, 2004, which was offset by a $153 million charge in other comprehensive income included in stockholders’ equity and a $7 million reduction in the intangible asset. At December 31, 2003, the fair market value of the Company’s defined benefit pension plan assets was $4,085 million and the related accumulated benefit obligation was $4,154 million. The Company recognized an additional minimum liability of $53 million (cumulatively $203 million) at December 31, 2003, which was offset by a $53 million charge in other comprehensive income included in stockholders’ equity.

Plan Funding

The Company’s funding policy for defined benefit plans is to contribute amounts to provide for current service and to fund past service liability. The Company contributed $367 million and $332 million to the defined benefit plans in 2004 and 2003, respectively.

For discussions on retirement benefits, see “Item 8. Financial Statements-Note 20. Pension and Other Postretirement Benefit Plans.”

Acquired In-Process Research and Development

The fair value of in-process research and development acquired in a business combination is determined by independent appraisal based on the present value of each research project’s projected cash flows. An income approach is utilized that is consistent with guidance in the practice aid issued by the American Institute of Certified Public Accountants entitled, “Assets Acquired in a

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Business Combination to Be Used in Research and Development Activities: A Focus on Software, Electronic Devices and Pharmaceutical Industries.” Future cash flows are predominately based on the net income forecast of each project, consistent with historical pricing, margins, and expense levels of similar products. Revenues are estimated based on relevant market size and growth factors, expected industry trends, individual project life cycles, and the life of each research project’s underlying patent. In determining the fair value of each research project, expected revenues are first adjusted for technical risk of completion. The resulting cash flows are then discounted at a rate approximating the Company’s weighted average cost of capital.

For discussions on acquired in-process research and development, see “Item 8. Financial Statements-Note 1. Accounting Policies-Acquired In-Process Research and Development.”

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

Goodwill is evaluated at least annually for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step is to identify a potential impairment, and the second step measures the amount of the impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. SFAS No. 142 requires that indefinite-lived intangible assets be tested for impairment using a one-step process, which consists of a comparison of the fair value to the carrying value of the intangible asset. Such intangible assets are deemed to be impaired if their net book value exceeds their estimated fair value.

The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s judgment. Any changes in key assumptions about the Company’s businesses and their prospects, or changes in market conditions, could result in an impairment charge.

For discussions on impairment of long-lived assets, see “Item 8. Financial Statements—Note 1. Accounting Policies—Impairment of Long-Lived Assets” and “—Goodwill and Other Intangible Assets.”

Equity Investments

The Company reviews its equity investments for impairment based on its determination of whether the decline in market value of the investment below the Company’s carrying value is other than temporary. In making this determination, the Company considers Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock and related interpretations, which set forth factors to be evaluated in determining whether a loss in value should be recognized, including the Company’s ability to hold its investment, the market price and market price fluctuations of the investment’s publicly traded shares and inability of the investee to sustain an earnings capacity, which would justify the carrying amount of the investment. The Company’s investment in ImClone is subject to this accounting. See “Item 8. Financial Statements—Note 2. Alliances and Investments” for a discussion of the Company’s investment in ImClone.

For discussions on equity investments, see “Item 8. Financial Statements-Note 1. Accounting Policies—Investments” and “—Note 2. Alliances and Investments.”

Restructuring

To downsize and streamline operations and rationalize manufacturing facilities, the Company has periodically recorded restructuring charges. As a result, the Company has made estimates and judgments regarding its future plans, including future termination benefits and other exit costs to be incurred when the restructuring actions take place. Actual results could vary from these estimates, resulting in an adjustment to earnings.

For discussions on restructuring, see “Item 8. Financial Statements—Note 1. Accounting Policies—Restructuring” and “—Note 3. Restructuring and Other Items.”

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Contingencies

In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including government investigations, shareholder lawsuits, product and environmental liability. In accordance with SFAS No. 5, Accounting for Contingencies, the Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated.

For discussions on contingencies, see “Item 8. Financial Statements—Note 1. Accounting Policies—Income Taxes,” “—Contingencies,” “—Note 8. Income Taxes” and “—Note 21. Legal Proceedings and Contingencies.”

Income Taxes

As of December 31, 2004, the Company had approximately $16.9 billion of undistributed earnings of foreign subsidiaries. The Company accrued a provision for $575 million of estimated deferred taxes in the fourth quarter of 2004 in anticipation of repatriating approximately $9 billion of these earnings in 2005 pursuant to the AJCA. Taxes were not provided on the balance of undistributed earnings of approximately $7.9 billion, as the Company has invested or expects to invest these undistributed earnings permanently offshore. If in the future these earnings are repatriated to the United States, or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided.

The Company evaluates the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that it will realize its deferred tax assets in the future. The assessment of whether or not a valuation allowance is required often requires significant judgment including the forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made. As of December 31, 2004, the Company had net deferred tax assets of $1,713 million, net of a valuation allowance of $507 million.

In addition, the Company conducts business in various countries throughout the world and is subject to tax in numerous jurisdictions. As a result of its business activities, the Company files a significant number of tax returns that are subject to audit by various tax authorities. Tax audits are often complex as tax authorities may disagree with the treatment of items reported by the Company and may require several years to resolve. The Company has recorded accruals for tax contingencies related to potential audit exposures, including, but not limited to, transfer pricing, certain tax credits, and various state and foreign tax matters. Such accruals are based on management’s judgment and best estimate as to the ultimate outcome of tax audits. Actual audit results could vary from these estimates.

For discussions on income taxes, see “Item 8. Financial Statements—Note 1. Accounting Policies—Income Taxes” and “—Note 8. Income Taxes.”

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Outlook

As previously disclosed, although anticipated sales declines due to continued exclusivity losses during 2005 and 2006 are expected to be more or less offset by growth in sales of the Company’s in-line, recently launched and potential new products during the same period, changes in product mix will adversely impact gross margins because the products that have lost or are expected to lose exclusivity generally have higher margins. In addition, earnings will be adversely affected by the Company’s investments to support the introduction of new products and the development and launch of additional new compounds. In 2007, based on management’s current estimates of growth of the Company’s in-line and recently launched products and a risk-adjusted assessment of potential new product launches, the Company expects earnings growth will resume. The Company has and will continue to rationalize its cost base in line with its strategy to increase its sales and marketing emphasis on specialists and high value primary care physicians.

As previously disclosed, the Company has experienced substantial revenue losses in the last few years due to the expiration of market exclusivity protection for certain of its products. The Company expects substantial incremental revenue losses in each of 2005, 2006 and 2007 representing continuing declines in revenues of those products as well as declines in revenues of certain additional products that will lose market exclusivity primarily in 2005 and 2006. For 2005, the Company estimates reductions of net sales in the range of $1.4 billion to $1.5 billion from the 2004 levels for products which have lost or will lose exclusivity protection in 2003, 2004 or 2005, specifically MONOPRIL in the United States, Canada and Europe, GLUCOPHAGE* XR and GLUCOVANCE* in the United States, CEFZIL in the United States, PARAPLATIN in the United States, VIDEX EC in the United States, TAXOL^® in Europe and PRAVACHOL in Europe. The Company also expects substantial incremental revenue losses in each of 2006 and 2007 representing continuing declines in net sales of the products that lost exclusivity protection in 2002, 2003 and 2004 and additional declines attributable to products that will lose exclusivity protection primarily in 2005 and 2006. These products (and the years in which they lose exclusivity protection) include GLUCOPHAGE*/GLUCOVANCE*/GLUCOPHAGE*XR in the United States (2002 to 2004), TAXOL^® in Europe and Japan (2003), PRAVACHOL in the United States (2006) and in Europe (2002 to 2007), PARAPLATIN in the United States (2004), MONOPRIL in the United States (2003), Canada (2003) and Europe (2001 to 2008), ZERIT in the United States (2008) and in Europe (2007 to 2011), CEFZIL in the United States (2005) and in Europe (2004 to 2009) and VIDEX/VIDEX EC (2004 to 2009). The timing and amounts of sales reductions from exclusivity losses, their realization in particular periods and the eventual levels of remaining sales revenues are uncertain and dependent on the levels of sales at the time exclusivity protection ends, the timing and degree of development of generic competition (speed of approvals, market entry and impact) and other factors.

PRAVACHOL, an HMG Co-A reductase inhibitor (statin), had net sales of $2.6 billion in 2004. During 2004, the Company experienced increased competition for PRAVACHOL from established brands and new entrants. U.S. prescriptions for PRAVACHOL declined 10% in 2004 compared to 2003. While the product has begun to lose exclusivity in some markets, between now and its anticipated loss of U.S. exclusivity in April 2006, its expected rate of decline in sales and in market share could be accelerated by increased competition from established brands and new entrants.

The Company’s expectations for future sales growth include substantial expected increases in sales of PLAVIX*, which had net sales of $3.3 billion for 2004, and is currently the Company’s largest product ranked by net sales. The composition of matter patent for PLAVIX*, which expires in 2011, is currently the subject of litigation in the United States. Similar proceedings involving PLAVIX* have been instituted outside the United States. The Company continues to believe that the patent is valid and that it is infringed, and with its alliance partner and patent-holder Sanofi, is vigorously pursuing these cases. It is not possible at this time reasonably to assess the outcome of these litigations, or if there were an adverse determination in these litigations, the timing of potential generic competition for PLAVIX*. However, if generic competition were to occur, the Company believes it is very unlikely to occur before the second half of 2005.

The Company and its subsidiaries are the subject of a number of significant pending lawsuits, claims, proceedings and investigations. It is not possible at this time reasonably to assess the final outcome of these investigations or litigations. Management continues to believe, as previously disclosed, that during the next few years, the aggregate impact, beyond current reserves, of these and other legal matters affecting the Company is reasonably likely to be material to the Company’s results of operations and cash flows, and may be material to its financial condition and liquidity. The Company’s expectations for the next several years described above do not reflect the potential impact of litigation on the Company’s results of operations.

Cautionary Factors That May Affect Future Results

This annual report on Form 10-K (including documents incorporated by reference) and other written and oral statements the Company makes 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”, “will”, “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,

68

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, the Company’s goals, plans and projections regarding its 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.

Although it is not possible to predict or identify all factors, they may include but are not limited to the following:

• New government laws and regulations, such as (i) health care reform initiatives in the United States at the state and federal level and in other countries; (ii) changes in the FDA and foreign regulatory approval processes that may cause delays in approving, or preventing the approval of, new products; (iii) tax changes such as the phasing out of tax benefits heretofore available in the United States and certain foreign countries; (iv) new laws, regulations and judicial decisions affecting pricing or marketing within or across jurisdictions; and (v) changes in intellectual property law.

• Competitive factors, such as (i) new products developed by competitors that have lower prices or superior performance features or that are otherwise competitive with the Company’s current products; (ii) generic competition as the Company’s products mature and patents expire on products; (iii) technological advances and patents attained by competitors; (iv) problems with licensors, suppliers and distributors; and (v) business combinations among the Company’s competitors or major customers.

• Difficulties and delays inherent in product development, manufacturing and sale, such as (i) products that may appear promising in development but fail to reach market or be approved for additional indications for any number of reasons, including efficacy or safety concerns, the inability to obtain necessary regulatory approvals and the difficulty or excessive cost to manufacture; (ii) failure of any of our products to achieve or maintain commercial viability; (iii) seizure or recalls of pharmaceutical products or forced closings of manufacturing plants; (iv) the failure to obtain, the imposition of limitations on the use of, or loss of patent and other intellectual property rights; (v) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other application regulations and quality assurance guidelines that could lead to temporary manufacturing shutdowns, product shortages and delays in product manufacturing; and (vi) other manufacturing or distribution problems including changes in manufacturing production sites and manufacturing capacity due to regulatory requirements, changes in types of products produced, such as biologics, or physical limitations that could impact continuous supply.

• Legal difficulties, including lawsuits, claims, proceedings and investigations, any of which can preclude or delay commercialization of products or adversely affect operations, profitability, liquidity or financial condition, including (i) intellectual property disputes; (ii) adverse decisions in litigation, including product liability and commercial cases; (iii) the inability to obtain adequate insurance with respect to this type of liability; (iv) recalls of pharmaceutical products or forced closings of manufacturing plants; (v) the failure to fulfill obligations under supply contracts with the government and other customers which may result in liability; (vi) government investigations including those relating to wholesaler inventory, financial restatement and product pricing and promotion; (vii) claims asserting violations of securities, antitrust, federal and state pricing and other laws; (viii) environmental, health and safety matters; and (ix) tax liabilities. There can be no assurance that there will not be an increase in scope of these matters or that any future lawsuits, claims, proceedings or investigations will not be material.

• Increasing pricing pressures worldwide, including rules and practices of managed care groups and institutional and governmental purchasers, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform and potential impact of importation legislative or otherwise, pharmaceutical reimbursement and pricing in general.

• Fluctuations in buying patterns and inventory levels of major distributors, retail chains and other trade buyers, which may result from seasonality, pricing, wholesaler buying decisions (including the effect of incentives offered), the Company’s wholesaler inventory management policies (including the workdown or other changes in wholesaler inventory levels) or other factors.

• Greater than expected costs and other difficulties, including unanticipated effects and difficulties of acquisitions, dispositions and other events, including obtaining regulatory approvals in connection with evolving business strategies, legal defense costs, insurance expense, settlement costs and the risk of an adverse decision related to litigation.

• Changes to advertising and promotional spending and other categories of spending that may affect sales.

• Changes in product mix that may affect margins.

69

• Changes in the Company’s structure, operations, revenues, costs, staffing or efficiency resulting from acquisitions, divestitures, mergers, alliances, restructurings or other strategic initiatives.

• Economic factors over which the Company has no control such as changes of business and economic conditions including, but not limited to, changes in interest rates and fluctuation of foreign currency exchange rates.

• Changes in business, political and economic conditions due to political or social instability, military or armed conflict, nationalization of assets, debt or payment moratoriums, other restrictions on commerce, and actual or threatened terrorist attacks in the United States or other parts of the world and related military action.

• Changes in accounting standards promulgated by the FASB, the SEC or the AICPA, which may require adjustments to financial statements.

• Capacity, efficiency, reliability, security and potential breakdown, invasion, destruction or interruption of information systems.

• Reliance of the Company on vendors, partners and other third parties to meet their contractual, regulatory and other obligations in relation to their arrangements with the Company.

• Results of clinical studies relating to the Company’s or a competitor’s products.

Although the Company believes it has been prudent in its 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. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.

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Item  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to market risk due to changes in currency exchange rates and interest rates. To reduce that risk, the Company enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure. These instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Derivative financial instruments are not used for speculative purposes. Gains and losses on hedging transactions are offset by gains and losses on the underlying exposures being hedged. Any ineffective portion of hedges is reported in earnings as it occurs.

Foreign exchange option contracts and forward contracts are used to hedge anticipated transactions. The Company’s primary foreign currency exposures in relation to the U.S. dollar are the euro, Japanese yen, Canadian dollar, and Mexican peso.

The table below summarizes the Company’s outstanding foreign exchange contracts as of December 31, 2004. The fair value of all foreign exchange contracts is based on year-end currency rates (and the Black-Scholes model in the case of option contracts). The fair value of option contracts and forward contracts should be viewed in relation to the fair value of the underlying hedged transactions and the overall reduction in exposure to adverse fluctuations in foreign currency exchange rates.

	Weighted Average Strike Price	Notional Amount		Fair Value			Maturity
	(dollars in millions, except currency rates)
Foreign Exchange Forwards:
Australian Dollar	.71	$	157	$	(12	)	2005/2006
British Pound	1.74		101		(9	)	2005
Canadian Dollar	1.33		426		(46	)	2005-2007
Euro	1.23		2,270		(257	)	2005/2006
Polish Zloty	3.62		60		(9	)	2005/2006
Swedish Krona	7.35		71		(8	)	2005/2006
Swiss Franc	1.21		130		(10	)	2005/2006
All Others			195		(16	)	2005/2006
Option Contracts
Japanese Yen	111.70		51		5		2005
Total Contracts		$	3,461	$	(362	)

At December 31, 2004, the Company held option and forward exchange contracts with maturity dates from 2005 to 2007. The notional amounts and fair values of these maturity dates are expressed in the table below:

Year of Maturity	Notional Amount (in millions)		Fair Value (in millions)
2005	$	1,958	$	(232	)
2006		1,473		(128	)
2007		30		(2	)

At December 31, 2004, the Company held option contracts with an aggregate notional amount and fair value of $51 million and $5 million, respectively. These options give the Company the right to buy Japanese Yen at specified rates. The Company also held forward contracts with an aggregate notional amount of $3,410 million. The fair value of the forward contracts was $367 million and was recorded as a current liability. These contracts primarily related to exposures in euro, Canadian dollar and Australian dollar. The Company is obligated to settle forward contracts based on the specified contract rates. As of December 31, 2004, the balance of deferred net after-tax losses of option and forward contracts included in accumulated other comprehensive income was $267 million, of which $168 million is estimated to be reclassified into earnings within the next 12 months.

For the year ended December 31, 2004 the impact of hedge ineffectiveness on earnings was a loss of $4 million. Additionally, the Company uses forward contracts to offset its exposure to certain currency assets and liabilities. These forward contracts are not designated as hedges and, therefore, changes in the fair value of these derivatives are recognized in earnings as they occur. As of December 31, 2004 the Company recorded a loss of $7 million related to forward exchange contracts that did not qualify for hedge accounting treatment.

At December 31, 2003, the Company held option and forward exchange contracts with an aggregate notional amount and fair value of $2,488 million and $(265) million, respectively. These contracts primarily related to exposures in euro, Japanese Yen, Canadian dollar, and Australian dollar.

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In addition to the foreign exchange hedge contracts noted above, the Company also uses foreign exchange forward contracts to hedge foreign currency denominated monetary assets and liabilities. The primary objective of these foreign exchange forward contracts is to protect the U.S. dollar value of foreign currency denominated monetary assets and liabilities from the effects of volatility in foreign exchange that might occur prior to their receipt or settlement in U.S. dollars. These foreign currency denominated monetary assets and liabilities are primarily denominated in Japanese yen and euro. The forward contracts are not designated as hedges and are marked to market through other income/expense. The notional and fair value amount of these foreign exchange forward contracts at December 31, 2004 is $325 million and $6 million, respectively.

The Company uses derivative instruments as part of its interest rate risk management policy. The derivative instruments used include interest rate swaps, which are subject to fair-value hedge accounting treatment. During 2004, 2003, and 2002, the Company executed several fixed to floating interest rate swaps to convert $6.2 billion of the Company’s fixed rate debt to be paid in 2006, 2008, 2011, 2013, 2023, and 2026 to variable rate debt. For the year ended December 31, 2004, the Company recognized a net reduction in interest expense of $151 million that reflects the benefit of the lower floating rate obtained in the swap agreement. SFAS No. 133 requires the revaluation, at fair value, of the swap contracts as well as the underlying debt being hedged. As such, the swap contracts and the underlying debt have been revalued resulting in an increase in non-current assets of $76 million, short-term liabilities of $1 million and long-term debt of $75 million, and an increase in non-current assets and long-term debt of $40 million at December 31, 2004 and 2003, respectively. Swap contracts are generally held to maturity and are not used for speculative purposes. The following table summarizes the interest rate swaps outstanding as of December 31, 2004:

Interest Rate Contracts	Notional Amount of Underlying Debt		Variable Rate Received	Maturity	Fair Value
	(dollars in millions)
Swaps associated with	$	2,000	1 month U.S.$	2006	$	13
4.75% Notes due 2006			LIBOR +1.04%
Swaps associated with		400	1 month U.S.$	2008		(1	)
4.00% Notes due 2008			LIBOR +0.35%
Swaps associated with		2,500	1 month U.S.$	2011		4
5.75% Notes due 2011			LIBOR +1.50%
Swaps associated with		600	1 month U.S.$	2013		17
5.25% Notes due 2013			LIBOR +0.42%
Swaps associated with		350	1 month U.S.$	2023		20
7.15% Notes due 2023			LIBOR +1.66%
Swaps associated with		350	1 month U.S.$	2026		22
6.8% Notes due 2026			LIBOR +1.24%
	$	6,200			$	75

At December 31, 2003, the Company held interest rate swap contracts with a notional value of $5,500 million and a fair value of $40 million.

It is estimated that a 10% change in interest rate structure would not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

The Company had $8,463 million and $8,522 million of long-term debt outstanding at December 31, 2004 and 2003, respectively. See “Item 8. Financial Statements—Note 15. Short-Term Borrowings and Long-Term Debt” and “—Note 17. Financial Instruments” for additional information.

The Company maintains cash, cash equivalents and marketable securities with various financial institutions, in order to limit exposure to any one financial institution. These financial institutions are headquartered primarily in North America and Europe.

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BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF EARNINGS

(in millions, except per share data)

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

	Year Ended December 31,
	2004			2003			2002
EARNINGS
Net Sales	$	19,380		$	18,653		$	16,208
Cost of products sold		5,989			5,406			4,691
Marketing, selling and administrative		5,016			4,620			4,081
Advertising and product promotion		1,411			1,415			1,142
Research and development		2,500			2,279			2,206
Acquired in-process research and development		63			—			169
Provision for restructuring and other items, net		104			26			14
Litigation charges, net		420			199			659
Gain on sales of businesses/product lines		(320	)		—			(30	)
Asset impairment charge for investment in ImClone		—			—			379
Equity in net income of affiliates		(273	)		(151	)		(80	)
Other expense, net		52			179			229
Total expenses		14,962			13,973			13,460
Earnings from Continuing Operations Before Minority Interest and Income Taxes		4,418			4,680			2,748
Provision for income taxes		1,519			1,210			386
Minority interest, net of taxes		521			373			303
Earnings from Continuing Operations		2,378			3,097			2,059
Discontinued Operations
Net earnings		10			9			40
Net gain on disposal		—			—			38
		10			9			78
Net Earnings	$	2,388		$	3,106		$	2,137
Earnings per Common Share
Basic
Earnings from Continuing Operations	$	1.23		$	1.60		$	1.07
Discontinued Operations
Net earnings		—			—			.02
Net gain on disposal		—			—			.02
		—			—			.04
Net Earnings	$	1.23		$	1.60		$	1.11
Diluted
Earnings from Continuing Operations	$	1.21		$	1.59		$	1.06
Discontinued Operations
Net earnings		—			—			.02
Net gain on disposal		—			—			.02
		—			—			.04
Net Earnings	$	1.21		$	1.59		$	1.10
Average Common Shares Outstanding
Basic		1,942			1,937			1,936
Diluted		1,976			1,950			1,942
Dividends declared per common share	$	1.12		$	1.12		$	1.12

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

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BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE

INCOME AND RETAINED EARNINGS

(dollars in millions)

	2004			2003			2002
COMPREHENSIVE INCOME
Net Earnings	$	2,388		$	3,106		$	2,137
Other Comprehensive Income:
Foreign currency translation, net of tax benefit of $48 in 2004, $25 in 2003 and $53 in 2002		208			233			161
Deferred losses on derivatives qualifying as hedges, net of tax liability of $1 in 2004, and tax benefit of $65 in 2003 and $19 in 2002		(51	)		(171	)		(25	)
Minimum pension liability adjustment, net of tax benefit of $42 in 2004, $17 in 2003 and $43 in 2002		(93	)		(36	)		(89	)
Available for sale securities, net of tax liability of $13 in 2003		(1	)		23			1
Total Other Comprehensive Income		63			49			48
Comprehensive Income	$	2,451		$	3,155		$	2,185
RETAINED EARNINGS
Retained Earnings, January 1	$	19,439		$	18,503		$	18,530
Net earnings		2,388			3,106			2,137
		21,827			21,609			20,667
Cash dividends declared		(2,176	)		(2,170	)		(2,168	)
Zimmer common stock dividend		—			—			4
Retained Earnings, December 31	$	19,651		$	19,439		$	18,503

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

74

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED BALANCE SHEET

(dollars in millions)

	December 31,
	2004			2003
ASSETS
Current Assets:
Cash and cash equivalents	$	3,680		$	2,549
Marketable securities		3,794			3,013
Receivables, net of allowances of $178 and $154		4,373			3,660
Inventories, including consignment inventory		1,830			1,601
Deferred income taxes, net of valuation allowances		805			864
Prepaid expenses		319			310
Total Current Assets		14,801			11,997
Property, plant and equipment, net		5,765			5,712
Goodwill		4,905			4,836
Other intangible assets, net		1,866			1,732
Deferred income taxes, net of valuation allowances		1,129			1,234
Other assets		1,969			1,937
Total Assets	$	30,435		$	27,448
LIABILITIES
Current Liabilities:
Short-term borrowings	$	1,883		$	232
Accounts payable		2,127			1,893
Accrued expenses		2,838			2,661
Accrued rebates and returns		1,209			1,082
U.S. and foreign income taxes payable		1,023			707
Dividends payable		545			543
Accrued litigation liabilities		186			267
Deferred revenue on consigned inventory		32			76
Total Current Liabilities		9,843			7,461
Other liabilities		1,927			1,679
Long-term debt		8,463			8,522
Total Liabilities		20,233			17,662
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, $2 convertible series: Authorized 10 million shares; issued and outstanding 7,476 in 2004 and 8,039 in 2003, liquidation value of $50 per share		—			—
Common stock, par value of $.10 per share: Authorized 4.5 billion shares; 2,202 million issued in 2004 and 2,201 million issued in 2003		220			220
Capital in excess of par value of stock		2,491			2,477
Restricted stock		(57	)		(55	)
Accumulated other comprehensive loss		(792	)		(855	)
Retained earnings		19,651			19,439
		21,513			21,226
Less cost of treasury stock — 255 million common shares in 2004 and 261 million in 2003		(11,311	)		(11,440	)
Total Stockholders’ Equity		10,202			9,786
Total Liabilities and Stockholders’ Equity	$	30,435		$	27,448

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

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BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in millions)

	Year Ended December 31,
	2004			2003			2002
Cash Flows From Operating Activities:
Net earnings	$	2,388		$	3,106		$	2,137
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		593			491			427
Amortization		316			298			308
Deferred income tax (benefit)/expense		286			249			(471	)
Litigation settlement expense		420			199			669
Provision for restructuring and other items		104			29			68
Gain on sales of businesses/product lines (including discontinued operations)		(320	)		—			(95	)
Acquired in-process research and development		63			—			160
Loss (gain) on disposal of property, plant, and equipment and investment in other companies		18			(3	)		20
Undistributed (earnings)/losses of affiliates, net		7			66			24
Unfunded pension expense		(91	)		(195	)		(520	)
Impairment charges and asset write-offs		—			26			438
Changes in operating assets and liabilities:
Receivables		(556	)		(549	)		906
Inventories		(133	)		127			200
Prepaid expenses		2			50			13
Other assets		16			(70	)		799
Deferred revenue on consigned inventory		(44	)		(394	)		(1,556	)
Litigation settlement payments		(500	)		(526	)		(108	)
Accounts payable and accrued expenses		248			394			(212	)
Product liability		38			(3	)		4
U.S. and foreign income taxes payable		220			147			(2,386	)
Other liabilities		101			70			120
Net Cash Provided by Operating Activities		3,176			3,512			945
Cash Flows From Investing Activities:
Purchases, net of sales and maturities, of marketable securities		(779	)		(1,385	)		(520	)
Additions to property, plant and equipment and capitalized software		(676	)		(937	)		(1,075	)
Proceeds from disposal of property, plant and equipment and investment in other companies		35			59			27
Proceeds from sales of businesses/product lines		364			—			159
ImClone milestone payment		(250	)		—			—
Purchase of Acordis Specialty Fibres		(150	)		—			—
Purchases of trademarks, patents and licenses and other businesses		(133	)		(53	)		(78	)
Investments in other companies		(4	)		(85	)		(133	)
Divestiture and acquisition costs		(29	)		(18	)		(410	)
Net Cash Used in Investing Activities		(1,622	)		(2,419	)		(2,030	)
Cash Flows From Financing Activities:
Short-term borrowings, net of repayments		1,558			(1,189	)		1,164
Long-term debt borrowings		15			2,286			6
Long-term debt repayments		(3	)		(3	)		(9	)
Issuances of common stock under stock plans		141			44			138
Purchases of treasury stock		—			—			(164	)
Dividends paid		(2,174	)		(2,169	)		(2,168	)
Net Cash Used in Financing Activities		(463	)		(1,031	)		(1,033	)
Effect of Exchange Rates on Cash		40			36			17
Increase (Decrease) in Cash and Cash Equivalents		1,131			98			(2,101	)
Cash and Cash Equivalents at Beginning of Year		2,549			2,451			4,552
Cash and Cash Equivalents at End of Year	$	3,680		$	2,549		$	2,451

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

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BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of Bristol-Myers Squibb Company (BMS, the Company or Bristol-Myers Squibb) and all of its controlled majority owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions are employed in estimates used in determining values of intangible assets, restructuring charges and accruals, sales rebate and return accruals, legal contingencies and tax assets and tax liabilities, as well as in estimates used in applying the revenue recognition policy and accounting for retirement and postretirement benefits (including the actuarial assumptions). Actual results could differ from estimated results.

Revenue Recognition

The Company recognizes revenue when substantially all the risks and rewards of ownership have transferred to the customer. In the case of certain sales made by the Nutritionals and Other Healthcare segments and certain non-U.S. businesses within the Pharmaceuticals segment, revenue is recognized on the date of receipt by the purchaser. Revenues are reduced at the time of sale to reflect expected returns that are estimated based on historical experience. Additionally, provisions are made at the time of sale for all discounts, rebates and estimated sales allowances based on historical experience updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue.

In the case of sales made to wholesalers (1) as a result of incentives, (2) in excess of the wholesaler’s ordinary course of business inventory level, (3) at a time when there was an understanding, agreement, course of dealing or consistent business practice that the Company would extend incentives based on levels of excess inventory in connection with future purchases and (4) at a time when such incentives would cover substantially all, and vary directly with, the wholesaler’s cost of carrying inventory in excess of the wholesaler’s ordinary course of business inventory level, substantially all the risks and rewards of ownership do not transfer upon shipment and accordingly, such sales should be accounted for using the consignment model. The determination of when, if at all, sales to a wholesaler meet the foregoing criteria involves evaluation of a variety of factors and a number of complex judgments. Under the consignment model, the Company does not recognize revenue upon shipment of product. Rather, upon shipment of product the Company invoices the wholesaler, records deferred revenue at gross invoice sales price and classifies the inventory held by the wholesalers as consignment inventory at the Company’s cost of such inventory. The Company recognizes revenue when the consignment inventory is no longer subject to incentive arrangements but not later than when such inventory is sold through to the wholesalers’ customers, on a first-in first-out (FIFO) basis.

Sales Rebate and Return Accruals

Medicaid rebate accruals were $372 million and $233 million at December 31, 2004 and 2003, respectively; Women, Infants and Children (WIC) rebate accruals were $234 million and $208 million, respectively; and managed healthcare rebate and other contractual discount accruals were $198 million and $249 million at December 31, 2004 and 2003, respectively. These and other rebate accruals were established in the same period the related revenue was recognized resulting in a reduction to sales and the establishment of a liability, which is included in accrued liabilities. An accrual is recorded based on an estimate of the proportion of recorded revenue that will result in a rebate or return. Prime vendor charge-back accruals, established in a similar manner, are recorded as a reduction to accounts receivable and were $106 million and $101 million at December 31, 2004 and 2003, respectively.

Income Taxes

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

As of December 31, 2004, the Company had approximately $16.9 billion of undistributed earnings of foreign subsidiaries. The Company accrued a provision for $575 million of estimated deferred taxes in the fourth quarter of 2004 in anticipation of repatriating approximately $9 billion of these earnings in 2005 pursuant to the American Jobs Creation Act of 2004 (AJCA). Taxes were not

77

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

provided on the balance of undistributed earnings of approximately $7.9 billion, as the Company has invested or expects to invest these undistributed earnings permanently offshore. If in the future these earnings are repatriated to the United States, or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided.

The AJCA provides for a temporary 85 percent dividends received deduction for certain cash distributions of the earnings of foreign subsidiaries. The deduction would result in a federal tax rate of approximately 5.25% on the repatriated earnings (assuming a marginal federal tax rate of 35% on those earnings). To qualify for the deduction, the repatriated earnings must be reinvested in the United States pursuant to a domestic reinvestment plan approved by a company’s chief executive officer and by its board of directors. In January 2005, the Department of Treasury issued guidelines for permitted investments under the plan. The Company expects to meet the requirements and criteria to qualify for the deduction. However, several provisions in the AJCA require further clarification which may be addressed in the coming months by the Treasury or Congress. The Company’s estimate of the tax cost related to the repatriation at December 31, 2004 was based on tax laws then in effect. To the extent the tax laws and guidance changes, the estimate will be revised. The Company’s estimate may also be revised as a result of any changes in the Company’s factual assumptions that may occur.

Under the guidance of the Financial Accounting Standards Board (FASB), Staff Position (FSP) No. 109-1, Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, this deduction will be treated as a “special deduction” as described in Statement of Financial Accounting Standards (SFAS) No. 109. As such, the special deduction will not affect deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the Company’s tax return.

The Company establishes liabilities for possible assessments by tax authorities resulting from known tax exposures. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known.

Cash and Cash Equivalents

Cash equivalents are primarily highly liquid investments with original maturities of three months or less at the time of purchase, and are recorded at cost, which approximates fair value.

Marketable Securities

The Company accounts for marketable securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company determined the appropriate classification of all marketable securities was “available-for-sale” at the time of purchase. As such, at December 31, 2004 and 2003, all of the Company’s investments in marketable securities were reported at fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity. Such amortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments. The Company follows its investment managers’ method of determining the cost basis in computing realized gains and losses on the sale of its available-for-sale securities, which is the average cost method. Realized gains and losses are included in other income (expense).

Inventory Valuation

Inventories are generally stated at average cost, not in excess of market.

Capital Assets and Depreciation

Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is generally computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are 50 years for buildings and 3 to 40 years for machinery, equipment and fixtures. The Company periodically evaluates whether current events or circumstances indicate that the carrying value of its depreciable assets may not be recoverable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived Assets

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144, Accounting for the Impairment of Long-Lived Assets. The adoption of SFAS No. 144 did not have a material effect on the consolidated financial statements of the Company. SFAS No. 144 establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a segment of a business. Pursuant to SFAS No. 144, the Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

Capitalized Software

Certain costs to obtain internal use software for significant systems projects are capitalized and amortized over the estimated useful life of the software, which ranges from three to ten years. Costs to obtain software for projects that are not significant are expensed as incurred. Capitalized software, net of accumulated amortization, included in other assets, was $394 million and $407 million, at December 31, 2004 and 2003, respectively. Amortization expense was $90 million, $71 million and $39 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Investments

In January 2003, the Company adopted FASB Interpretation No. 46 (FIN 46 or Interpretation), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 clarifies the application of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Such entities are known as variable interest entities (VIEs). The FASB issued a revision to FIN 46 (FIN 46-R) in December 2003. FIN 46-R is effective for the interim period ending March 31, 2004 for all new or existing VIEs. The adoption of FIN 46 had no effect on the Company’s financial statements.

If an entity does not meet the definition of a VIE under FIN 46, the Company accounts for the entity under the provisions of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, as amended by SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, which requires that the Company consolidates all majority (more than 50%) owned subsidiaries where it has the ability to exercise control. The Company accounts for 50% or less owned companies over which it has the ability to exercise significant influence using the equity method of accounting. The Company’s share of net income or losses of equity investments is included in equity in net income of affiliates in the consolidated statement of earnings. The Company periodically reviews these equity investments for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than temporary. During 2002, the Company recorded an asset impairment charge of $379 million for an other-than-temporary decline in the market value of ImClone Systems Incorporated (ImClone).

Long-term investments in securities, which comprise marketable equity securities and securities and investments for which market values are not readily available, are included in other assets. Marketable equity securities are classified as available-for-sale and reported at fair value. Fair value is based on quoted market prices as of the end of the reporting period. Securities and investments for which market values are not readily available are carried at cost. Unrealized gains and losses are reported, net of their related tax effects, as a component of accumulated other comprehensive income (loss) in stockholders’ equity until sold. At the time of sale, any gains or losses are calculated by the specific identification method and recognized in other (income)/expense. Losses are also recognized in income when a decline in market value is deemed to be other than temporary.

Goodwill and Other Intangible Assets

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, with certain provisions adopted as of July 1, 2001 with respect to amortization of goodwill arising from acquisitions made after June 30, 2001. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside a business combination and the recognition and measurement of goodwill and other intangible assets subsequent to their acquisition. Under SFAS No. 142, goodwill is no longer amortized but is subject to annual impairment tests.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

In accordance with SFAS No. 142, goodwill is tested for impairment upon adoption of the new standard and annually thereafter. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step is to identify a potential impairment and the second step measures the amount of the impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. The Company has completed its goodwill impairment assessment, which indicated no impairment of goodwill.

Other intangible assets, consisting of patents, trademarks, technology and licenses, are amortized on a straight-line basis over their useful lives, ranging from 3 to 17 years. SFAS No. 142 requires that indefinite-lived intangible assets be tested for impairment using a one-step process, which consists of a comparison of the fair value to the carrying value of the intangible asset. Such intangible assets are deemed to be impaired if their net book value exceeds their estimated fair value. All other intangible assets are evaluated for impairment in accordance with SFAS No. 144 as described under “—Impairment of Long-Lived Assets” above.

Restructuring

To downsize and streamline operations and rationalize manufacturing facilities, the Company has periodically recorded restructuring charges. As a result, the Company has made estimates and judgments regarding its future plans, including future termination benefits and other exit costs when approved and incurred, Actual results could vary from these estimates, resulting in an adjustment to earnings.

Product Liability

Accruals for product liability are recorded on an undiscounted basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on existing information. These accruals are adjusted periodically as assessment efforts progress or as additional information becomes available. Receivables for related insurance or other third-party recoveries for product liabilities are recorded, on an undiscounted basis, when it is probable that a recovery will be realized and classified as a reduction of litigation charges in the consolidated statement of earnings.

Contingencies

In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, product liability, environmental liability and tax matters. In accordance with SFAS No. 5, Accounting for Contingencies, the Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. For a discussion of contingencies, reference is made to “—Note 8. Income Taxes” and “—Note 21. Legal Proceedings and Contingencies.”

Derivative Financial Instruments

Derivative financial instruments are used by the Company principally in the management of its interest rate and foreign currency exposures. The Company does not hold or issue derivative financial instruments for speculative purposes.

The Company records all derivative instruments on the balance sheet at fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in the consolidated statement of earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are subsequently recognized in the consolidated statement of earnings when the hedged item affects earnings; cash flows are classified consistent with the underlying hedged item. For purchased foreign currency options the entire change in fair value is included in the measurement of hedge effectiveness for cash flow hedges. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized as a charge or credit to earnings.

The Company designates and assigns derivatives as hedges of forecasted transactions, specific assets or specific liabilities. When hedged assets or liabilities are sold or extinguished or the forecasted transactions being hedged are no longer expected to occur, the Company immediately recognizes the gain or loss on the designated hedging financial instruments in the consolidated statement of earnings.

Shipping and Handling Costs

The Company typically does not charge customers for shipping and handling costs. Shipping and handling costs, when charged, are included in marketing, selling and administrative expenses and for 2004, 2003 and 2002 were $245 million, $243 million and $231 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was $479 million, $448 million and $393 million in 2004, 2003 and 2002, respectively.

Milestone Payments

The Company from time to time will enter into strategic alliances with third parties, which give the Company rights to develop, manufacture, market and/or sell pharmaceutical products, the rights to which are owned by such third parties. As a result of these alliances, the Company may be obligated to make payments to alliance partners contingent upon the achievement of certain pre-determined criteria. For milestones achieved prior to marketing approval of the product, such payments are expensed as research and development. After product approval, any additional milestones are capitalized and amortized to cost of products sold over the remaining useful life of the asset. All capitalized milestone payments are tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Acquired In-Process Research and Development

The fair value of in-process research and development acquired in a business combination is determined by independent appraisal and based on the present value of each research project’s projected cash flows. An income approach is utilized that is consistent with guidance in the practice aid Assets Acquired in Business Combinations to Be Used in Research and Development Activities: A Focus on Software, Electronic Devices and Pharmaceutical Industries issued by the American Institute of Certified Public Accountants. Future cash flows are predominately based on the net income forecast of each project consistent with historical pricing, margins and expense levels of similar products. Revenues are estimated based on relevant market size and growth factors, expected industry trends, individual project life cycles and the life of each research project’s underlying patent. In determining the fair value of each research project, expected revenues are first adjusted for technical risk of completion. The resulting cash flows are then discounted at a rate approximating the Company’s weighted average cost of capital. Other acquired in-process research and development is expensed as incurred when the underlying product has not received regulatory approval and does not have any future alternative use. In addition, costs that are nonrefundable, related to the acquisition or licensing of products that have not yet received regulatory approval to be marketed and that have no alternative future use are charged to earnings as incurred.

Earnings Per Share

Basic earnings per common share are computed using the weighted-average number of shares outstanding during the year. Diluted earnings per common share are computed using the weighted-average number of shares outstanding during the year plus the incremental shares outstanding assuming the exercise of dilutive stock options, restricted stock and convertible instruments.

Foreign Currency Translation

The net assets of the Company’s foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in other comprehensive income.

Stock Compensation Plans

Currently, the Company applies Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation plans and discloses the pro forma net income and related pro forma income per share information in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation Costs—Transition and Disclosure. The Company does not recognize compensation expense for stock options granted under the plans as the exercise price of the option on the date of grant is equal to the fair market value as of that date. For grants of restricted stock, the Company recognizes compensation expense on a straight-line basis over the period that the restrictions expire.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

The following table summarizes the Company’s results on a pro forma basis as if it had recorded compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed in SFAS No. 123 for 2004, 2003 and 2002:

	2004			2003			2002
Net Earnings:	(dollars in millions, except per share data)
As reported	$	2,388		$	3,106		$	2,137
Total stock-based employee compensation expense, included in reported net income, net of related tax effects		19			14			12
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(138	)		(195	)		(261	)
Pro forma	$	2,269		$	2,925		$	1,888
Basic earnings per share:
As reported	$	1.23		$	1.60		$	1.11
Pro forma		1.17			1.51			.98
Diluted earnings per share:
As reported	$	1.21		$	1.59		$	1.10
Pro forma		1.15			1.50			.97

Options related to discontinued operations have no impact on basic and diluted earnings per share. See “—Note 16. Stockholders’ Equity” for additional information.

Recently Issued Accounting Standards

In December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R), Share-Based Payment. This standard eliminates the ability to account for share-based compensation transactions using the intrinsic value-based method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. SFAS No. 123R is effective for financial statements issued for the first interim period beginning after June 15, 2005. Currently, the Company discloses the pro forma net income and related pro forma income per share information in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation Costs—Transition and Disclosure. The Company is evaluating the impact of this statement which could have a material impact on its results of operations.

In December 2004, the FASB issued FSP No. 109-1—Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The effect of the adoption of FSP No. 109-1 is not material to the Company’s consolidated financial statements. See “—Income Taxes” above.

In December 2004, the FASB issued FAS 153, Exchanges of Nonmonetary Assets. The provisions of this Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this Statement should be applied prospectively, and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. The adoption of this accounting pronouncement is not expected to have a material effect on the consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs – an Amendment of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility and related expenses to be recognized as current period charges and also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact that this statement will have on its financial position and results of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 ACCOUNTING POLICIES (Continued)

In June 2004, the FASB issued FSP No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act). The Medicare Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP No. 106-2 requires that the effects of the new law be accounted for under SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. The Company adopted FSP No. 106-2 in the third quarter of 2004, retroactive to January 1, 2004. There was a reduction in net periodic benefit cost for other benefits of $8 million for 2004, based on the re-measurement of the accumulated postretirement benefit obligation as of January 1, 2004. The effect of the adoption of FSP No. 106-2 was not material to the Company’s consolidated financial statements. See “Item 8. Financial Statements—Note 20. Pension and Other Postretirement Benefit Plans.”

In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-06, Participating Securities and the Two-Class Method Under FAS 128, which requires the use of the two-class method of computing earnings per share for those enterprises with participating securities or multiple classes of common stock. The consensus is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF No. 03-06 did not affect the Company’s consolidated financial statements.

In December 2003, the FASB revised FIN 46, Consolidation of Variable Interest Entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 (as revised) apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. This accounting pronouncement did not have a material effect on the consolidated financial statements.

Note 2 ALLIANCES AND INVESTMENTS

Sanofi-Aventis

The Company has agreements with Sanofi-Aventis (Sanofi) for the codevelopment and cocommercialization of AVAPRO*/AVALIDE* (irbesartan), an angiotensin II receptor antagonist indicated for the treatment of hypertension, and PLAVIX* (clopidogrel), a platelet inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the United States, Canada, Puerto Rico and Latin American countries) and Australia and the other in Europe and Asia. Accordingly, two territory partnerships were formed to manage central expenses, such as marketing, research and development and royalties, and to supply finished product to the individual countries. In general, at the country level, agreements either to copromote (whereby a partnership was formed between the parties to sell each brand) or to comarket (whereby the parties operate and sell their brands independently of each other) are in place. The agreements expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia and (ii) the expiration of all patents and other exclusivity rights in the applicable territory.

The Company acts as the operating partner for the territory covering the Americas and Australia and owns a 50.1% majority controlling interest in this territory. Sanofi’s ownership interest in this territory is 49.9%. As such, the Company consolidates all country partnership results for this territory and records Sanofi’s share of the results as a minority interest, net of taxes, which was $502 million in 2004, $351 million in 2003 and $292 million in 2002. The Company recorded sales in this territory and in comarketing countries (Germany, Italy, Spain and Greece) of $4,257 million in 2004, $3,224 million in 2003 and $2,476 million in 2002.

Sanofi acts as the operating partner of the territory covering Europe and Asia and owns a 50.1% majority financial controlling interest in this territory. The Company’s ownership interest in this territory is 49.9%. The Company accounts for the investment in partnership entities in this territory under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s share of net income from these partnership entities before taxes was $269 million in 2004, $187 million in 2003 and $120 million in 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 ALLIANCES AND INVESTMENTS (Continued)

In 2001, the Company and Sanofi formed an alliance for the copromotion of irbesartan, as part of which the Company contributed the irbesartan distribution rights in the United States and Sanofi paid the Company a total of $350 million in 2002 and 2001. The Company accounted for this transaction as a sale of an interest in a license and deferred and amortized the $350 million in other income over the expected useful life of the license, which is approximately eleven years. The Company recognized other income of $32 million, $31 million and $31 million in 2004, 2003 and 2002, respectively. The unamortized portion of the deferred income is recorded in the liabilities section of the consolidated balance sheet and was $248 million and $280 million as of December 31, 2004 and 2003, respectively.

Otsuka

The Company has a worldwide commercialization agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote ABILIFY* (aripiprazole) for the treatment of schizophrenia and related psychotic disorders, except in Japan, China, Taiwan, North Korea, South Korea, the Philippines, Thailand, Indonesia, Pakistan, and Egypt. The Company began copromoting the product with Otsuka in the U.S. and Puerto Rico in November 2002. In June 2004, the Company received marketing approval from the European Commission. The product is currently copromoted with Otsuka in the United Kingdom and Germany, and will also be copromoted in France and Spain. The Company records alliance revenue for its contractual share of the net sales in these copromotion countries, excluding the United Kingdom, and records all expenses related to the product. Alliance revenue is recorded by the Company as net sales based upon 65% of Otsuka’s net sales in the copromotion countries. The Company recognizes this alliance revenue when ABILIFY* is shipped and all risks and rewards of ownership have transferred to Otsuka’s customers. In the UK, the Company records 100% of the net sales and related cost of products sold.

The Company also has an exclusive right to sell ABILIFY* in a number of other countries in Europe, the Americas and Asia. In these countries, as sales commence, the Company will record 100% of the net sales and related cost of products sold. Under the terms of the agreement, the Company purchases the product from Otsuka and performs finish manufacturing for sale by the Company to its customers. The agreement expires in November 2012 in the U.S. and Puerto Rico. For the countries in the European Union where the Company has an exclusive right to sell ABILIFY*, the agreement expires on the tenth anniversary of the first commercial sale. In each other country where the Company has the exclusive right to sell ABILIFY*, the agreement expires on the later of the tenth anniversary of the first commercial sale in such country or expiration of the applicable patent in such country.

The Company recorded revenue for ABILIFY* of $593 million in 2004, $283 million in 2003 and $25 million in 2002. Total milestone payments made to Otsuka under the agreement through December 2004 were $217 million, of which $157 million was expensed as acquired in-process research and development. The remaining $60 million was capitalized in other intangible assets and is amortized in cost of products sold over the remaining life of the agreement in the U.S., ranging from eight to eleven years. Included in the $60 million of capitalized payments is a $10 million payment made in July 2004 for attainment of marketing approval by the European Union. The Company amortized in cost of products sold $5 million in 2004, $5 million in 2003 and $3 million in 2002. The unamortized capitalized payment balance was $47 million and $52 million as of December 31, 2004 and 2003, respectively.

ImClone

The Company has a commercialization agreement expiring in September 2018 with ImClone, a biopharmaceutical company focused on developing targeted cancer treatments, for the codevelopment and copromotion of ERBITUX* in the United States. In February 2004, the U.S. Food and Drug Administration (FDA) approved the Biologics License Application (BLA) for ERBITUX* for use in combination with irinotecan in the treatment of patients with Epidermal Growth Factor Receptor (EGFR)-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In accordance with the terms of the agreement, the Company paid ImClone $200 million, of which $140 million was paid in March 2002 and $60 million was paid in March 2003. The Company paid $250 million in March 2004 as a milestone payment for the initial approval of ERBITUX*. An additional $250 million is payable upon FDA approval for use in treating an additional tumor type. Under the agreement, ImClone receives a distribution fee based on a flat rate of 39% of product revenues in North America. In addition, the Company also has codevelopment and copromotion rights in Canada and Japan to the extent the product is commercialized in such countries.

84

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 ALLIANCES AND INVESTMENTS (Continued)

With respect to the $200 million of milestone payments the Company paid ImClone in 2002 and 2003, $160 million was expensed in the first quarter of 2002 as acquired in-process research and development, and $40 million was recorded as an additional equity investment to eliminate the income statement effect of the portion of the milestone payment for which the Company has an economic claim through its ownership interest in ImClone. The Company accounts for the $250 million approval milestone paid in March 2004 as a license acquisition and amortizes the payment into cost of products sold over the expected useful life of the license, which is approximately fourteen years. In 2004, the amortization expense was $14 million. The unamortized portion of the approval payment is recorded in other intangibles, net and was $236 million at December 31, 2004.

The Company accounts for its investment in ImClone under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. In 2002, the Company recorded a pre-tax charge of $379 million for an other than temporary decline in the market value of ImClone based on the decline in value of ImClone’s share during 2002. The Company’s recorded investment in ImClone common stock as of December 31, 2004 and 2003 was $72 million and $63 million, respectively, representing approximately 17% and 19% of the ImClone shares outstanding, respectively. On a per share basis, the carrying value of the ImClone investment and the closing market price of the ImClone shares as of December 31, 2004 were $5.03 and $46.08, respectively, compared to $4.41 and $39.66, respectively, as of December 31, 2003.

The Company determines its equity share in ImClone’s net income or loss by eliminating from ImClone’s results the milestone revenue ImClone recognizes for the pre-approval milestone payments that were recorded by the Company as additional equity investment. For its share of ImClone’s results of operations, the Company recorded net income of $9 million in 2004, and net losses of $36 million and $40 million in 2003 and 2002, respectively. The Company recorded net sales for ERBITUX* of $261 million in 2004.

Merck

In April 2004, the Company entered into a collaboration agreement with Merck & Co., Inc. (Merck) for worldwide codevelopment and copromotion for muraglitazar, the Company’s dual PPAR (peroxisome proliferator activated receptor) agonist, currently in Phase III clinical development for use in treating Type 2 diabetes. In December 2004 the Company submitted a New Drug Application (NDA) to the FDA for regulatory approval of murgalitazar. Under the terms of the agreement, the Company received a $100 million upfront payment in May 2004, and was entitled to receive an additional $55 million milestone payment in December 2004, which was subsequently received in January 2005. The Company is entitled to receive $220 million in additional payments upon achievement of certain regulatory milestones. The Company and Merck will jointly develop the clinical and marketing strategy for muraglitazar, share equally in future development and commercialization costs and copromote the product to physicians on a global basis, with Merck to receive payments based on net sales levels.

The upfront payment of $100 million received in May 2004 was deferred and amortized in other income over the expected remaining useful life of the agreement, which is approximately sixteen years. In 2004 the Company recognized $4 million of these payments in other income. The $55 million milestone payment was deferred and recorded as a receivable in December 2004, and will be amortized into other income, beginning in January 2005, over the remaining useful life of the agreement. In addition, the Company records Merck’s share of codevelopment costs as a reduction to research and development expense and Merck’s share of copromotion costs as a reduction to advertising and product promotion expense.

Summary Financial Information

Following is summarized financial information for the Company’s equity investments in ImClone and a joint venture with Sanofi in Europe and Asia:

	2004		2003		2002
	(unaudited, dollars in millions)
Revenues	$	2,427	$	1,605	$	1,051
Gross profit		1,965		794		535
Net income		673		288		107
Current assets		2,206		827		822
Non-current assets		371		259		200
Current liabilities		1,447		829		533
Non-current liabilities		949		527		626

85

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 RESTRUCTURING AND OTHER ITEMS

2004 Activities

During 2004, the Company recorded pretax restructuring and other charges of $116 million, relating to downsizing and streamlining of worldwide operations and rationalization of worldwide manufacturing operations. Of this charge, $102 million relates primarily to employee termination benefits for approximately 2,000 employees, including manufacturing, administrative and sales personnel in Europe, North America, Asia and Latin America. Other exit costs of $5 million relate primarily to lease termination costs, while other items of $9 million relate primarily to relocation expenses as a result of the consolidation of research facilities. These charges were partially offset by an adjustment due to changes in estimates to prior period reserves of $8 million, which principally is due to reduced separation costs, and also a $4 million gain on the sale of a research facility previously written off as restructuring. The Company expects to complete these restructuring activities by 2006.

The following table presents a detail of provision for restructuring and other items by operating segment and type. The Company does not allocate restructuring charges to its business segments.

	Employee Terminations	Employee Termination Benefits		Other Exit Costs		Other Items		Total
	(dollars in millions)
Pharmaceuticals	1,650	$	84	$	5	$	9	$	98
Other Healthcare	350		18		—		—		18
	2,000	$	102	$	5	$	9		116
Reduction in reserves for changes in estimates									(8	)
Gain on sale of research property									(4	)
Provision for restructuring and other items								$	104

In addition, the Company recorded $107 million in asset impairments and accelerated depreciation relating to the rationalization of manufacturing operations primarily in cost of products sold and $55 million in research and development related to the upfront payments for 4 licensing agreements, which were not allocated to business segments.

2003 Activities

During 2003, the Company recorded pretax restructuring and other charges of $65 million, relating to downsizing and streamlining of worldwide operations and rationalization of worldwide manufacturing operations. Of this charge, $50 million relates primarily to termination benefits for approximately 950 employees, including manufacturing, administrative and sales personnel in Europe, North America, Asia and Latin America. Other items of $15 million relate primarily to relocation expenses as a result of the consolidation of research facilities. These charges were partially offset by an adjustment due to changes in estimates to prior period reserves of $39 million, which principally is due to higher than anticipated proceeds from disposal of assets and reduced separation costs. The Company expects to complete these restructuring activities by 2006.

The following table presents a detail of provision for restructuring and other items by operating segment and type. The Company does not allocate restructuring charges to its business segments.

	Employee Terminations	Employee Termination Benefits		Other Exit Costs		Other Items		Total
	(dollars in millions)
Pharmaceuticals	850	$	39	$	3	$	15	$	57
Other Healthcare	100		8		—		—		8
Subtotal	950	$	47	$	3	$	15		65
Reduction in reserves for changes in estimates									(39	)
Provision for restructuring and other items								$	26

In addition, the Company recorded $67 million in asset impairments and accelerated depreciation relating to the rationalization of manufacturing operations in cost of products sold and $102 million in research and development related to the upfront payments for four licensing agreements, which were not allocated to business segments.

86

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 RESTRUCTURING AND OTHER ITEMS (Continued)

2002 Activities

During 2002, the Company recorded pre-tax restructuring and other charges of $160 million, relating to a reduction or elimination of non-strategic research efforts as well as the consolidation of research facilities, workforce reductions and downsizing and streamlining of worldwide operations. Of this charge, $71 million relates to employee termination benefits for approximately 1,040 employees, including research, manufacturing, sales, and administrative personnel, $51 million represents asset write-downs including a $24 million impairment charge for the Company’s investment in Deltagen and $38 million for other exit costs for the closure of facilities and other related expenses. These charges were offset by an adjustment to prior period restructuring reserves of $146 million, $65 million of which is due to lower than expected separation costs, $59 million due to higher than anticipated proceeds from disposal of assets previously written off as restructuring and $22 million for projects that have been cancelled. In addition, a $17 million adjustment to cost of products sold was made to reflect the reversal of inventory reserves associated with cancelled projects. The Company has completed these restructuring activities.

The following table presents a detail of provision for restructuring and other items by operating segment and type. The Company does not allocate restructuring charges to its business segments.

	Employee Terminations	Employee Termination Benefits		Other Exit Costs		Other Items		Total
	(dollars in millions)
Pharmaceuticals	901	$	62	$	38	$	19	$	119
Nutritionals	92		5		—		—		5
Other Healthcare	22		2		—		5		7
Corporate/Other	25		2		—		27		29
Subtotal	1,040	$	71	$	38	$	51		160
Reduction in reserves for changes in estimates									(146	)
Provisions for restructuring and other items								$	14

In addition, $69 million of accelerated depreciation relating to the planned shutdown of research facilities in the United States has been included in research and development expense, and $2 million for inventory write-offs associated with these projects has been included in cost of products sold. In the third quarter of 2002, the Company recorded a pre-tax restructuring charge of $79 million for severance and other exit costs associated with the consolidation of research and development efforts and the closure of two leased facilities. As a result of this action, an impairment assessment was performed on long lived assets used at these sites in accordance with SFAS 144. The Company concluded that although the $69 million of assets were recoverable, the remaining useful life of these assets (mainly laboratory equipment and leasehold improvements for which there was no alternate use or residual value) was accelerated from 4 years to 3 months to reflect the date of abandonment of the facilities (the fourth quarter of 2002).

87

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 RESTRUCTURING AND OTHER ITEMS (Continued)

Rollforward

Restructuring charges and spending against liabilities associated with prior and current actions are as follows:

	Employee Termination Liability			Other Exit Cost Liability			Total
	(dollars in millions)
Balance at December 31, 2001	$	243		$	41		$	284
Charges		71			38			109
Spending		(155	)		(29	)		(184	)
Changes in estimate		(92	)		(8	)		(100	)
Balance at December 31, 2002		67			42			109
Charges		47			3			50
Spending		(56	)		(35	)		(91	)
Changes in estimate		(7	)		(3	)		(10	)
Balance at December 31, 2003	$	51		$	7		$	58
Charges		102			5			107
Spending		(68	)		(9	)		(77	)
Changes in estimate		(8	)		—			(8	)
Balance at December 31, 2004	$	77		$	3		$	80

These liabilities are included in accrued expenses in the consolidated balance sheet.

Note 4 ACQUISITIONS AND DIVESTITURES

In February 2004, the Company completed the divestiture of its Adult Nutritional business to Novartis AG (Novartis) for $386 million, included $20 million contingent on the achievement of contractual requirements, which were satisfied, and a $22 million upfront payment for a supply agreement. The Company recorded a pre-tax gain of $320 million ($198 million net of tax), which included the $20 million contingent payment, and a $5 million reduction in Company goodwill associated with the Mead Johnson product lines. In 2003, Adult Nutritional products recorded sales of over $200 million.

In April 2004, the Company completed the acquisition of Acordis Speciality Fibres (Acordis), which is headquartered in the United Kingdom and supplies materials to ConvaTec for its Wound Therapeutics line. The acquisition is expected to strengthen the Company’s leadership position in wound therapies. The Company purchased all the stock of Acordis for $150 million, and incurred $8 million of acquisition costs in connection with the transaction. An additional $10 million payment is contingent on the achievement of future sales volumes. The purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Of the $158 million, $63 million was allocated to in-process research and development, which represents the estimated fair value of acquired in-process projects, consisting primarily of Medicel, a wound therapeutics product, which had not yet reached technological feasibility and had no alternative future use, and was therefore expensed. The estimated fair value of these projects was determined by employment of a discounted cash flow model; and $22 million was assigned to identifiable intangible assets, predominantly patents. The excess of the purchase price over the estimated fair values of net assets acquired was approximately $73 million and was recorded as goodwill. This acquisition was accounted for by the purchase method, and, accordingly, results of operations have been included in the accompanying consolidated financial statements from the date of acquisition.

In 2002, the Company completed the sale of two branded products, MOISTUREL* and DURICEF*, which resulted in a pre-tax gain of $30 million.

Note 5 DISCONTINUED OPERATIONS

In December 2004, committed to a plan to sell OTN and entered into a definitive sale agreement with One Equity Partners LLC. OTN is a leading specialty distributor of pharmaceutical products to office-based oncologists in the United States and was formerly reported as a distinct operating segment. The transaction is expected to be completed in the first half of 2005. The sale price will be equal to $210 million, plus a sale price adjustment (the Sale Price Adjustment) based on the excess of current assets over current

88

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5 DISCONTINUED OPERATIONS (Continued)

liabilities (Working Capital) on the closing date. The sale price shall be increased or decreased by the amount by which Working Capital exceeds or is less than $50 million on the closing date. The sale will result in a pre-tax gain of approximately $40 to $50 million, subject to the Sale Price Adjustment and other post-closing matters. The gain from the sale of OTN will be recognized on the closing date.

The following amounts related to the OTN business have been segregated from continuing operations and reported as discontinued operations, and do not reflect the costs of certain services provided to OTN by the Company. Such costs, which are not allocated by the Company to OTN, are for services which include legal counsel, insurance, external audit fees, payroll processing, and certain human resource services and information technology systems support.

	Year ended December 31,
	2004		2003		2002
	(dollars in millions)
Net sales	$	2,506	$	2,241	$	1,898
Cost of products sold		2,444		2,186		1,842
Gross profit		62		55		56
Total operating expenses		47		41		43
Earnings before income taxes		15		14		13
Provision for income taxes		5		5		5
Net earnings from discontinued operations	$	10	$	9	$	8

The net earnings from discontinued operations also includes $32 million in the 2002 statement of earnings primarily related to a reduction in the tax contingency reserve related to the spin-off of Zimmer Holdings, Inc. in 2001.

The following is a summary of the assets and liabilities of discontinued operations that are expected to be sold. The amounts presented below were derived from historical financial information of OTN and adjusted to exclude cash and inter-company receivables and payables between OTN and the Company, which were excluded from the divestiture. In addition, goodwill related to OTN at December 31, 2004 of $80 million has been excluded from the following summary of net assets to be disposed, which will be considered in determining the gain on the sale on the date the transaction is consummated.

(dollars in millions)
Assets
Receivables, net	$	319
Other current assets		2
Total Current Assets		321
Property, plant and equipment		3
Other non-current assets		8
Total Assets	$	332
Liabilities
Accounts payable	$	535
Accrued expenses		7
Total liabilities	$	542
Net assets to be sold	$	(210	)

The accounts payable balance primarily includes payables to McKesson Corporation (McKesson) at December 31, 2004, which is usually paid within the first five days of each month for goods shipped in the preceding month. As a result of the timing of these accounts payable balances, OTN has a net liability balance as of December 31, 2004.

The consolidated statement of cash flows includes the OTN business for all periods presented. The Company uses a centralized approach to the cash management and financing of its operations and accordingly, debt is not allocated to this business. Cash inflows from operating and investing activities of discontinued operations were $132 million and $95 million for the years ended December 31, 2004 and 2003, respectively and cash outflows were $127 million for the year ended December 31, 2002.

89

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6 EARNINGS PER SHARE

The numerator for basic earnings per share is net earnings available to common stockholders. The numerator for diluted earnings per share is net earnings available to common stockholders with interest expense added back for the assumed conversion of the convertible debt into common shares. The denominator for basic earnings per share is the weighted average number of common shares outstanding during the period. The denominator for diluted earnings per share is weighted average shares outstanding adjusted for the effect of dilutive stock options. The computations for basic earnings per common share and diluted earnings per common share are as follows:

	Year Ended December 31,
	2004			2003			2002
	(dollars in millions, except per share amounts)
Earnings from Continuing Operations(1)	$	2,378		$	3,097		$	2,059
Discontinued Operations:
Net earnings		10			9			40
Net gain on disposal		—			—			38
		10			9			78
Net Earnings	$	2,388		$	3,106		$	2,137
Basic:
Average Common Shares Outstanding		1,942			1,937			1,936
Earnings from Continuing Operations	$	1.23		$	1.60		$	1.07
Discontinued Operations:
Net earnings		—			—			.02
Net gain on disposal		—			—			.02
		—			—			.04
Net Earnings	$	1.23		$	1.60		$	1.11
Diluted:
Average Common Shares Outstanding		1,942			1,937			1,936
Conversion of Convertible Debt Bonds		29			7			—
Incremental Shares Outstanding Assuming the Exercise of Dilutive Stock Options		5			6			6
		1,976			1,950			1,942
Earnings from Continuing Operations	$	1.21	(1)	$	1.59	(1)	$	1.06
Discontinued Operations:
Net earnings		—			—			.02
Net gain on disposal		—			—			.02
		—			—			.04
Net Earnings	$	1.21		$	1.59		$	1.10

Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation because they were not dilutive, were 126 million in 2004, 114 million in 2003, and 121 million in 2002.

⁽¹⁾ Net earnings in 2004 and 2003 include interest expense of $7 million and $1 million, respectively, added back for the assumed conversion of the convertible debt into common shares.

90

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 OTHER EXPENSE, NET

The components of other expense, net are:

	Year Ended December 31,
	2004			2003			2002
	(dollars in millions)
Interest expense	$	310		$	277		$	364
Interest income		(105	)		(65	)		(81	)
Foreign exchange transaction loss, net		5			23			29
Other, net		(158	)		(56	)		(83	)
Other expense, net	$	52		$	179		$	229

In 2004, 2003 and 2002 interest expense was reduced by net interest swap gains of $151 million, $116 million and $23 million, respectively. Interest income relates primarily to cash, cash equivalents and investments in marketable securities. Other income includes income from third-party contract manufacturing, royalty income and gains and losses on disposal of property, plant and equipment.

Note 8 INCOME TAXES

The components of earnings (loss) from continuing operations before minority interest and income taxes were:

	Year Ended December 31,
	2004		2003		2002
	(dollars in millions)
U.S.	$	478	$	899	$	(549	)
Non-U.S.		3,940		3,781		3,297
	$	4,418	$	4,680	$	2,748

The above amounts are categorized based on the location of the taxing authorities.

The provision/(benefit) for income taxes attributable to continuing operations consisted of:

	Year Ended December 31,
	2004		2003		2002
	(dollars in millions)
Current:
U.S.	$	513	$	423	$	218
Non-U.S.		728		538		639
		1,241		961		857
Deferred:
U.S.		264		232		(431	)
Non-U.S.		14		17		(40	)
		278		249		(471	)
	$	1,519	$	1,210	$	386

91

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 INCOME TAXES (Continued)

The Company’s provision for income taxes in 2004, 2003 and 2002 was different from the amount computed by applying the statutory U.S. federal income tax rate to earnings from continuing operations before minority interest and income taxes, as a result of the following:

	% of Earnings Before Minority Interest and Income Taxes
	2004					2003					2002
	(dollars in millions)
Earnings from Continuing Operations Before Minority Interest and Income Taxes	$	4,418				$	4,680				$	2,748
U.S. statutory rate		1,546		35.0	%		1,638		35.0	%		962		35.0	%
Effect of operations in Ireland, Puerto Rico and Switzerland		(660	)	(14.9	)%		(734	)	(15.7	)%		(494	)	(18.0	)%
State and local taxes (net of valuation allowance)		(14	)	(0.3	)%		14		0.3	%		156		5.7	%
Changes in estimate for contingent tax matters		293		6.6	%		197		4.2	%		(104	)	(3.8	)%
Non-deductible reserves		12		0.3	%		88		1.9	%		—		—
Anticipated dividend repatriation under AJCA		575		13.0	%		—		—			—		—
Federal and foreign valuation allowance		142		3.2	%		133		2.8	%		—		—
Foreign and other		(375	)	(8.5	)%		(126	)	(2.7	)%		(134	)	(4.9	)%
	$	1,519		34.4	%	$	1,210		25.8	%	$	386		14.0	%

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was 34.4% in 2004 compared with 25.8% in 2003 and 14.0% in 2002. The higher effective tax rate in 2004 is attributable primarily to a $575 million charge for estimated deferred taxes taken in the fourth quarter in anticipation of repatriating in 2005 approximately $9 billion in special dividends from the Company’s non-U.S. subsidiaries pursuant to the AJCA, an increase in estimates for contingent tax matters in 2004 compared to 2003, and a charge related to the establishment of a valuation allowance against certain charitable contribution carryforwards, partially offset by the favorable resolution of certain tax refund claims, increased foreign tax credits, and in 2003, the effect of certain litigation reserves as non-deductible. The increase in the 2003 effective tax rate over the 2002 effective tax rate is primarily due to the decrease in effective tax rate benefit from operations in Ireland, Puerto Rico and Switzerland, the treatment of provisions for certain litigation reserves as non-deductible, and an increase in estimates for contingent tax matters in 2003 compared to 2002.

The components of current and non-current deferred income tax assets (liabilities) were:

	December 31,
	2004			2003
	(dollars in millions)
Acquired in-process research and development	$	1,156		$	1,253
Intercompany profit and other inventory items		274			360
Foreign tax credit carryforward		801			425
Deferred income		194			88
Alternative minimum tax and research and development credit carryforward		89			76
Charitable contribution carryforward		135			35
State tax net operating loss carryforward		194			191
Foreign net operating loss and credit carryforward		277			193
Postretirement and pension benefits		(213	)		(188	)
Depreciation		(332	)		(316	)
Deferred foreign currency gain/loss		120			121
Anticipated dividend repatriation under AJCA		(575	)		—
Other, net		100			56
		2,220			2,294
Valuation allowance		(507	)		(368	)
Deferred tax assets, net	$	1,713		$	1,926
Recognized as:
Deferred Income Taxes – Current	$	805		$	864
Deferred Income Taxes – Non-Current		1,129			1,234
U.S. and Foreign Income Taxes Payable		18			17
Other Liabilities – Non-Current		203			155
Total	$	1,713		$	1,926

92

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 INCOME TAXES (Continued)

The valuation allowance of $507 million at December 31, 2004 relates to $56 million of foreign and state net deferred tax assets, $334 million of foreign and state net operating loss and tax credit carryforwards, and $117 million of charitable contribution carryforwards that the Company currently believes are not likely to be realized.

Income taxes paid during the year were $822 million, $869 million and $2,491 million in 2004, 2003 and 2002, respectively.

The current tax benefit realized upon the exercise of stock options is charged to capital in excess of par value of stock and amounted to $26 million, $10 million and $45 million in 2004, 2003 and 2002, respectively.

As of December 31, 2004, the Company had approximately $16.9 billion of undistributed earnings of foreign subsidiaries. The Company accrued a provision for $575 million of estimated deferred taxes in the fourth quarter of 2004 in anticipation of repatriating approximately $9 billion of these earnings in 2005 pursuant to the AJCA. The Company’s estimate of the tax cost related to the repatriation may be revised as a result of additional guidance or clarifying language that may be issued by Congress and/or the Department of the Treasury, or any changes in the Company’s factual assumptions that may occur. Taxes were not provided on the balance of undistributed earnings of approximately $7.9 billion, as the Company has invested or expects to invest these undistributed earnings permanently offshore. If in the future these earnings are repatriated to the United States, or if the Company determines such earnings will be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided.

The Company has settled its U.S. federal income tax returns with the Internal Revenue Service (IRS) through 1997.

The Company establishes liabilities for possible assessments by taxing authorities resulting from known tax exposures including, but not limited to, transfer pricing, certain tax credits, and various state and foreign tax matters. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. As of December 31, 2004, there are certain tax contingencies for which no liabilities have been established. Although the Company cannot reasonably estimate the possible amount of any such contingency, it is possible that such contingencies could be material. The effect of changes in estimates related to contingent tax matters is included in the rate reconciliation above. During the year ended December 31, 2002, the Company recognized an income tax benefit of $261 million due to the settlement of certain prior year tax matters and the determination by the Company as to the expected settlement of tax litigation.

In 2002, the Company reorganized the structure of its ownership of many of its non-U.S. subsidiaries. The principal purpose of the reorganization was to facilitate the Company’s ability to efficiently deploy its financial resources outside the United States. The Company believes that the reorganization transactions were generally tax-free both inside and outside the United States. It is possible, however, that taxing authorities in particular jurisdictions could assert tax liabilities arising from the reorganization transactions or the operations of the reorganized subsidiaries. It is not reasonably possible to predict whether any taxing authority will assert such a tax liability or to reasonably estimate the possible loss or range of loss with respect to any such asserted tax liability. The Company would vigorously challenge any such assertion and believes that it would prevail but there can be no assurance of such a result. If the Company were not to prevail in final, non-appealable determinations, it is possible the impact could be material.

Note 9 RECEIVABLES

The major categories of receivables follow:

	December 31,
	2004		2003
	(dollars in millions)
Trade receivables	$	3,350	$	3,011
Miscellaneous receivables		1,201		803
		4,551		3,814
Less allowances		178		154
Receivables, net	$	4,373	$	3,660

93

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 INVENTORIES

The major categories of inventories follow:

	December 31,
	2004		2003
	(dollars in millions)
Finished goods	$	1,097	$	1,005
Work in process		458		416
Raw and packaging materials		275		180
Inventories, net	$	1,830	$	1,601

Note 11 CONSIGNMENT

Through 2002, the Company experienced a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business resulting from sales incentives offered by the Company to its wholesalers. In October 2002, the Company determined that it was required to restate its sales and earnings to correct errors in timing of revenue recognition for certain sales made to two of the largest wholesalers of the U.S. pharmaceuticals business. The Company determined that these sales should be accounted for under the consignment model as described under “-Note 1, Accounting Policies-Revenue Recognition,” based in part on the relationship between the amount and nature of incentives offered to these wholesalers and the amount of inventory held by these wholesalers. Under the consignment model, these transactions resulted in deferred revenue of $12 million as of December 31, 2003. There were no deferred revenue as of December 31, 2004 as inventory accounted for using the consignment model was fully worked down. The Company recognized approximately $10 million, $321 million and $1,397 million of deferred revenue as net sales in 2004, 2003 and 2002, respectively, net of rebates, returns and adjustments.

Note 12 PROPERTY, PLANT AND EQUIPMENT

The major categories of property, plant and equipment follow:

	December 31,
	2004		2003
	(dollars in millions)
Land	$	266	$	241
Buildings		4,497		3,917
Machinery, equipment and fixtures		4,686		4,197
Construction in progress		560		1,087
		10,009		9,442
Less accumulated depreciation		4,244		3,730
Property, plant and equipment, net	$	5,765	$	5,712

Capitalized interest is included in the categories of property, plant and equipment shown above. The Company capitalized interest of $10 million, $35 million and $16 million in the years ended December 31, 2004, 2003 and 2002, respectively.

Note 13 GOODWILL

The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 were as follows:

	Pharmaceuticals Segment		Nutritionals Segment			Other Healthcare Segment		Discontinued Operations		Total
	(dollars in millions)
Balance as of December 31, 2002 and 2003	$	4,448	$	118		$	190	$	80	$	4,836
Purchase accounting adjustments:
Reduction due to Sale of Adult Nutritional Business		—		(5	)		—		—		(5	)
Purchase price and allocation adjustments		—		—			74		—		74
Balance as of December 31, 2004	$	4,448	$	113		$	264	$	80	$	4,905

94

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 OTHER INTANGIBLE ASSETS

Intangible assets by major asset class were as follows:

	December 31,
	2004		2003
	(dollars in millions)
Patents/Trademarks	$	278	$	253
Licenses		523		248
Technology		1,787		1,783
		2,588		2,284
Less accumulated amortization		722		552
Net carrying amount	$	1,866	$	1,732

Amortization expense for other intangible assets (the majority of which is included in costs of products sold) for the years ended December 31, 2004, 2003 and 2002 was $226 million, $227 million and $269 million, respectively.

Expected amortization expense related to the current net carrying amount of other intangible assets follows:

Years Ending December 31,	(dollars in millions)
2005	$	236
2006		237
2007		234
2008		225
2009		220
Later Years		714

Note 15 SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Included in short-term borrowings were amounts due to foreign banks of $92 million and $114 million, and current installments of long-term debt of $126 million and $13 million, at December 31, 2004 and 2003, respectively. U.S. short-term borrowings, which primarily consist of commercial paper, was $1,665 million at December 31, 2004, with an average interest rate of 2.3%. There was no U.S. commercial paper outstanding at December 31, 2003. The proceeds from the commercial paper issuance in 2004 was used for general corporate purposes. The average interest rates on international short-term borrowings and on current installments of long-term debt outstanding at December 31, 2004 were 9.3% and 2.8%, respectively, compared with 8.0% and 1.3%, respectively, at December 31, 2003.

In December 2004, the Company replaced its prior $1 billion revolving credit facilities with a new $2 billion five year revolving credit facility from a syndicate of lenders, which is extendable on the anniversary date with the consent of the lenders. This facility contains a financial covenant whereby the ratio of consolidated debt to consolidated capital cannot exceed 50%. The Company has been in compliance with this covenant since the inception of the new facility. There were no borrowings outstanding under the revolving credit facilities at December 31, 2004 and 2003. The Company had unused short-term lines of credit with foreign banks of $158 million and $363 million at December 31, 2004 and 2003, respectively.

95

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15 SHORT-TERM BORROWINGS AND LONG-TERM DEBT (Continued)

The components of long-term debt were as follows:

	December 31,
	2004		2003
	(dollars in millions)
4.75% Notes, due in 2006	$	2,507	$	2,544
5.75% Notes, due in 2011		2,488		2,459
Floating Rate Convertible Debentures, due 2023(1)		1,183		1,179
5.25% Notes, due 2013		610		600
4.00% Notes, due 2008		396		399
6.80% Debentures, due in 2026		367		345
7.15% Debentures, due in 2023		365		344
6.88% Debentures, due in 2097		296		296
1.10% Yen Notes, due 2008		120		114
2.14% Yen Notes, due in 2005		—		60
3.51% Euro Interest on Yen Principal Term Loan, due in 2005		—		55
5.75% Industrial Revenue Bonds, due in 2024		34		34
1.43% Yen Notes, due 2008		34		32
1.81% Yen Notes, due 2010		34		32
Variable Rate Industrial Revenue Bonds, due in 2030		15		15
Other		14		14
	$	8,463	$	8,522

⁽¹⁾ The Company’s outstanding $1.2 billion of convertible debentures pay interest quarterly at an annual rate equal to 3-month LIBOR, reset quarterly, minus 0.50% (the yield never to be less than zero) and have a final maturity of September 15, 2023. The debentures are callable at par at any time on or after September 21, 2008 by the issuer. Holders can also redeem some or all of their debentures at par on September 15, 2008, 2013, and 2018, or if a fundamental change in ownership of the Company occurs. The bond has an initial conversion price of $41.28, or a conversion rate of 24.2248 shares, which will be adjustable depending on the average closing prices for the applicable period. The maximum conversion rate is 38.7597 shares.

The Company has entered into fixed to floating interest rate swaps for $6.2 billion of its long-term debt. Cash payments for interest were $354 million, $290 million and $375 million in 2004, 2003 and 2002, respectively.

	Payments due by period
	Total		2005		2006		2007		2008		2009		Later Years
	(dollars in millions)
Long-Term Debt(2)	$	8,463	$	—	$	2,512	$	2	$	1,735	$	1	$	4,213

⁽²⁾ 2005 obligations are included in short-term borrowings on the Company’s consolidated balance sheet and all balances represent the outstanding nominal long-term debt values. The Company’s convertible debenture is included as due for payment in 2008, as it contains a 2008 put and call feature as described above.

At December 31, 2004, the Company had provided financial guarantees in the form of stand-by letters of credit and performance bonds. The majority of the stand-by letters of credit are with insurance companies in support of third-party liability programs. The performance bonds relate to the sale of Company product to various foreign ministries of health in the Middle East. The Company believes the significant majority of these guarantees will expire without being funded. The amounts of these obligations are presented in the following table:

	Expiration Period
	Total		Less than 1 year		1 to 2 years
	(dollars in millions)
Stand-by letters of credit	$	61	$	61	$	—
Performance bonds and guarantees		3		3		—
Total other commercial commitments	$	64	$	64	$	—

96

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16 STOCKHOLDERS’ EQUITY

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

	Common Shares Issued	Treasury Shares		Cost of Treasury Stock			Capital in Excess of Par Value of Stock			Restricted Stock
	(dollars and shares in millions)
Balance at December 31, 2001	2,200	264		$	(11,389	)	$	2,403		$	(50	)
Issued pursuant to stock plans and options	1	(5	)		60			90			(30	)
Amortization of restricted stock	—	—			—			—			16
Lapses and forfeitures of restricted stock	—	—			(10	)		(2	)		12
Purchases	—	5			(163	)		—			—
Balance at December 31, 2002	2,201	264			(11,502	)		2,491			(52	)
Issued pursuant to stock plans and options	—	(3	)		64			(14	)		(23	)
Amortization of restricted stock	—	—			—			—			18
Lapses and forfeitures of restricted stock	—	—			(2	)		—			2
Balance at December 31, 2003	2,201	261			(11,440	)		2,477			(55	)
Issued pursuant to stock plans and options	1	(6	)		137			12			(32	)
Amortization of restricted stock	—	—			—			—			24
Lapses and forfeitures of restricted stock	—	—			(8	)		2			6
Balance at December 31, 2004	2,202	255		$	(11,311	)	$	2,491		$	(57	)

Each share of the Company’s preferred stock is convertible into 16.96 shares of common stock and is callable at the Company’s option. The reductions in the number of issued shares of preferred stock in 2004, 2003, and 2002 were due to conversions into shares of common stock.

Dividends declared per common share were $1.12 in 2004, $1.12 in 2003 and $1.12 in 2002.

The accumulated balances related to each component of other comprehensive income (loss) were as follows:

	Foreign Currency Translation			Deferred Loss on Effective Hedges			Minimum Pension Liability Adjustment			Available for Sale Securities			Accumulated Other Comprehensive Income/(Loss)
	(dollars in millions)
Balance at December 31, 2001	$	(885	)	$	(62	)	$	(5	)	$	—		$	(952	)
Other comprehensive income (loss)		161			(25	)		(89	)		1			48
Balance at December 31, 2002		(724	)		(87	)		(94	)		1			(904	)
Other comprehensive income (loss)		233			(171	)		(36	)		23			49
Balance at December 31, 2003		(491	)		(258	)		(130	)		24			(855	)
Other comprehensive income (loss)		208			(51	)		(93	)		(1	)		63
Balance at December 31, 2004	$	(283	)	$	(309	)	$	(223	)	$	23		$	(792	)

Stock Compensation Plans

Under the Company’s 2002 Stock Incentive Plan, executive officers and key employees may be granted options to purchase the Company’s common stock at no less than 100% of the market price on the date the option is granted. Options generally become exercisable in installments of 25% per year on each of the first through the fourth anniversaries of the grant date and have a maximum term of 10 years. Additionally, the plan provides for the granting of stock appreciation rights whereby the grantee may surrender exercisable rights and receive common stock and/or cash measured by the excess of the market price of the common stock over the option exercise price.

Under the terms of the 2002 Stock Incentive Plan, authorized shares include 0.9% of the outstanding shares per year through 2007, as well as the number of shares tendered in a prior year to pay the purchase price of options and the number of shares previously utilized to satisfy withholding tax obligations upon exercise. Shares which were available for grant in a prior year but were not granted in such year and shares which were cancelled, forfeited or expired are also available for future grant.

        The 2002 Stock Incentive Plan provides for the granting of common stock to key employees, subject to restrictions as to continuous employment. Restrictions generally expire over a five-year period from date of grant. Compensation expense is

97

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16 STOCKHOLDERS’ EQUITY (Continued)

recognized over the restricted period. At December 31, 2004 and 2003, there were 2.9 million and 2.3 million shares of restricted stock outstanding under the plan, respectively. In 2004, 1.2 million shares of restricted stock were granted with a fair value of $27.64.

The 2002 Stock Incentive Plan also incorporates the Company’s long-term performance awards. These awards, which are delivered in the form of a target number of performance shares, have a three-year cycle. For 2004 to 2006, the awards will be based 50% on EPS growth, 50% on sales growth, with the ultimate payout modified by the Company’s total stockholder return versus the eleven companies in its proxy peer group. If threshold targets are not met for the performance period, no payment will be made under the long-term performance award plan. Maximum performance for all three measures will result in a maximum payout of 253% of target. At December 31, 2004 and 2003, there were 0.9 million and 0.6 million performance shares outstanding under the plan, respectively. In 2004, 0.5 million performance shares were granted with a fair value of $28.11.

Under the TeamShare Stock Option Plan, full-time employees, excluding key executives, are granted options to purchase the Company’s common stock at the market price on the date the options are granted. The Company has authorized 66 million shares for issuance under the plan. Individual grants generally become exercisable evenly on the third, fourth, and fifth anniversary of the grant date and have a maximum term of 10 years. Options on 32.9 million shares have been exercised under the plan as of December 31, 2004.

The fair value of the options granted during 2004, 2003 and 2002 was estimated as $5.91 per common share, $5.15 per common share and $11.12 per common share, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2004		2003		2002
Dividend yield	4.4	%	4.0	%	3.0	%
Volatility	30.0	%	29.7	%	31.3	%
Risk-free interest rate	3.5	%	3.5	%	5.0	%
Expected life (years)	7		7		7

Stock option transactions were:

	Shares of Common Stock				Weighted Average Exercise Price of Shares
	Available for Option Award		Issued Under Plan
	(Shares in millions)
Balance at December 31, 2001	31		129		$	42.19
Authorized	22		—			—
Granted	(40	)	40			37.55
Exercised	—		(7	)		21.64
Lapsed	13		(13	)		51.44
Balance at December 31, 2002	26		149		$	41.20
Authorized	19		—			—
Granted	(22	)	22			23.19
Exercised	—		(4	)		13.76
Lapsed	6		(6	)		43.62
Balance at December 31, 2003	29		161		$	39.24
Authorized	18		—			—
Granted	(20	)	20			27.88
Exercised	—		(7	)		14.56
Lapsed	11		(11	)		40.69
Balance at December 31, 2004	38		163		$	38.87

98

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16 STOCKHOLDERS’ EQUITY (Continued)

The following tables summarize information concerning the Company’s stock compensation plans and currently outstanding and exercisable options:

Plan Category	Number of securities to be issued upon exercise of outstanding options and rights (a)	Weighted average exercise price of outstanding options and rights (b)		Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) (c)
	(Shares in millions)			(Shares in millions)
Equity compensation plans approved by security holders	136	$	38.82	30
Equity compensation plans not approved by security holders	27		39.11	8
	163	$	38.87	38

Range of Exercise Prices	Number Outstanding	Options Outstanding			Options Exercisable
		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
	(Shares in millions)	(in years)			(Shares in millions)
$10 — $20	7	0.16	$	14.75	7	$	14.75
$20 — $30	68	7.07		25.78	20		23.23
$30 — $40	9	2.21		32.39	9		32.40
$40 — $50	45	4.86		47.01	38		46.86
$50 — $60	15	6.01		58.06	10		58.27
$60 and up	19	4.48		63.33	16		63.34
	163				100

At December 31, 2004, 288 million shares of common stock were reserved for issuance pursuant to stock plans, options and conversions of preferred stock. Options related to discontinued operations included in the above amounts are not material.

Note 17 FINANCIAL INSTRUMENTS

The Company is exposed to market risk due to changes in currency exchange rates and interest rates. Accordingly, the Company utilizes foreign exchange option and forward contracts to offset the effect of exchange rate fluctuations on anticipated foreign currency transactions, primarily intercompany inventory purchases expected to occur within the next two years.

The Company had exposures to net foreign currency denominated assets and liabilities, which approximated $2,264 million and $1,932 million at December 31, 2004 and 2003, respectively, primarily in Europe, Japan, Mexico and Canada.

Foreign exchange option contracts and forward contracts are used to hedge anticipated transactions. The Company’s primary foreign currency exposures in relation to the U.S. dollar are the euro, Canadian dollar, Australian dollar and Japanese yen. The notional amounts of the Company’s foreign exchange derivative contracts at December 31, 2004 and 2003, were $3,461 million and $2,488 million, respectively. For these derivatives, in which the majority qualify as hedges of future anticipated cash flows, the effective portion of changes in fair value is temporarily deferred in other comprehensive income (OCI) and then recognized in earnings when the hedged item affects earnings.

SFAS No. 133 requires that the Company perform periodic assessments of hedge effectiveness. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of fair value can no longer be deferred in OCI and is included in current period earnings. For the year ended December 31, 2004, the Company recognized a loss due to ineffective contracts of $4 million. The fair value of option and forward contracts were liabilities of $362 million and $265 million, at December 31, 2004 and 2003, respectively and was recorded in other assets and accrued liabilities at December 31, 2004 and 2003. The fair value of all foreign exchange contracts is based on year-end currency rates (and the Black-Scholes model in the case of option contracts).

In addition to the foreign exchange hedge contracts noted above, the Company also uses foreign exchange forward contracts to hedge foreign currency denominated monetary assets and liabilities. The primary objective of these foreign exchange forward contracts is to protect the U.S. dollar value of foreign currency denominated monetary assets and liabilities from the effects of

99

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 17 FINANCIAL INSTRUMENTS (Continued)

volatility in foreign exchange that might occur prior to their receipt or settlement in U.S. dollars. These foreign currency denominated monetary assets and liabilities are primarily denominated in Japanese yen and euro. The forward contracts are not designated as hedges and are marked to market through other income/expense. The notional and fair value amount of these foreign exchange forward contracts at December 31, 2004 is $325 million and $6 million, respectively.

The Company uses derivative instruments as part of its interest rate risk management policy. The derivative instruments used comprised principally of fixed to floating rate interest rate swaps, which are subject to fair-value hedge accounting treatment. During 2004 and 2003, the Company entered into several fixed to floating interest rate swap contracts with several financial institutions. The notional amounts of these swaps were $6.2 billion and $5.5 billion as of December 31, 2004 and 2003, respectively. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company recognized a net reduction in interest expense of $151 million, $116 million and $23 million in 2004, 2003 and 2002, respectively, that reflects the benefit of the lower floating rate obtained in the swap as compared to the fixed rate of the underlying debt. The swap contracts as well as the underlying debt being hedged are recorded at fair value, which resulted in an increase in non-current assets of $76 million, short-term liabilities of $1 million and long-term debt of $75 million, and an increase in non-current assets and long-term debt of $40 million at December 31, 2004 and 2003, respectively. Swap contracts are generally held to maturity and the Company does not use derivative financial instruments for speculative purposes.

During 2004, 2003 and 2002, the Company reclassified deferred losses of $234 million, $223 million and $71 million, respectively, from other comprehensive income to earnings, the majority of which was classified as cost of products sold.

The carrying amount of the Company’s other financial instruments, which includes cash, cash equivalents, marketable securities, accounts receivable and accounts payable, approximates their fair value at December 31, 2004 and 2003. For long-term debt (other than noted above) the difference between the fair value and carrying value is not material.

Note 18 SEGMENT INFORMATION

The Company is organized as a pharmaceutical company with related healthcare businesses and has three reportable segments—Pharmaceuticals, Nutritionals and Other Healthcare. The Pharmaceuticals segment is comprised of the global pharmaceutical and international (excluding Japan) consumer medicines businesses. The Nutritionals segment consists of Mead Johnson, primarily an infant formula business. The Other Healthcare segment consists of the ConvaTec, Medical Imaging, and Consumer Medicines (United States and Japan) businesses.

The Company’s products are sold principally to the wholesale and retail trade, both nationally and internationally. Certain products are also sold to other drug manufacturers, hospitals, clinics, government agencies and the medical profession. Three wholesalers accounted for approximately 19%, 17% and 10%, respectively, of the Company’s total net sales in 2004. In 2003 sales to these wholesalers accounted for 17%, 15% and 13%, respectively of the Company’s total net sales. In 2002, the same three wholesalers each accounted for approximately 16%, 15% and 16%, respectively of the Company’s total net sales. These sales were concentrated in the Pharmaceuticals segment.

Business Segments

	Net Sales						Earnings Before Minority Interest and Income Taxes									Year-end Assets
	2004		2003		2002		2004			2003			2002			2004		2003
	(dollars in millions)
Pharmaceuticals	$	15,482	$	14,925	$	12,814	$	4,257		$	4,369		$	3,187		$	12,436	$	11,531
Nutritionals		2,001		2,023		1,821		586			542			486			1,055		1,037
Other Healthcare		1,897		1,705		1,573		573			408			427			1,368		1,242
Total segments		19,380		18,653		16,208		5,416			5,319			4,100			14,859		13,810
Corporate/Other		—		—		—		(998	)		(639	)		(1,352	)		15,576		13,638
Total	$	19,380	$	18,653	$	16,208	$	4,418		$	4,680		$	2,748		$	30,435	$	27,448

100

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 18 SEGMENT INFORMATION (Continued)

Corporate/Other consists principally of interest income, interest expense, certain administrative expenses and allocations to the business segments of certain corporate programs. Corporate/Other also includes the gain on sales of businesses/product lines of $320 million and $30 million in 2004 and 2002, respectively; accelerated depreciation of $69 million in 2002; termination benefits and other exit costs of $97 million, $50 million and $109 million in 2004, 2003 and 2002, respectively; asset write-down and impairment charges of $3 million and $53 million in 2003 and 2002, respectively; upfront and milestone payments for licensing agreements of $55 million and $66 million in 2004 and 2003, respectively; litigation charges, net, of $507 million, $220 million and $659 million in 2004, 2003 and 2002, respectively; and an acquired in-process research and development charge of $63 million in 2004. 2002 also includes a $379 million asset impairment charge for ImClone.

The Pharmaceuticals segment in 2004 includes accelerated depreciation of $107 million for certain manufacturing facilities in North America expected to be closed by 2006, relocation of $7 million and retention of $1 million. In 2003, Pharmaceuticals includes a litigation settlement income of $21 million, an upfront payment for a licensing agreement of $36 million, $53 million of accelerated depreciation of assets in manufacturing facilities in North America expected to be closed by the end of 2006, $11 million charge for asset impairment, $13 million charge for relocation expenses and $2 million charge for retention bonus benefits. Additionally, in 2002, the Pharmaceuticals segment includes a charge for acquired in-process research and development of $169 million.

Corporate/Other assets include cash and cash equivalents, marketable securities, goodwill, assets of OTN held available for sale and certain other assets.

	Capital Expenditures						Depreciation
	2004		2003		2002		2004		2003		2002
	(dollars in millions)
Pharmaceuticals	$	455	$	678	$	878	$	474	$	391	$	312
Nutritionals		55		50		72		48		39		45
Other Healthcare		27		23		25		22		19		17
Total segments		537		751		975		544		449		374
Corporate/Other		49		74		61		49		42		53
Total	$	586	$	825	$	1,036	$	593	$	491	$	427

Geographic Areas

	Net Sales						Year-end Assets
	2004		2003		2002		2004		2003
	(dollars in millions)
United States	$	10,613	$	10,656	$	9,450	$	15,727	$	15,593
Europe, Middle East and Africa		5,470		4,985		4,041		5,920		5,001
Other Western Hemisphere		1,425		1,333		1,215		7,228		5,711
Pacific		1,872		1,679		1,502		1,560		1,143
Total	$	19,380	$	18,653	$	16,208	$	30,435	$	27,448

101

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 19 LEASES

Minimum rental commitments under all non-cancelable operating leases, primarily real estate and motor vehicles, in effect at December 31, 2004, were:

Years Ending December 31,	(dollars in millions)
2005	$	123
2006		99
2007		78
2008		65
2009		62
Later years		58
Total minimum payments		485
Less total minimum sublease rentals		69
Net minimum rental commitments	$	416

Operating lease rental expense (net of sublease rental income of $13 million in 2004, $11 million in 2003 and $25 million in 2002) was $149 million in 2004, $137 million in 2003 and $95 million in 2002.

Note 20 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company and certain of its subsidiaries have defined benefit pension plans and defined contribution plans for regular full-time employees. The principal pension plan is the Bristol-Myers Squibb Retirement Income Plan. The funding policy is to contribute amounts to provide for current service and to fund past service liability. Plan benefits are based primarily on years of credited service and on the participant’s compensation. Plan assets consist principally of equity and fixed-income securities.

The Company also provides comprehensive medical and group life benefits for substantially all U.S. retirees who elect to participate in its comprehensive medical and group life plans. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement and the original retiring Company. The life insurance plan is noncontributory. Plan assets consist principally of equity and fixed-income securities. Similar plans exist for employees in certain countries outside of the United States.

Cost of the Company’s deferred benefits and postretirement benefit plans included the following components:

	Pension Benefits									Other Benefits
	2004			2003			2002			2004			2003			2002
	(dollars in millions)
Service cost — benefits earned during the year	$	180		$	144		$	143		$	8		$	8		$	10
Interest cost on projected benefit obligation		295			275			275			37			46			46
Expected return on plan assets		(355	)		(353	)		(402	)		(18	)		(15	)		(19	)
Net amortization and deferral		157			71			21			—			7			2
Net periodic benefit cost		277			137			37			27			46			39
Curtailments and settlements		(1	)		(1	)		(3	)		—			—			—
Total net periodic benefit cost	$	276		$	136		$	34		$	27		$	46		$	39

The Company has recognized the impact of the Medicare Prescription Drug Improvement and Modernization Act of 2003 in 2004, and in accordance with FSP No. 106-2, recorded $8 million as a reduction in net periodic benefit cost.

Changes in benefit obligations and plan assets for December 31, 2004 and 2003, for the Company’s defined benefit and postretirement benefit plans, were:

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Note 20 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

	Pension Benefits						Other Benefits
	2004			2003			2004			2003
	(dollars in millions)
Benefit obligation at beginning of year	$	4,755		$	4,172		$	758		$	717
Service cost—benefits earned during the year		180			144			8			8
Interest cost on projected benefit obligation		295			275			37			46
Plan participants’ contributions		3			3			6			4
Curtailments and settlements		(3	)		(3	)		—			—
Actuarial (gain)/loss		533			382			(78	)		59
Plan amendments		(4	)		38			(17	)		(13	)
Benefits paid		(399	)		(344	)		(68	)		(65	)
Exchange rate losses		121			88			—			2
Benefit obligation at end of year	$	5,481		$	4,755		$	646		$	758
Fair value of plan assets at beginning of year	$	4,085		$	3,318		$	205		$	164
Actual return on plan assets		456			707			25			41
Employer contribution		367			332			62			61
Plan participants’ contributions		3			3			6			4
Settlements		—			(3	)		—			—
Transfer in/(out)		(3	)		1			—			—
Benefits paid		(399	)		(344	)		(68	)		(65	)
Exchange rate gains		93			71			—			—
Fair value of plan assets at end of year	$	4,602		$	4,085		$	230		$	205
Funded status	$	(879	)	$	(670	)	$	(416	)	$	(553	)
Unamortized net obligation at adoption		3			10			—			—
Unrecognized prior service cost		74			94			(31	)		(16	)
Unrecognized net actuarial loss		2,017			1,676			103			188
Net amount recognized	$	1,215		$	1,110		$	(344	)	$	(381	)
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost	$	1,272		$	1,279		$	—		$	—
Accrued benefit cost		(406	)		(372	)		(344	)		(381	)
Intangible assets		3			10			—			—
Accumulated other comprehensive income		346			193			—			—
Net amount recognized	$	1,215		$	1,110		$	(344	)	$	(381	)

Several plans had underfunded accrued benefit obligations that exceeded their accrued benefit liabilities at December 31, 2004 and 2003. Additional minimum liabilities were established to increase the accrued benefit liabilities to the values of the underfunded accrued benefit obligations. These liabilities totaled $349 million and $203 million at December 31, 2004 and 2003, respectively, for a U.S. unfunded benefit equalization plan and several international plans. The additional minimum liability was offset by intangible assets of $3 million and $10 million and charges to other comprehensive income included in stockholder’s equity of $346 million and $193 million at December 31, 2004 and 2003, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $4,828 million and $4,154 million at December 31, 2004 and 2003, respectively.

Information for pension plans with accumulated benefit obligations in excess of plan assets was:

	December 31,
	2004		2003
	(dollars in millions)
Projected benefit obligation	$	1,313	$	918
Accumulated benefit obligation		1,139		791
Fair value of plan assets		742		427

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Note 20 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

This is attributable primarily to an unfunded U.S. benefit equalization plan and several plans in the international markets. The unfunded U.S. benefit equalization plan provides pension benefits for employees with compensation above IRS limits and cannot be funded in a tax-advantaged manner.

Additional information pertaining to the Company’s pension and postretirement plans:

	Pension Benefits						Other Benefits
	2004		2003		2002		2004		2003		2002
	(dollars in millions)
Increase in minimum liability, including the impact of foreign currency fluctuations, included in other comprehensive income	$	153	$	53	$	132	$	—	$	—	$	—

Weighted-average assumptions used to determine benefit obligations at December 31, were:

	Pension Benefits				Other Benefits
	2004		2003		2004		2003
Discount rate	5.57	%	6.08	%	5.52	%	6.01	%
Rate of compensation increase	3.59	%	3.57	%	3.59	%	3.58	%

Weighted-average actuarial assumptions used to determine net periodic benefit cost for the years ended December 31, were:

	Pension Benefits						Other Benefits
	2004		2003		2002		2004		2003		2002
Discount rate	6.08	%	6.56	%	7.02	%	6.01	%	6.75	%	7.23	%
Expected long-term return on plan assets	8.73	%	8.81	%	9.74	%	9.00	%	9.00	%	10.00	%
Rate of compensation increase	3.57	%	3.33	%	3.59	%	3.58	%	3.29	%	3.57	%

At December 31, 2004, the Company’s expected long-term rate of return on U.S. pension plan assets is 9%. The target asset allocation is 70% public equity (58% U.S., 12% international), 8% private equity and 22% fixed income. The 9% is approximated by applying expected returns of 9% on public equity, 15% on private equity and 6% on fixed income to the target allocation. The actual historical returns are also relevant. Annualized returns for periods ended December 31, 2004 were 10.8% for 10 years, 10.0% for 15 years and 11.2% for 20 years.

U.S. pension plan assets represented approximately 83% of total Company pension plan assets at December 31, 2003. The 8.73% disclosed above for total Company expected return on assets for 2004 is below the 9.0% for U.S. pension plans due to the impact of international pension plans, which typically employ a less aggressive asset allocation.

A 9% expected return is disclosed for Other Benefits in 2004 because the relevant assets are invested in the same manner as U.S. pension plan assets and there are no international plan assets.

Assumed health care cost trend rates at December 31 were:

	2004		2003		2002
Health care cost trend rate assumed for next year	8.93	%	9.96	%	10.88	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.51	%	4.50	%	4.48	%
Year that the rate reaches the ultimate trend rate	2012		2010		2010

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Note 20 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Assumed health care cost trend rates do have an effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost	$	2	$	(2	)
Effect on postretirement benefit obligation		31		(27	)

The Company’s asset allocation for pension and postretirement benefits at December 31, 2004 and 2003, were:

	Pension Benefits				Other Benefits
	2004		2003		2004		2003
Public equity securities	68.9	%	69.7	%	69.9	%	70.7	%
Debt securities (including cash)	25.5		25.1		23.4		23.1
Private equity	5.2		5.0		6.5		6.0
Other	0.4		0.2		0.2		0.2
Total	100.0	%	100.0	%	100.0	%	100.0	%

The Company’s investment strategy emphasizes equities in order to achieve high expected returns and, in the long run, low expense and low required cash contributions. For the U.S. pension plans, a target asset allocation of 70% public equity (58% U.S., 12% international), 8% private equity and 22% fixed income is maintained and cash flow (i.e., cash contributions, benefit payments) are used to rebalance back to the targets as necessary. Investments are very well diversified within each of the three major asset categories. About 40% of the U.S. equity is passively managed. Otherwise, all investments are actively managed.

Investment strategies for international pension plans are typically similar, although the asset allocations are usually more conservative.

Bristol–Myers Squibb Company common stock represents less than 1% of the plan assets at December 31, 2004 and 2003.

Assets for postretirement benefits are commingled with U.S. pension plan assets and, therefore, the investment strategy is identical to that described above for U.S. pension plans.

Contributions

Although no minimum contributions will be required, the Company plans to make cash contributions to the U.S. pension plans in 2005.

When contributions are made to the U.S. pension plans, the Company may make tax-deductible contributions to the 401(h) account for retiree medical benefits equal to a portion of the pension normal cost.

Contributions to the international pension plans are now expected to be in the $70 to $90 million range.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

			Other Benefits
	Pension Benefits		Gross		Medicare Subsidy		Net
	(dollars in millions)
2005	$	252	$	61	$	—	$	61
2006		267		61		5		56
2007		289		60		5		55
2008		308		59		5		54
2009		327		58		5		53
Years 2010 – 2014		1,997		280		23		257

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Note 20 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Savings Plan

The principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program. The Company’s contribution is based on employee contributions and the level of Company match. The Company’s contributions to the plan were $53 million in 2004, $51 million in 2003 and $50 million in 2002.

Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES

Legal Proceedings and Contingencies

Various lawsuits, claims, proceedings and investigations are pending against the Company and certain of its subsidiaries. In accordance with SFAS No. 5, Accounting for Contingencies, the Company records 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 antitrust, securities, patent infringement, the Employee Retirement Income Security Act of 1974, as amended (ERISA), pricing, sales and marketing practices, environmental, health and safety matters, product liability and insurance coverage. The most significant of these matters are described below. There can be no assurance that there will not be an increase in the scope of these matters or that any future lawsuits, claims, proceedings or investigations will not be material. Management continues to believe, as previously disclosed, that during the next few years, the aggregate impact, beyond current reserves, of these and other legal matters affecting the Company is reasonably likely to be material to the Company’s results of operations and cash flows, and may be material to its financial condition and liquidity.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. As a result of external factors, the availability of insurance has become more restrictive while the cost has increased significantly. The Company has evaluated its risks and has determined that the cost of obtaining insurance outweighs the benefits of coverage protection against losses and as such, is self-insured for product liabilities effective July 1, 2004. The Company will continue to evaluate these risks and benefits to determine its insurance needs in the future.

PLAVIX* Litigation

United States

The Company’s U.S. territory partnership under its alliance with Sanofi is a plaintiff in three pending patent infringement lawsuits instituted in the U.S. District Court for the Southern District of New York entitled Sanofi-Synthelabo, Sanofi-Synthelabo Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Apotex Inc. and Apotex Corp., 02-CV-2255 (SHS); Sanofi-Synthelabo, Sanofi-Synthelabo Inc. and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Dr. Reddy’s Laboratories, LTD, and Dr. Reddy’s Laboratories, Inc., 02-CV-3672 (SHS); and Sanofi-Synthelabo, Sanofi-Synthelabo Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership vs. Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals Industries, Ltd., 04-CV-7458. Teva Pharmaceuticals Industries, Ltd. has since been dismissed from the case. Proceedings involving PLAVIX* also have been instituted outside the United States. The most significant of these proceedings is pending in Canada and is described below.

The U.S. suits were filed on March 21, 2002, May 14, 2002, and September 23, 2004 respectively, and were based on U.S. Patent No. 4,847,265, a composition of matter patent, which discloses and claims, among other things, the hydrogen sulfate salt of clopidogrel, which is marketed as PLAVIX*. The first two suits were also based on U.S. Patent No. 5,576,328, which discloses and claims, among other things, the use of clopidogrel to prevent a secondary ischemic event. The plaintiffs later withdrew Patent No. 5,576,328 from the two lawsuits. Plaintiffs’ infringement position is based on defendants’ filing of their Abbreviated New Drug Applications (ANDA) with the FDA, seeking approval to sell generic clopidogrel bisulfate prior to the expiration of the composition of matter patent in 2011. The defendants responded by alleging that the patent is invalid and/or unenforceable. Apotex has added antitrust counterclaims. The first two cases were consolidated for discovery. Fact discovery closed on October 15, 2003 and expert discovery was completed in November 2004; the trial could occur as early as the second quarter of 2005, although it may occur later. Discovery has not yet commenced in the third action.

The Company’s U.S. territory partnership under its alliance with Sanofi is a plaintiff in another pending patent infringement lawsuit instituted in the U.S. District Court for the District of New Jersey entitled Sanofi-Synthelabo, Sanofi-Synthelabo Inc. and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Watson Pharmaceuticals, Inc. and Watson Laboratories, Inc. 2:04-CV-4926. The suit was filed October 7, 2004 and was based on U.S. patent 6,429,210, which discloses and claims a particular crystalline or polymorph form of the hydrogen sulfate salt of clopidogrel, which is marketed as PLAVIX*. The case is in early stages and discovery has not yet begun.

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Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

PLAVIX* is currently the Company’s largest product ranked by net sales. Net sales of PLAVIX* were approximately $3.3 billion and $2.5 billion for the years ended December 31, 2004 and 2003, respectively.

Currently, the Company expects PLAVIX* to have market exclusivity in the United States until 2011. If the composition of matter patent for PLAVIX* is found not infringed, invalid and/or unenforceable at the district court level, the FDA could then approve the defendants’ ANDAs to sell generic clopidogrel, and generic competition for PLAVIX* could begin before the Company has exhausted its appeals. Such generic competition would likely result in substantial decreases in the sales of PLAVIX* in the United States.

Although the plaintiffs intend to vigorously pursue enforcement of their patent rights in PLAVIX*, it is not possible at this time reasonably to assess the outcome of these lawsuits, or, if the Company were not to prevail in these lawsuits, the timing of potential generic competition for PLAVIX*. However, if generic competition in the U.S. were to occur, the Company believes it is very unlikely to occur before the second half of 2005. It also is not possible reasonably to estimate the impact of these lawsuits on the Company.

However, loss of market exclusivity of PLAVIX* and the subsequent development of generic competition would be material to the Company’s sales of PLAVIX* and results of operations and cash flows and could be material to its financial condition and liquidity.

Canada

Sanofi-Synthelabo and Sanofi-Synthelabo Canada Inc. have instituted a prohibition action in the Federal Court of Canada against Apotex Inc. (Apotex) and the Minister of Health in response to a Notice of Allegation from Apotex directed against Canadian Patent 1,336,777 covering clopidogrel bisulfate. Apotex’s Notice of Allegation (NOA) indicated that it had filed an Abbreviated New Drug Submission (ANDS) for clopidogrel bisulfate tablets and that it sought approval (a Notice of Compliance) of that ANDS before the expiration of Canadian Patent 1,336,777, which expires August 12, 2012. Apotex’s NOA further alleged that the ‘777 patent was invalid or not infringed. A hearing was held from February 21 to February 25, 2005 and a decision is expected before April 28, 2005, the date the statutory 24 month stay imposed on the approval of Apotex’s ANDS expires.

If the decision is favorable to Apotex, it could result in a generic product on the market in Canada in the second quarter of 2005. The Company believes that any outcome in Canada should not be predictive of the outcome in the U.S. in light of the different procedural and substantive rules in the two jurisdictions.

Sanofi-Aventis and Sanofi-Synthelabo Canada Inc. have also instituted a prohibition action in the Federal Court of Canada against Novopharm Limited (Novopharm) and the Minister of Health in response to a Notice of Allegation from Novopharm directed against Canadian Patent 1,336,777 covering clopidogrel bisulfate. Novopharm’s Notice of Allegation (NOA) indicated that it had filed an Abbreviated New Drug Submission (ANDS) for clopidogrel bisulfate tablets and that it sought approval (a Notice of Compliance) of that ANDS before the expiration of Canadian Patent 1,336,777, which expires August 12, 2012. Novopharm’s NOA further alleged that the ‘777 patent was invalid. The action is in its early stages and no hearing date has been set.

United Kingdom

In December 2004, Aircoat Limited (Aircoat) filed a nullity petition in the Court of Session in Glasgow, Scotland. By its nullity petition, Aircoat seeks revocation of European Patent 0 281 459 , which has been registered in the United Kingdom. European Patent 0 281 459 covers, inter alia, clopidogrel bisulfate, the active ingredient in PLAVIX*. Aircoat specifically alleges that the claims of European Patent 0 281 459 are invalid and should be revoked on the grounds of lack of novelty and/or lack of inventive step.

OTHER PATENT LITIGATION

TEQUIN. The Company and Kyorin Pharmaceuticals Co., Ltd. (Kyorin) commenced a patent infringement action on March 23, 2004, against Teva USA and Teva Industries in the United States District Court for the Southern District of New York, relating to the antibiotic gatifloxacin, for which Kyorin holds the composition of matter patent and which the Company sells as TEQUIN. Teva Industries has since been dismissed from the case. This action relates to Teva’s filing of an ANDA for a generic version of gatifloxacin tablets with a certification that the composition of matter patent, which expires in December 2007, is invalid or not

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Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

infringed. The filing of the suit places a stay on the approval of Teva’s generic product until June 2007, unless there is a court decision adverse to the Company and Kyorin before that date.

ERBITUX*. On October 28, 2003, a complaint was filed by Yeda Research and Development Company Ltd. (Yeda) against ImClone and Aventis Pharmaceuticals, Inc. in the U.S. District Court for the Southern District of New York. This action alleges and seeks that three individuals associated with Yeda should also be named as co-inventors on U.S. Patent No. 6,217,866, which covers the therapeutic combination of any EGFR-specific monoclonal antibody and anti-neoplastic agents, such as chemotherapeutic agents, for use in the treatment of cancer. If Yeda’s action were successful, Yeda could be in a position to practice, or to license others to practice, the invention. This could result in product competition for ERBITUX* that might not otherwise occur. The Company, which is not a party to this action, is unable to predict the outcome at this stage in the proceedings.

On May 5, 2004, RepliGen Corporation (Repligen) and Massachusetts Institute of Technology (MIT) filed a lawsuit in the United States District Court for the District of Massachusetts against ImClone claiming that ImClone’s manufacture and sale of ERBITUX* infringes a patent which generally covers a process for protein production in mammalian cells. Repligen and MIT seek damages based on sales of ERBITUX* which commenced in February 2004. The patent expired on May 5, 2004, although Repligen and MIT are seeking extension of the patent. The Company, which is not a party to this action, is unable to predict the outcome at this stage in the proceedings.

ABILIFY*. On August 11, 2004, Otsuka filed with the United States Patent and Trademark Office (USPTO) a Request for Reexamination of U.S. composition of matter patent covering ABILIFY*, an antipsychotic agent used for the treatment of schizophrenia (U.S. Patent Number No. 5,006,528, the “528 Patent”) that expires in 2009, and may be extended until 2014 if pending supplemental protection extensions are granted. Otsuka has determined that the original ‘528 Patent application contained an error in that the description of a prior art reference was identified by the wrong patent number. In addition, Otsuka has taken the opportunity to bring other citations to the attention of the USPTO. The USPTO has granted the Request for Reexamination, and the reexamination proceeding is ongoing. The reexamination proceeding will allow the USPTO to consider the patentability of the patent claims in light of the corrected patent number and newly cited documents. The USPTO is expected to make a final decision on the reexamination within the next ten to fifteen months.

The Company and Otsuka believe that the invention claimed in the ‘528 Patent is patentable over the prior art and expect that the USPTO will reconfirm that in the reexamination. However, there can be no guarantee as to the outcome. If the patentability of the ‘528 Patent were not reconfirmed following a reexamination, there may be sooner than expected loss of market exclusivity of ABILIFY* and the subsequent development of generic competition which would be material to the Company.

AVALIDE* Ranbaxy Laboratories Limited (Ranbaxy) has served notice that it filed an ANDA with a P(IV) certification directed against U.S. Patent 5,994,348, which is a formulation patent that expires in June 2015. Ranbaxy’s P(IV) notice asserts that its proposed generic formulation does not infringe Patent 5,993,348. Ranbaxy’s P(IV) notice did not include a challenge to the composition of matter patent that currently expires in September 2011. The Company and its partner, Sanofi, are currently evaluating Ranbaxy’s P(IV) notice.

AVAPRO* Ranbaxy has served notice that it filed an ANDA with a P(IV) certification directed against U.S. Patent 6,342,247, which is a formulation patent that expires in June 2015. Ranbaxy’s P(IV) notice asserts that its proposed generic formulation does not infringe the Patent 6,342,247. Ranbaxy’s P(IV) notice did not include a challenge to the composition of matter patent that currently expires in September 2011. The Company and its partner, Sanofi, are currently evaluating Ranbaxy’s P(IV) notice.

TEQUIN (injectable form) Apotex Corp. (Apotex), SICOR Pharmaceuticals, Inc. (SICOR) and American Pharmaceutical Partners, Inc. (APP) have all served notice that they filed abbreviated NDAs with P(IV) certifications directed against U.S. Patent 5,880,283. Apotex and SICOR also submitted P(IV) certifications against U.S. Patent 4,980,470. Patent 4,980,470 is a composition of matter patent that expires in December 2007 (and for which a patent term extension has been applied for to December 2009). U.S. Patent 5,880,283 covers the specific form of gatifloxacin used in TEQUIN. Apotex and SICOR allege in their P(IV) notices that U.S. Patent 4,980,470 is invalid. Apotex, SICOR and APP allege that their proposed generic formulations would not infringe U.S. Patent 5,880,283. The Company is currently evaluating these P(IV) notices.

VANLEV Litigation

In April, May and June 2000, the Company, its former chairman of the board and chief executive officer, Charles A. Heimbold, Jr., and its former chief scientific officer, Peter S. Ringrose, Ph.D., were named as defendants in a number of class action lawsuits alleging violations of federal securities laws and regulations. These actions have been consolidated into one action in the U.S. District

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Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

Court for the District of New Jersey. The plaintiff claims that the defendants disseminated materially false and misleading statements and/or failed to disclose material information concerning the safety, efficacy and commercial viability of its product VANLEV during the period November 8, 1999 through April 19, 2000.

In May 2002, the plaintiff submitted an amended complaint adding allegations that the Company, its present chairman of the board and chief executive officer, Peter R. Dolan, its former chairman of the board and chief executive officer, Charles A. Heimbold, Jr., and its former chief scientific officer, Peter S. Ringrose, Ph.D., disseminated materially false and misleading statements and/or failed to disclose material information concerning the safety, efficacy, and commercial viability of VANLEV during the period April 19, 2000 through March 20, 2002. A number of related class actions, making essentially the same allegations, were also filed in the U.S. District Court for the Southern District of New York. These actions have been transferred to the U.S. District Court for the District of New Jersey.

The Company filed a motion for partial judgment in its favor based upon the pleadings. The plaintiff opposed the motion, in part by seeking again to amend its complaint. The court granted in part and denied in part the Company’s motion and ruled that the plaintiff may amend its complaint to challenge certain alleged misstatements.

The court has certified two separate classes: a class relating to the period from November 8, 1999 to April 19, 2000 and a class relating to the period from March 22, 2001 to March 20, 2002. The class certification and proposed class certification are without prejudice to defendants’ rights to fully contest the merits of plaintiff’s claims. The plaintiff purports to seek compensatory damages, costs and expense on behalf of shareholders with respect to the class period and proposed class period.

On December 17, 2004, the Company and the other defendants made a motion for summary judgment as to all of plaintiff’s claims. The final pre-trial conference in this matter commenced on December 15, 2004 and is scheduled to be completed on May 4, 2005. No trial date has been set.

In January 2005, the plaintiff moved for leave to file a third amended complaint, seeking to combine the two class periods into one expanded class period from October 19, 1999 through March 19, 2002 and to add further allegations that the Company, Peter R. Dolan, Charles A. Heimbold, Jr., and Peter S. Ringrose, Ph.D. disseminated materially false and misleading statements and or failed to disclose material information concerning the safety, efficacy and commercial viability of VANLEV. Defendants have opposed the plaintiff’s motion, and the Court is scheduled to hear oral argument on the motion on April 4, 2005.

It is not possible at this time reasonably to assess the final outcome of this litigation or reasonably to estimate the possible loss or range of loss with respect to this litigation. If the Company were not to prevail in final, non-appealable determinations of this litigation, the impact could be material.

Other Securities Matters

During the period March through May 2002, the Company and a number of its current and former officers were named as defendants in a number of securities class action suits. The suits variously alleged violations of federal securities laws and regulations in connection with three different matters: (1) VANLEV (as discussed above), (2) sales incentives and wholesaler inventory levels, and (3) ImClone, and ImClone’s product, ERBITUX*. As discussed above, the allegations concerning VANLEV have been transferred to the U.S. District Court for the District of New Jersey and consolidated with the action pending there. The remaining actions have been consolidated and are pending in the U.S. District Court for the Southern District of New York. Plaintiffs filed a consolidated class action complaint on April 11, 2003 against the Company and certain current and former officers alleging a class period of October 19, 1999 through March 10, 2003. The consolidated class action complaint alleges violations of federal securities laws in connection with, among other things, the Company’s investment in and relationship with ImClone and ImClone’s product, ERBITUX*, and certain accounting issues, including issues related to wholesaler inventory and sales incentives, the establishment of reserves, and accounting for certain asset and other sales. The plaintiffs seek compensatory damages, costs and expenses. On March 29, 2004, the U.S. District Court granted the Company’s motion to dismiss the consolidated class action complaint and dismissed the case with prejudice. Plaintiffs appealed that dismissal to the Second Circuit Court of Appeals (Court of Appeals). While that appeal was pending, the parties reached an agreement in principle to settle the action. On July 26, 2004, the Court of Appeals stayed the appeal and remanded the action to the District Court so that the District Court could consider the settlement. On July 30, 2004, the District Court vacated the Clerk’s Judgment in order to consider the settlement. Also on that day, the District Court entered an order preliminarily approving the settlement and certifying a class for settlement purposes only. Pursuant to the terms of the proposed settlement, all claims in the action will be dismissed, the litigation will be terminated, the defendants will receive releases, and the Company will pay $300 million to a fund for class members. On November 9, 2004, after a fairness hearing, the District Court approved the settlement and a judgment dismissing the case with prejudice. The settlement has become final. The Company is discussing recovery under its insurance policies, not reflected in the financial statements, of a portion of the $300 million settlement. Approximately 58 million shares have been excluded from the settlement pursuant to requests for exclusion. Of those, approximately 51 million shares are held by plaintiffs in the four pending actions discussed below, which the Company has established reserves for liabilities. It is not possible at this time to reasonably assess the final outcome of these lawsuits. In accordance with GAAP, the Company has determined that the above amounts represent minimum expected probable losses with respect to these lawsuits. Eventual losses related to these

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lawsuits may exceed these reserves, and the further impact could be material. The Company does not believe that the top-end of the range for these losses can be estimated.

In addition, an action was filed in early October 2003, in New York State Supreme Court, making similar factual allegations and asserting a variety of claims including, among others, common law fraud and negligent misrepresentation. No discovery has been taken in this matter. On January 9, 2004, the Company moved to dismiss the complaint. The plaintiffs filed an amended complaint on December 16, 2004, making similar allegations but also adding allegations from the SEC Complaint issued in August 2004. The Company filed a motion to dismiss the amended complaint on February 11, 2005. Plaintiffs’ opposition to the motion to dismiss is due March 15, 2005. The Company’s reply is due April 8, 2005. Three related actions were filed, one in September 2004, one in November 2004 and one in December 2004, all, making similar factual allegations and asserting claims similar to those made in the amended complaint for the New York State Supreme Court action filed in October 2003. The Company intends to file a motion to dismiss each of the related actions, which have a briefing schedule identical to the action filed in October 2003. It is not possible at this time reasonably to assess the final outcome of this litigation or reasonably to estimate the possible loss or range of loss with respect to this litigation. If the Company were not to prevail in final, non-applicable determinations of this litigation, the impact could be material.

The Company and a number of the Company’s current and former officers were named as defendants in a purported class action filed on October 6, 2004 in the State Court in Cook County, Illinois. The complaint makes factual allegations similar to those made in the settled federal class action in the Southern District of New York and asserts common law fraud and breach of fiduciary duty claims. The complaint purports to assert those claims on behalf of stockholders who purchased the Company’s stock before October 19, 1999 and held onto their stock through March 10, 2003. The Company removed the action to the Northern District of Illinois on February 10, 2005. Plaintiffs’ motion to remand is due March 17, 2005. The Company’s opposition is due April 18, 2005 and plaintiffs’ reply is due May 18, 2005. It is not possible at this time reasonably to assess the final outcome of this litigation or reasonably to estimate the possible loss or range of loss with respect to this litigation. If the Company were not to prevail in final, non-applicable determinations of this litigation, the impact could be material.

On November 18, 2004, a class action complaint was filed in United States District Court for the Eastern District of Missouri against the Company, D & K Healthcare Resources, Inc. (D & K) and several current and former D & K directors and officers on behalf of purchasers of D & K stock between August 10, 2000 and September 16, 2002. The class action complaint alleges that the Company participated in fraudulently inflating the value of D & K stock by allegedly engaging in improper “channel-stuffing” agreements with D & K. BMS filed a motion to dismiss this case on January 28, 2005. The plaintiff’s opposition to the motion to dismiss is due March 21, 2005, and the Company’s reply is due April 11, 2005. Under the Private Securities Litigation Reform Act, discovery is automatically stayed pending the outcome of the motion to dismiss. The plaintiff filed a motion to partially lift the automatic discovery stay on February 22, 2005. The Company’s opposition to the motion is due March 4, 2005 and plaintiff’s reply is due March 16, 2005. The impact is not expected to be material.

        Beginning in October 2002, a number of the Company’s current and former officers and directors were named as defendants in three shareholder derivative suits pending in the U.S. District Court for the Southern District of New York. A number of the Company’s current and former officers and directors were named as defendants in three shareholder derivative suits filed during the period March 2003 through May 2003 in the U.S. District Court for the District of New Jersey. In July 2003 the U.S. District Court for the District of New Jersey ordered the three shareholder derivative lawsuits that were filed in that court transferred to the U.S. District Court for the Southern District of New York. Subsequently, the U.S. District Court for the Southern District of New York ordered all six federal shareholder derivative suits consolidated. Plaintiffs have filed a consolidated, amended, verified shareholder complaint against certain members of the board of directors, current and former officers and PricewaterhouseCoopers (PwC), an independent registered public accounting firm. As is customary in derivative suits, the Company has been named as a defendant in this action. As a nominal defendant, the Company is not liable for any damages in the suit nor is any specific relief sought against the Company. The consolidated amended complaint alleges, among other things, violations of federal securities laws and breaches of fiduciary duty by certain individual defendants in connection with the Company’s conduct concerning, among other things: safety, efficacy and commercial viability of VANLEV (as discussed above); the Company’s sales incentives to certain wholesalers and the inventory levels of those wholesalers; the Company’s investment in and relations with ImClone and ImClone’s product ERBITUX*; and alleged anticompetitive behavior in connection with BUSPAR and TAXOL. The lawsuit also alleges malpractice (negligent misrepresentation and negligence) by PwC. The plaintiffs seek restitution and rescission of certain officers’ and directors’ compensation and alleged improper insider trading proceeds; injunctive relief; fees, costs and expenses; contribution from certain officers for alleged liability in the consolidated securities class action pending in the U.S. District Court for the Southern District of New York (as discussed above); and contribution and indemnification from PwC. No discovery has been taken in this matter. On December 19, 2003, the Company moved to dismiss the consolidated amended complaint. The motion to dismiss has been administratively withdrawn without prejudice. Any party has the right to have it reinstated upon request. Two similar actions are pending in New York State Court. Plaintiffs seek equitable relief, damages, costs and attorneys’ fees. The parties are currently engaged in discussions regarding potential settlement of the action.

As previously disclosed, on August 4, 2004, the Company entered into a final settlement with the SEC, concluding an investigation concerning certain wholesaler inventory and accounting matters. The settlement was reached through a Consent, a copy of which was attached as Exhibit 10s to the Company’s quarterly report on Form 10-Q for the period ended September 30, 2004. In the Consent, the Company agreed, without admitting or denying any liability, not to violate certain provisions of the securities laws. The Company also agreed to establish a $150 million fund for a class of shareholders to be distributed under the court’s supervision. The $150 million fund, which included a $100 million civil penalty, will be distributed to certain Company shareholders under a plan of distribution established by the SEC.

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The settlement does not resolve the ongoing investigation by the SEC of the activities of certain current and former members of the Company’s management in connection with the wholesaler inventory issues and other accounting matters, which investigation is ongoing. In addition, an investigation by the U.S. Attorney’s Office for the District of New Jersey concerning the inventory and accounting matters covered by the Company’s settlement with the SEC is continuing. The Company is continuing to cooperate with those investigations.

ERISA Litigation

In December 2002 and the first quarter of 2003, the Company and others were named as defendants in five class actions brought under the ERISA in the U.S. District Courts for the Southern District of New York and the District of New Jersey. These actions have been consolidated in the Southern District of New York under the caption In re Bristol-Myers Squibb Co. ERISA Litigation, 02 CV 10129 (LAP). An Amended Consolidated Complaint alleging a class period of January 1, 1999 through March 10, 2003 was served on August 18, 2003. The Amended Consolidated Complaint was brought on behalf of four named plaintiffs and a putative class consisting of all participants in the Bristol-Myers Squibb Company Savings and Investment Program (Savings Plan) and their beneficiaries for whose benefit the Savings Plan held and/or acquired Company stock at any time during the class period (excluding the defendants, their heirs, predecessors, successors and assigns). The named defendants are the Company, the Bristol-Myers Squibb Company Savings Plan Committee (Committee), thirteen individuals who presently serve on the Committee or who served on the Committee in the recent past, Charles A. Heimbold, Jr. and Peter R. Dolan (the past and present Chief Executive Officers, respectively, and the Company). The Amended Consolidated Complaint generally alleges that the defendants breached their fiduciary duties under ERISA during the class period by, among other things, continuing to offer the Company Stock Fund and Company stock as investment alternatives under the Savings Plan; continuing to invest Company matching contributions in the Company Stock Fund and Company stock; and failing to disclose that investments in Company stock were (allegedly) imprudent. The Savings Plan’s purchases of Company stock after January 1, 1999 are alleged to have been transactions prohibited by ERISA. Finally, Defendants Heimbold and Dolan are alleged to have breached their fiduciary duties under ERISA by failing to monitor the actions of the Committee. These ERISA claims are predicated upon factual allegations similar to those raised in “Other Securities Matters” above, concerning, among other things: the safety, efficacy and commercial viability of VANLEV; the Company’s sales incentives to certain wholesalers and the inventory levels of those wholesalers; the Company’s investment in and relations with ImClone and ImClone’s product ERBITUX*; and alleged anticompetitive behavior in connection with BUSPAR and TAXOL.

There has not been significant discovery to date and discovery is currently stayed. On October 2, 2003, the Company and all other defendants moved to dismiss the Amended Consolidated Complaint. The plaintiffs have opposed the motion to dismiss, and the defendants have replied. The motions to dismiss were administratively withdrawn without prejudice. Plaintiffs have now requested a pre-motion conference and intend to ask the Court for leave to file a Second Amendment Complaint. In the second quarter of 2004, the Company established reserves for liabilities for this litigation of $20 million. It is not possible at this time reasonably to assess the final outcome of this litigation. In accordance with GAAP, the Company has determined that the reserves established represent the minimum expected probable losses with respect to this litigation. Eventual losses related to this litigation may exceed reserves, and the further impact could be material. The Company does not believe that the top-end of the range for these losses can be estimated. If the Company were not to prevail in final, non-appealable determination of this matter, the impact could be material to its results of operations.

Pricing, Sales and Promotional Practices Litigation and Investigations

The Company, together with a number of other pharmaceutical manufacturers, is a defendant in several private class actions and in actions brought by the Nevada, Montana, Pennsylvania, Wisconsin, Kentucky, Illinois and Alabama Attorneys General, the City of New York and four New York counties that are pending in federal and state courts relating to the pricing of certain Company products. The federal cases, and some related state court cases that were removed to federal courts, have been consolidated for pre-trial purposes under the caption In re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456, Civ. Action No. 01-CV-12257-PBS, before United States District Court Judge Patti B. Saris in the United States District Court for the District of Massachusetts (AWP Multidistrict Litigation). On June 18, 2003 , the private plaintiffs in the AWP Multidistrict Litigation filed an Amended Master Consolidated Complaint (Amended Master Complaint). The Amended Master Complaint contains two sets of allegations against the Company. First, it alleges that the Company’s and many other pharmaceutical manufacturers’ reporting of prices for certain drug products (20 listed drugs in the Company’s case) had the effect of falsely overstating the Average Wholesale Price (AWP) published in industry compendia, which in turn improperly inflated the reimbursement paid to medical providers, pharmacists, and others who prescribed, administered or sold those products to consumers. Second, it alleges that the Company and certain other defendant pharmaceutical manufacturers conspired with one another in a program called the “Together Rx Card Program” to fix AWPs for certain drugs made available to consumers through the Program. The Amended Master Complaint asserts claims under the federal RICO and antitrust statutes and state consumer protection and fair trade statutes.

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The Amended Master Complaint is brought on behalf of two main proposed classes, whose definitions have been subject to further amendment as the case has progressed. As of December 17, 2004, those proposed classes may be summarized as: (1) all persons or entities who, from 1991 forward, paid or reimbursed all or part of a listed drug under Medicare Part B or under a private contract that expressly used AWP as a pricing standard and (2) all persons or entities who, from 2002 forward, paid or reimbursed any portion of the purchase price of a drug covered by the Together Rx Card Program based in whole or in part on AWP. The first class is further divided into several proposed subclasses depending on whether the listed drug in question is physician-administered, self-administered, sold through a pharmacy benefits manager or specialty pharmacy, or is a brand-name or generic drug. On September 3, 2004, plaintiffs in the AWP Multidistrict Litigation moved for certification of a proposed plaintiff class. The parties briefed that motion, as it related to the amended proposed definition of the first main class and sub-classes discussed above, and motion was heard by the Court on February 10, 2005.

The Company and other defendants moved to dismiss the Amended Master Complaint on the grounds that it fails to state claims under the applicable statutes. On February 24, 2004, the Court denied this motion in large part, although the Court dismissed one of the plaintiffs’ claims for failure to plead a cognizable RICO “enterprise”. Accordingly, the Court required that the Company and the other defendants answer the Amended Master Complaint. The court subsequently ordered that five defendants, including the Company engage in accelerated discovery with respect to the remaining allegations of the Amended Master Complaint, other than the allegations related to Together Rx, which are on a more extended discovery schedule. This accelerated discovery closed as to these five defendants on January 30, 2005. In addition, the Company and the other defendants have obtained discovery of the named plaintiffs and of several non-parties, such as benefits consultants, the federal government, and health insurers. The current schedule calls for expert reports, expert depositions and summary judgment briefing on liability issues during the first half of 2005.

The cases commenced by the Nevada, Montana, Pennsylvania, Wisconsin, Illinois, Alabama and Kentucky Attorneys General (the Attorneys General AWP Cases) and the cases commenced by New York City and four New York counties (the New York City & County AWP Cases) include fraud and consumer protection claims similar to those in the Amended Master Complaint. Certain of the states, city and counties also have made additional allegations that defendants, including the Company, have violated state Medicaid statutes by, among other things, failing to provide the states with adequate rebates required under federal law. The Attorneys’ General AWP Cases, other than the Montana action, are proceeding in their respective state courts.

In a series of decisions in June, September, and October 2004, affecting the Montana Attorney General’s case and the New York City & County AWP Cases, which are proceeding in the AWP Multidistrict Litigation in coordination with the private class actions, the Court declined to find that the Medicaid rebate claims were preempted by federal law, but nevertheless dismissed many of the claims relating to “rebate” payments made by several drug manufacturers, including those claims relating to the Company as insufficiently pled. The Court allowed to proceed the state law claims that allege that the Company misreported AWPs. The Company has filed its answer to the claims remaining in the Montana Attorney General’s complaint.

The Company also has joined with other defendants in a motion to dismiss the Pennsylvania Attorney General’s action. In a decision filed February 1, 2005, the Pennsylvania Commonwealth Court granted the motion to dismiss on the ground that the plaintiff had failed to plead the complaint with the requisite particularity. The Court gave the Attorney General 30 days to replead. On July 16, 2004, the Nevada court denied the Company’s and other defendants’ motions to dismiss the complaint except as to the state RICO claim and granted the Attorney General leave to replead, in an opinion that was based on the prior rulings of the AWP Multidistrict Litigation Court. The Company and other defendants also have made, or may soon make, motions to dismiss in the other Attorneys General AWP Cases.

The Company is also one of a number of defendants in a private class action making AWP-based claims that was remanded from the AWP Multidistrict Litigation to Arizona state court. An individual, Robert J. Swanston, asserts claims under Arizona state law on behalf of himself and an alleged class of persons and entities in Arizona who paid for prescription drugs based on AWP (the Swanston Action), which claims generally allege that the defendant drug manufacturers have conspired to inflate AWPs. By order dated August 5, 2004, the Arizona Court denied defendants’ motions to dismiss or stay the proceedings. The parties are currently briefing plaintiff’s motion for class certification and defendants’ papers are due February 11, 2005. The Court in the Swanston Action has ordered that discovery in that matter should be coordinated with discovery in the AWP Multidistrict Litigation.

On or about October 8, 2004, the Company was added as a defendant in a putative class action previously commenced against other drug manufacturers in federal court in Alabama . The case was brought by two health care providers that are allegedly entitled under a federal statute, Section 340B of the Public Health Service Act, to discounted prices on prescription drugs dispensed to the poor in the providers’ local areas. The plaintiff health care providers contend that they and an alleged class of other providers authorized to obtain discounted prices under the statute may in fact not have received the level of discounts to which they are entitled. The Amended Complaint against the Company and the other manufacturers asserts claims directly under the federal statute, as well as

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under state law for unjust enrichment and for an accounting. The Company has joined in a motion to dismiss the Complaint that was filed by the original manufacturer defendants and that has, with the court’s approval been made applicable to the Amended Complaint.

Finally, the Company is a defendant in related state court proceedings commenced in New York, New Jersey, California, and Tennessee. Those proceedings were transferred to the AWP Multidistrict Litigation for pre-trial purposes. The plaintiffs in the California and New Jersey actions sought to remand their cases to the state courts. The California remand motions were denied, and the New Jersey remand motion remains pending.

These cases are at a very preliminary stage, and the Company is unable to assess the outcome and any possible effects on its business and profitability, or reasonably estimate possible loss or range of loss with respect to these cases. If the Company were not to prevail in final, non-appealable determinations of these litigations and investigations, the impact could be material.

The Company, together with a number of other pharmaceutical manufacturers, also has received subpoenas and other document requests from various government agencies seeking records relating to its pricing, sales and marketing practices, and “Best Price” reporting for drugs covered by Medicare and/or Medicaid. The requests for records have come from the U.S. Attorneys’ Offices for the District of Massachusetts, the Eastern District of Pennsylvania, and the Northern District of Texas, the Civil Division of the Department of Justice, the Offices of the Inspector General of the Department of Health and Human Services and the Office of Personnel Management (each in conjunction with the Civil Division of the Department of Justice), and several states. In addition, requests for information have come from the House Committee on Energy & Commerce and the Senate Finance Committee in connection with investigations that the committees are currently conducting into Medicaid Best Price issues.

As previously disclosed, in mid-2003, the Company initiated an internal review of certain of its sales and marketing practices, focusing on whether these practices comply with applicable anti-kickback laws and analyzing these practices with respect to compliance with (1) Best Price reporting and rebate requirements under the Medicaid program and certain other U.S. governmental programs, which reference the Medicaid rebate program and (2) applicable FDA requirements. The Company has met with representatives of the U.S. Attorney’s Office for the District of Massachusetts to discuss the review and has received related subpoenas from that U.S. Attorney’s Office. The Company’s internal review is expected to continue until resolution of pending governmental investigations of related matters.

The Company is producing documents and actively cooperating in the investigations, which could result in the assertion of civil and/or criminal claims. In the second quarter of 2004, the Company increased reserves for liabilities in relation to pharmaceutical pricing and sales and marketing practices described in this section by $34 million, bringing the total reserves for liabilities for these matters to $134 million. It is not possible at this time to reasonably assess the final outcome of these matters. In accordance with GAAP, the Company has determined that the above amount represents minimum expected probable losses with respect to these matters, which losses could include the imposition of fines, penalties, administrative remedies and/or liability for additional rebate amounts. Eventual losses related to these matters may exceed these reserves, and the further impact could be material. The Company does not believe that the top-end of the range for these losses can be estimated. If the Company were not to prevail in final, non-appealable determinations of these litigations and investigations, the impact could be material.

As previously disclosed, in 2004 the Company undertook an analysis of its methods and processes for calculating prices for reporting under governmental rebate and pricing programs related to its U.S. Pharmaceuticals business. The analysis was completed in early 2005. Based on the analysis, the Company identified the need for revisions to the methodology and processes used for calculating reported pricing and related rebate amounts and expects to implement these revised methodologies and processes beginning with its reporting to the Federal government agency with primary responsibility for these rebate and price reporting obligations, the Centers for Medicare and Medicaid Services (CMS) in the first quarter of 2005. In addition, using the revised methodologies and processes, the Company also has recalculated the “Best Price and “Average Manufacturer’s Price” required to be reported under the Company’s federal Medicaid rebate agreement and certain state agreements, and the corresponding revised rebate liability amounts under those programs for the three-year period 2002 to 2004. In the third quarter of 2004, based on the results of the Company’s analysis at that time, the Company recorded an additional liability equal to the then estimated additional rebate liability resulting from the proposed revisions, which was not material. Upon completion of the analysis in early 2005, the Company has finally determined that the estimated rebate liability for those programs for the three-year period 2002 to 2004 was actually less than the rebates that had been paid by the Company for such period. Accordingly, in the fourth quarter of 2004, the Company reversed the additional rebate liability that was recorded in the third quarter of 2003 and recorded an additional reduction to the rebate liability in the amount of the estimated overpayment. The Company’s proposed revisions and its updated estimate will be submitted for review to CMS. The Company anticipates that the submission to CMS also will likely be reviewed by the Department of Justice (DOJ) in conjunction with the previously disclosed subpoena received by the Company from the DOJ relating to, among other things, “Best Price” reporting for drugs covered by Medicaid as discussed in more detail above. These agencies may take the position that

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further revisions to the company’s methodologies and calculations are required. Upon completion of governmental review, the Company will determine whether any further recalculation of the liability from the Company under the identified programs for any period or under any other similar programs is necessary or appropriate. The company believes, based on current information, that any such recalculation is not likely to result in material rebate liability. However, due to the uncertainty surrounding the recoverability of the Company’s estimated overpayment arising from the review process described above, the Company has also recorded a reserve in an amount equal to the estimated overpayment. The Company has remediated its internal controls over the processes and procedures the Company believes resulted in these proposed revisions and will continue to strengthen its internal controls.

The Company received a civil investigative demand from the Attorney General of the State of Missouri relating to direct-to-consumer advertising for PRAVACHOL for the period of 2001-2003. The Company received written confirmation from the Attorney General in July 2004 concluding its investigation with no action taken against the Company. The Company also received notice of a putative class action lawsuit involving issues related to the direct-to-consumer advertising, filed on February 23, 2004, in circuit court of Jackson County Missouri at Kansas City, caption Richard Summers v. Bristol-Myers Squibb Company. The Company was served with this complaint on March 23, 2004 and removed the action to federal court. The action has been remanded to state court. The impact is not expected to be material.

The Company, together with a number of other pharmaceutical manufacturers, has been named as a defendant in an action filed in California State Superior Court in Oakland, James Clayworth et al. v. Bristol-Myers Squibb Company, et al., alleging that the defendants have conspired to fix the prices of pharmaceuticals by preventing the importation of foreign drugs into the United States and asserting claims under California’s Cartwright Act and unfair competition law. The plaintiffs seek treble damages for any damages they have sustained; restitution of any profit obtained by defendants through charging artificially higher prices to plaintiffs; an injunction barring the defendants from charging the plaintiffs higher prices offered to other customers; an award of reasonable attorneys’ fees and costs; and any other relief the Court deems proper. The plaintiffs have propounded interrogatories and the defendants served objections and responses on January 10, 2005. The parties are in the process of meeting and conferring to resolve disputes over the defendants’ responses and objections. The plaintiffs also have propounded form interrogatories, requests for admission and a request for the production of documents. The Company is preparing responses and objections to each of those discovery requests. On November 22, 2004, the Company filed a demurrer to this action. The plaintiffs filed an opposition brief on December 20, 2004, and the Company filed a reply brief on January 20, 2005. Oral argument on the demurrer was held on February 1, 2005. In an order dated February 4, 2005, the Court sustained the demurrer. The Court also granted plaintiffs leave to file a Second Amended Complaint, which they have already done. Defendants’ response to the Second Amended Complaint is to be filed by March 15, 2005.

This case is at a very preliminary stage, and the Company is unable to assess the outcome and any possible effect on its business and profitability, or reasonably estimate possible loss or range of loss with respect to this case. If the Company were not to prevail in a final, non-appealable determination of this litigation, the impact could be material.

Product Liability Litigation

The Company is a party to product liability lawsuits involving allegations of injury caused by the Company’s pharmaceutical and over-the-counter medications. The majority of these lawsuits involve certain over-the-counter medications containing phenylpropanolamine (PPA), or the Company’s SERZONE and STADOL NS prescription drugs. In addition to lawsuits, the Company also faces unfiled claims involving the same products.

PPA. In May 2000, Yale University published the results of its Hemorrhagic Stroke Project, which concluded that there was evidence of a suggestion that PPA may increase the risk of hemorrhagic stroke in a limited population. In November 2000, the FDA issued a Public Health Advisory and requested that manufacturers of PPA-containing products voluntarily cease manufacturing and marketing them. At that time, the only PPA-containing products manufactured or sold by the Company were COMTREX (liqui-gel formulations only) and NALDECON. On or about November 6, 2000, the Company, as well as other manufacturers of PPA- containing products, discontinued the manufacture and marketing of PPA-containing products and allowed customers to return any unused product that they had in their possession.

In January 2001, the Company was served with its first PPA lawsuit. The Company currently is a defendant in approximately 50 personal injury lawsuits, filed on behalf of approximately 50 plaintiffs, in federal and state courts throughout the United States. Many of these lawsuits involve multiple defendants. Among other claims, plaintiffs allege that PPA causes hemorrhagic and ischemic strokes, that the defendants were aware of the risk, failed to warn consumers and failed to remove PPA from their products. Plaintiffs seek compensatory and punitive damages. All of the federal cases have been transferred to the U.S. District Court for the Western District of Washington, In re Phenylpropanolamine (PPA) Products Liability Litigation, MDL No. 1407. The District Court has denied all motions for class certification and there are no class action lawsuits pending against the Company in this litigation.

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On June 18, 2003, the District Court issued a ruling effectively limiting the plaintiffs’ claims to hemorrhagic and ischemic strokes. Rulings favorable for the defendants included the inadmissibility of expert testimony in cases alleging injuries occurring more than three days after ingestion of a PPA-containing product and cases involving psychoses, seizures and cardiac injuries. The Company expects to be dismissed from additional cases in which its products were never used by the plaintiffs and where plaintiffs’ alleged injury occurred more than three days after ingestion of a PPA-containing product or where a plaintiff suffered from cardiac injuries or psychoses.

SERZONE. SERZONE (nefazodone hydrochloride) is an antidepressant that was launched by the Company in May 1994 in Canada and in March 1995 in the United States. In December 2001, the Company added a black box warning to its SERZONE label warning of the potential risk of severe hepatic events including possible liver failure and the need for transplantation and risk of death. Within several months of the black box warning being added to the package insert for SERZONE, a number of lawsuits, including several class actions, were filed against the Company. Plaintiffs allege that the Company knew or should have known about the hepatic risks posed by SERZONE and failed to adequately warn physicians and users of the risks. They seek compensatory and punitive damages, medical monitoring, and refunds for the costs of purchasing SERZONE. In May 2004, the Company announced that, following an evaluation of the commercial potential of the product after generic entry into the marketplace and rapidly declining brand sales, it had decided to discontinue the manufacture and sale of the product effective June 14, 2004.

At present, the Company has approximately 213 lawsuits, on behalf of approximately 2,114 plaintiffs, pending against it in federal and state courts throughout the United States. Twenty-seven of these cases are pending in New York State Court and have been consolidated for pretrial discovery. In addition, there are approximately 761 alleged, but unfiled, claims of injury associated with SERZONE. In August 2002, the federal cases were transferred to the U.S. District Court for the Southern District of West Virginia, In Re Serzone Products Liability Litigation, MDL 1477. Although discovery is still at a very early stage it appears that very few of these cases involve liver failure. In June 2003, the District Court dismissed the class claims in all but two of the class action complaints. A purported class action has also been filed in Illinois. Although a number of the class action complaints filed against the Company had sought the certification of one or more personal injury classes, the remaining class action complaints do not seek the certification of personal injury classes. In addition to the cases filed in the United States, there are four national class actions filed in Canada.

Without admitting any wrongdoing or liability, on or around October 15, 2004, the Company entered into a settlement agreement with respect to all claims in the United States and its territories regarding SERZONE. The settlement agreement embodies a schedule of payments dependent upon whether the class member has developed a qualifying medical condition, whether he or she can demonstrate that they purchased or took SERZONE, and whether certain other criteria apply. The settlement is subject to final approval by the District Court and any appeals therefrom. Pursuant to the settlement agreement, plaintiffs’ class counsel filed a class action complaint seeing relief for the settlement class. On November 18, 2004, the District Court conditionally certified the temporary settlement class and preliminarily approved the settlement. The opt-out period ends on April 8, 2005. The fairness hearing is scheduled for June 30, 2005. Pursuant to the terms of the proposed settlement, all claims will be dismissed, the litigation will be terminated, the defendants will receive releases, and the Company commits to paying at least $70 million to funds for class members. Class Counsel will have the right to petition the court for an award of reasonable attorneys’ fees and expenses; the fees will be paid by the Company and will not reduce the amount of money paid to class members as part of the settlement. The Company may terminate the settlement based upon the number of claims submitted or the number of purported class members who opt not to participate in the settlement and instead pursue individual claims.

In the second quarter of 2004, the Company established reserves for liabilities for these lawsuits of $75 million. It is not possible at this time to reasonably assess the final outcome of these lawsuits. In accordance with GAAP, the Company has determined that the above amounts represent minimum expected probable losses with respect to these lawsuits. Eventual losses related to these lawsuits may exceed these reserves, and the further impact could be material. The Company does not believe that the top-end of the range for these losses can be estimated.

STADOL NS. STADOL NS was approved in 1992 by the FDA as an unscheduled opioid analgesic nasal spray. In February 1995 the Company asked the FDA to schedule STADOL NS as a Schedule IV, low potential for abuse, drug due to post-marketing reports suggestive of inappropriate use of the product. On October 31, 1997, it became a Schedule IV drug. Since 1997, the Company has received a number of lawsuits involving STADOL. In late 2002, the number of filed suits increased due to newly passed tort reform legislation, which became effective on January 1, 2003. Most, if not all, of the plaintiffs in these new suits had previously asserted claims against the Company for their alleged injuries. In May 2004, the Company announced that, following an evaluation of the commercial potential of the product after generic entry in the marketplace and rapidly declining brand sales, it had decided to discontinue the manufacture and sale of the product effective June 14, 2004.

The Company is a party in approximately 32 cases pending, on behalf of a total of approximately 565 plaintiffs, in federal and state courts throughout the United States. Plaintiffs claim that the Company committed fraud on the FDA and wrongfully promoted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

STADOL NS as non-addictive. Further, plaintiffs allege that the Company failed to adequately warn of the addiction and dependency risk associated with the use of STADOL NS. The Company has reached an agreement in principle to settle 31 of the lawsuits involving approximately 564 plaintiffs. In addition to these lawsuits, there are approximately 25 active, alleged and unfiled claims. The majority of the cases and claims are pending in Mississippi.

In the second quarter of 2004, the Company recovered insurance proceeds of $25 million with respect to the STADOL NS case.

BREAST IMPLANT LITIGATION. The Company, together with its subsidiary Medical Engineering Corporation (MEC) and certain other companies, remains a defendant in a number of claims and lawsuits alleging damages for personal injuries of various types resulting from polyurethane-covered breast implants and smooth-walled breast implants formerly manufactured by MEC or a related company. The vast majority of claims against the Company in direct lawsuits have been resolved through settlements or trial.

Likewise, claims or potential claims against the Company registered in the nationwide class action settlement approved by the Federal District Court in Birmingham, Alabama (Revised Settlement), have been or will be resolved through the Revised Settlement. The Company has established accruals in respect of breast implant product liability litigation. The Company believes that any possible loss in addition to the amounts accrued will not be material.

HORMONE REPLACEMENT THERAPY (HRT) LITIGATION. In 1991, The National Institute of Health began some clinical trials involving Prempro (estrogen and progestin) and Premarin (estrogen), both of which are manufactured by Wyeth. A July 2002 JAMA article reported that among the Prempro subjects, there were increased risks of breast cancer, heart attacks, blood clots and strokes. The Prempro phase of the study was stopped on July 9, 2002. In July 2003, the Company was served with its first HRT lawsuit. The Company products involved in this litigation are: ESTRACE^® (an estrogen-only tablet); ESTRADIOL (generic estrogen-only tablet); DELESTROGEN^® (an injectable estrogen); and OVCON^® (an oral contraceptive containing both estrogen and progestin). All of these products were sold to other companies between January 2000 and August 2001, but the company maintains the ESTRACE^® ANDA.

The Company currently is a defendant in approximately 846 lawsuits including the above-mentioned products, filed on behalf of approximately 1,182 plaintiffs, in federal and state courts throughout the United States. A majority of these lawsuits involve multiple defendants. The Company expects to be dismissed from many cases in which its products were never used. Plaintiffs allege, among other things that these products 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 federal cases are being transferred to the U.S. District Court for the Eastern District of Arkansas, In re Prempro (Wyeth) Products Liability Litigation, MDL No., 1507.

The Company is vigorously defending its product liability lawsuits and believes that the majority of these cases and claims are without merit. While it is not possible at this time reasonably to assess the final outcome of the Company’s pending product liability lawsuits and unfiled claims with certainty, management is of the opinion that the ultimate disposition of these matters should not have a material adverse effect on the Company’s financial position, except as otherwise indicated above. The Company believes that it has adequate self-insurance reserves and commercially available excess insurance to cover potential material losses related to its product liability cases and claims.

Environmental Proceedings

The following discussion describes (1) environmental proceedings with a governmental authority which may involve potential monetary sanctions of $100,000 or more (the threshold prescribed by specific SEC rule), (2) a civil action or an environmental claim that could result in significant liabilities, (3) updates of ongoing matters, or the resolution of other matters, disclosed in recent public filings and (4) a summary of environmental remediation costs.

The results of an internal audit performed at the Company’s facility in Hopewell, N.J. indicate that operations at the site’s wastewater treatment plant and related discharges were not always in compliance with the New Jersey Water Pollution Control Act and its implementing regulations or the terms of the Company’s discharge permits. The Company reported its findings to the New Jersey Department of Environmental Protection (NJDEP) in February 2004, entered a settlement agreement with NJDEP on November 16, 2004, and paid a penalty of $44,500. None of the results of the audit suggest that there has been any adverse impact to public health. The Company has taken, and will continue to take, corrective actions to address identified deficiencies and to prevent future occurrences.

The U.S. Environmental Protection Agency (EPA) is investigating industrial and commercial facilities throughout the U.S. that use refrigeration equipment containing ozone-depleting substances (ODS) and enforcing compliance with regulations governing the prevention, service and repair of leaks (ODS requirements). Recently, the Company performed a voluntary corporate-wide audit at its

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

facilities in the U.S. and Puerto Rico that use ODS-containing refrigeration equipment. The Company submitted an audit report to the EPA in November, 2004, identifying potential violations of the ODS requirements at several of its facilities, and is currently in discussions with EPA to resolve such matters. In addition to the matters covered in the Company’s audit report letter to the EPA, the EPA previously sent the Company’s wholly owned subsidiary, Mead Johnson, a request for information regarding compliance with ODS requirements at its facility in Evansville, Indiana. The Company responded to the request in June 2004, and the EPA currently is in the process of reviewing the information that the Company provided. If the EPA determines that the Evansville facility, or any other facilities, was, or is, in violation of applicable ODS requirements, the Company could be subject to penalties and/or be required to convert or replace refrigeration equipment to use non-ODS approved substitutes.

In January 2004, the NJDEP sent the Company and approximately five other companies an information request letter relating to a site in North Brunswick Township, N.J. where waste materials from E.R. Squibb & Sons (Squibb), a wholly owned subsidiary of the Company, may have been disposed from the 1940s through the 1960s. Fill material containing industrial waste and heavy metals in excess of residential standards was discovered in Fall 2003 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. The school board and the Township, who are the current owners of the site, are conducting and jointly financing soil remediation work under a work plan approved by the NJDEP, and have asked the Company to contribute to the cost of remediation. The Company is in discussions with the NJDEP, the site owners and other potentially responsible parties regarding the scope and costs of work required to address the known conditions of concern, and recently has offered to negotiate with the school board and Township on the terms of a cooperative funding agreement and allocation process. The Company also is actively investigating the historic use of the site, including the Company’s possible connection. To date, no claims have been asserted against the Company.

In September 2003, the NJDEP issued an administrative enforcement Directive and Notice under the New Jersey Spill Compensation and Control Act requiring the Company and approximately 65 other companies to perform an assessment of natural resource damages and to implement unspecified interim remedial measures to restore conditions in the Lower Passaic River. The Directive alleges that the Company is liable because it historically sent bulk waste to the former Inland Chemical Company facility in Newark, N.J. for reprocessing, and that releases of hazardous substances from this facility have migrated into Newark Bay and continue to have an adverse impact on the Lower Passaic River watershed. Subsequently, the EPA also issued a notice letter under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to numerous parties—but not including the Company—seeking their cooperation in a study of conditions in substantially the same stretch of the Passaic River that is the subject of the NJDEP’s Directive. A group of these other parties entered into a consent agreement with EPA in 2004 to finance a portion of that study. The EPA estimates this study will cost $20 million, of which roughly half will be financed by this private party group. This study may also lead to clean-up actions, directed by the EPA and the Army Corps of Engineers. The Company is working cooperatively with a group of the parties that received the NJDEP Directive and/or the EPA notice to explore potential resolutions of the Directive and to address the risk of collateral claims. Although the Company does not believe it has caused or contributed to any contamination in the Lower Passaic River watershed, the Company has informed the NJDEP that it is willing to discuss their allegations against the Company. In the Directive and in more recent communications to the cooperating group, NJDEP has stated that if the responsible parties do not cooperate, the NJDEP may perform the damage assessment and restoration and take civil action to recover its remedial costs, and treble damages for administrative costs and penalties. In late 2004, a group of federal agencies designated as trustees of natural resources affected by contamination in the Passaic River watershed approached the cooperating group to solicit interest in funding a cooperative study of possible natural resources damages (“NRD”) in the area. This study presumably would dovetail with the ongoing EPA study, and ideally would be joined by the NJDEP, to coordinate actions NJDEP may seek under the Directive. Discussions with the federal trustees are ongoing. The extent of any liability the Company may face, under either the Directive, the EPA’s notice letter, or with respect to future NRD actions or claims by the federal trustees, or in contribution to other responsible parties, cannot yet be determined.

On October 16, 2003 the Michigan Department of Environmental Quality (MDEQ) sent the Company a Letter of Violation (LOV) alleging that, over an unspecified period of time, emissions from certain digestion tanks at Mead Johnson’s Zeeland, Michigan facility exceeded an applicable limit in the facility’s renewable operating air permit. The LOV requires the Company to take corrective action and to submit a compliance program report. Although the MDEQ has not demanded fines or penalties, further enforcement action could result in penalties or injunctive relief. The Company is contesting the allegations in the LOV and the Company and the MDEQ are also working on revisions to the Company’s air use permit. Although we can not predict the ultimate outcome with certainty, these permit revisions may resolve the matter without additional enforcement action or the need to continue contesting the LOV.

        On December 1, 2003, the Company and the NJDEP entered an Administrative Consent Order (ACO) concerning alleged violations of the New Jersey Air Pollution Control Act and its implementing regulations at the Company’s New Brunswick facility. Pursuant to the ACO, the Company agreed to submit a permit application creating a facility-wide emissions cap and to pay an administrative fine of approximately $28,000. Both of these obligations were satisfied in early 2004. Subsequently, on February 15, 2005, the ACO was amended to provide that the Company would install a new cogeneration turbine at its New Brunswick facility by December 31, 2006, and would obtain air permits, including those required for the cogeneration turbine, by December 31, 2005. The estimated cost of the new cogeneration turbine is approximately $3.5 million.

The Company is one of several defendants in a class action suit filed in superior court in Puerto Rico in February 2000 by residents of three wards from the Municipality of Barceloneta, alleging that air emissions from a government owned and operated

117

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

wastewater treatment facility in said Municipality have caused respiratory and other ailments and violated local air rules. The Company believes its wastewater discharges to the treatment facility are in material compliance with the terms of the Company’s permit. The Company believes that this litigation will be resolved for an immaterial amount; however, although this suit is now five years old, it is still at an initial stage with even the issue of class certification still pending. In the event of an adverse judgment, the Company’s ultimate financial liability could be greater than anticipated.

The Company is also responsible under various state, federal and foreign laws, including CERCLA, for certain costs of investigating 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. The Company typically estimates these costs based on information obtained from the EPA, or counterpart state agency, and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, other potentially responsible parties (PRP). The Company accrues liabilities when they are probable and reasonably estimable. As of December 31, 2004 and 2003, the Company estimated its share of the total future costs for these sites to be approximately $60 million and $58 million, respectively, recorded as other liabilities, which represents the sum of best estimates or, where no simple 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, which are not currently expected). The Company has paid less than $4 million (excluding legal fees) in each of the last five years for investigation and remediation of such matters, including liabilities under CERCLA and for other on-site remedial obligations.

Although it is not possible to predict with certainty the outcome of these environmental proceedings or the ultimate costs of remediation, the Company does not believe that any reasonably possible expenditures that the Company may incur in excess of existing reserves will have a material adverse effect on its business, financial position, or results of operations.

Other Matters

On October 25, 2004, the SEC notified the Company that it is conducting an informal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. The Company believes the SEC’s informal inquiry may encompass matters currently under investigation by the Staatsanwaltin prosecutor in Munich, German. Although, uncertain at this time, the Company believes the inquiry and investigation may concern potential violations of the Foreign Corrupt Practices Act and/or German law. The Company is cooperating with both the SEC and the German authorities. It is not possible at this time reasonably to assess the final outcome of these matters or to reasonably estimate the possible loss or range of loss.

The Company is conducting an internal review of its pharmaceutical operations in Mexico, which had total sales of $422 million for the twelve months ended December 31, 2004. This broad review includes areas of compliance with legal, financial and regulatory requirements and the Company’s Standards of Business Conduct and Ethics. The reviews are ongoing. At this time, the Company is unable to assess the impact, if any, of the results these investigations may have on the Company.

Indemnification of Officers and Directors

The Company’s corporate by-laws require that, to the extent permitted by law, the Company shall indemnify its officers and directors against judgments, fines, penalties and amounts paid in settlement, including legal fees and all appeals, incurred in connection with civil or criminal actions or proceedings, as it relates to their services to the Company and its subsidiaries. The by-laws provide no limit on the amount of indemnification. Indemnification is not permitted in the case of willful misconduct, knowing violation of criminal law, or improper personal benefit. As permitted under the laws of the state of Delaware, the Company has for many years purchased directors and officers insurance coverage to cover claims made against the directors and officers. The amounts and types of coverage have varied from period to period as dictated by market conditions. There are various excess policies that provide additional coverage. The litigation matters and regulatory actions described above involve certain of the Company’s current and former directors and officers, all of whom are covered by the aforementioned indemnity and if applicable, certain prior period insurance policies. However, certain indemnification payments may not be covered under the Company’s directors and officers insurance coverage. The Company cannot predict with certainty the extent to which the Company will recover from its insurers the indemnification payments made in connection with the litigation matters and regulatory actions described above.

On July 31, 2003, one of the Company’s insurers, Federal Insurance Company (Federal), filed a lawsuit in New York Supreme Court against the Company and several current and former officers and members of the board of directors, seeking rescission, or in the alternative, declarations allowing Federal to avoid payment under certain Directors and Officers insurance policies and certain Fiduciary Liability insurance policies with respect to potential liability arising in connection with the matters described under the “—VANLEV Litigation,” “—Other Securities Matters” and “—ERISA Litigation” sections above. No discovery has been taken in this matter. The parties are currently engaged in discussions regarding potential settlement of the action.

On October 3, 2003, another of the Company’s insurers, SR International Business Insurance Co. Ltd. (SRI), informed the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 21 LEGAL PROCEEDINGS AND CONTINGENCIES (Continued)

Company that it intended to try to avoid certain insurance policies issued to the Company on grounds of alleged material misrepresentation or non-disclosure, and that it had initiated arbitration proceedings in London, England. SRI has indicated that it intends to rely upon allegations similar to those described in the “—Other Securities Matters” section above in support of its avoidance action.

Note 22 SUBSEQUENT EVENTS

In January 2005, the Company announced plans to divest the U.S. and Canadian Consumer Medicines business. For the year ended December 31, 2004, sales of consumer medicines brands in the U.S. and Canada totaled approximately $270 million. The Company’s consumer medicines businesses in Japan, Asia Pacific, Latin America, Europe, Middle East and Africa are not included in this planned divestiture.

In November 2004, the Company and Medarex, Inc. (Medarex) entered into a worldwide collaboration to develop and commercialize MDX-010, a fully human antibody investigational product targeting the CTLA-4 receptor. MDX-010 was developed by Medarex and is currently in Phase III clinical development for the treatment of metastatic melanoma. The collaboration agreement became effective in January 2005, at which time the Company made a cash payment of $25 million to Medarex which was expensed as research and development, and an additional $25 million equity investment in Medarex.

Note 23 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(dollars in million, except per share data)
2004:
Net Sales	$	4,626	$	4,819	$	4,778	$	5,157	$	19,380
Gross Margin		3,269		3,320		3,310		3,492		13,391
Earnings from Continuing Operations(1)		961		523		755		139		2,378
Discontinued Operations, net		3		4		3		—		10
Net Earnings		964		527		758		139		2,388
Earnings per common share:
Basic
Earnings from Continuing Operations(1)	$	0.50	$	0.27	$	0.39	$	0.07	$	1.23
Discontinued Operations, net		—		—		—		—		—
Net Earnings	$	0.50	$	0.27	$	0.39	$	0.07	$	1.23
Diluted(3)
Earnings from Continuing Operations(1)	$	0.49	$	0.27	$	0.38	$	0.07	$	1.21
Discontinued Operations, net		—		—		—		—		—
Net Earnings	$	0.49	$	0.27	$	0.38	$	0.07	$	1.21
Dividends declared per Common Share	$	0.28	$	0.28	$	0.28	$	0.28	$	1.12
Cash and cash equivalents	$	3,173	$	3,227	$	3,446	$	3,680	$	3,680
Marketable securities		3,552		3,686		3,872		3,794		3,794
2003:
Net Sales	$	4,208	$	4,571	$	4,798	$	5,076	$	18,653
Gross Margin		3,007		3,261		3,428		3,551		13,247
Earnings from Continuing Operations(2)		790		899		902		506		3,097
Discontinued Operations, net		2		3		4		—		9
Net Earnings		792		902		906		506		3,106

119

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earnings per common share:
Basic
Earnings from Continuing Operations(2)	$	0.41	$	0.47	$	0.47	$	0.26	$	1.60
Discontinued Operations, net		—		—		—		—		—
Net Earnings	$	0.41	$	0.47	$	0.47	$	0.26	$	1.60
Diluted(3)
Earnings from Continuing Operations(2)	$	0.41	$	0.46	$	0.47	$	0.26	$	1.59
Discontinued Operations, net		—		—		—		—		—
Net Earnings	$	0.41	$	0.46	$	0.47	$	0.26	$	1.59
Dividends declared per Common Share	$	0.28	$	0.28	$	0.28	$	0.28	$	1.12
Cash and cash equivalents	$	2,443	$	2,449	$	2,763	$	2,549	$	2,549
Marketable securities		1,991		2,079		2,361		3,013		3,013

Note: Earnings per share for the quarters may not add to the amounts for the year, as each period is computed on a discrete basis.

⁽¹⁾ 2004 includes litigation charges of $480 million, $36 million and $16 million in the second, third, and fourth quarters, respectively. The second quarter includes litigation settlement income of $25 million. The first, second, third, and fourth quarters include the gain on the sale of the Mead Johnson Adult Nutritional business of $295 million, $18 million, $3 million, and $4 million, respectively. The first, second, third, and fourth quarters include provisions for restructuring and other items of $29 million, $17 million, $105 million, and $61 million, respectively. The first, second, third, and fourth quarters include upfront payments for licensing agreements of $5 million, $25 million, $10 million, and $15 million, respectively. The second and third quarters include write-offs for acquired in-process research and development of $62 million and $1 million, respectively.

⁽²⁾ 2003 includes litigation settlement charges of $16 million and $265 million in the second and fourth quarters, respectively. The first, second and third quarters include litigation settlement income of $21 million, $57 million and $4 million, respectively. The first, second, third and fourth quarters include provisions for restructuring and other items of $26 million, $29 million, $37 million and $39 million, respectively. The second, third and fourth quarters include reversals of prior period restructuring and other items of $25 million, $3 million and $10 million, respectively. The third and fourth quarters include upfront payments for licensing agreements of $21 million and $81 million, respectively.

⁽³⁾ Common equivalent shares excluded from the computation of diluted earnings per share, because the effect would be antidilutive, were as follows (in millions):

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Year
2004	133	130	129	126	126
2003	120	117	116	114	114

120

Report of Independent Registered Public Accounting Firm

To the Board of Directors

and Stockholders of

Bristol-Myers Squibb Company:

We have completed an integrated audit of the Bristol-Myers Squibb Company’s (the Company) 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004, and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, PA

March 3, 2005

121

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

Item 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2004, management carried out an evaluation, under the supervision and with the participation of its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, management has concluded that as of December 31, 2004, such disclosure controls and procedures were effective to provide reasonable assurance that the Company records, processes, summarizes and reports the information the Company must disclose in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the chief executive officer and chief financial officer, management assessed the effectiveness of internal control over financial reporting as of December 31, 2004 based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective at December 31, 2004 to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements for external purposes in accordance with United States generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, has audited the Company’s financial statements included in this report on Form 10-K and issued its report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, which is included herein.

Status of Previously Disclosed Internal Control Items

In making its evaluation over the effectiveness of the design and operation of its disclosure controls and procedures, management has considered the significant resources devoted and substantial actions taken by the Company over the past two years to remediate the “reportable condition” (as defined under standards established by the American Institute of Certified Public Accountants) relating to its internal control over its financial reporting for income taxes that was initially identified and communicated to the Company and its Audit Committee by PwC in connection with their audit of the Company’s consolidated financial statements for the year ended December 31, 2002 and repeated for the year ended December 31, 2003. The reportable condition identified by PwC was the need to enhance the income tax accounting function to provide for timely analysis and reconciliation of the income tax provision and related income tax assets and liabilities. In 2003, the actions taken by the Company included engaging an outside consultant to assist the Company’s personnel to conduct a comprehensive and detailed review of certain of the Company’s income tax reporting and accounting. Throughout 2004, the Company continued to strengthen its internal control over financial reporting for income taxes. These efforts included continuing to work with outside consultants, making significant personnel changes including, hiring a new vice president of taxes and increasing the number of tax department key personnel, as well as implementing policies and procedures to enhance communication between business unit, tax department and financial reporting personnel to ensure comprehensive, appropriate and timely review of matters and implementing new, and updating existing tax accounting policies and providing training on these policies. Based on their evaluation, the chief executive officer and the chief financial officer have concluded that as of December 31, 2004, internal control over financial reporting for income taxes issues have been sufficiently remediated.

As discussed under “Item 8. Financial Statements—Note 21. Legal Proceedings and Contingencies,” during 2004, management identified the need to remediate deficiencies in internal control over its methodology and processes to calculate prices for reporting under governmental rebate and pricing programs related to its U.S. Pharmaceuticals business. In conducting their evaluation, the chief executive officer and chief financial officer also considered the substantial efforts undertaken by the Company to remediate such internal control deficiencies, which included, retaining several outside consultants with subject matter expertise, conducting an exhaustive review of existing methodologies and processes and training employees on the implementation of the revised methodologies and processes. Based on their review, the chief executive officer and the chief financial officer have concluded that the Company’s internal control over its methodology and processes to calculate prices as described above have been sufficiently remediated.

122

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2004 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

123

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a) Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to the Directors of the Registrant, which is incorporated herein by reference and made a part hereof in response to the information required by Item 10.

(b) The information required by Item 10 with respect to the Executive Officers of the Registrant has been included in Part IA of this Form 10-K in reliance on General Instruction G of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.

Item 11. EXECUTIVE COMPENSATION.

Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to Executive Compensation, which is incorporated herein by reference and made a part hereof in response to the information required by Item 11.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to the security ownership of certain beneficial owners and management, which is incorporated herein by reference and made a part hereof in response to the information required by Item 12.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to certain relationships and related transactions, which is incorporated herein by reference and made a part hereof in response to the information required by Item 13.

Item 14. AUDITOR FEES

Reference is made to the 2005 Proxy Statement to be filed on or about March 23, 2005 with respect to auditor fees, which is incorporated herein by reference and made a part hereof in response to the information required by Item 14.

124

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)

		Page Number
1.	Consolidated Financial Statements	73-76
	Notes to Consolidated Financial Statements	77-120
	Report of Independent Registered Public Accounting Firm	121
2.	Financial Statement Schedule Valuation and Qualifying Accounts	132

All other schedules not included with this additional financial data are omitted because they are not applicable or the required information is included in the financial statements or notes thereto.

3. Exhibit List

The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by two asterisks (**) are management contracts or compensatory plans or arrangements required to be filed pursuant to this Item 15. Unless otherwise indicated, all Exhibits are part of Commission File Number 1-1136.

3a.	Restated Certificate of Incorporation of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 3c to the Form 10-Q for the quarterly period ended September 30, 2003).
3b.	Bylaws of Bristol-Myers Squibb Company, as amended as of January 3, 2005 (filed herewith).
4a.	Letter of Agreement dated March 28, 1984 (incorporated herein by reference to Exhibit 4 to Form 10-K for the fiscal year ended December 31, 1983).
4b.	Indenture, dated as of June 1, 1993, between Bristol-Myers Squibb Company and JPMorgan Chase Bank (as successor trustee to The Chase Manhattan Bank (National Association)) (incorporated herein by reference to Exhibit 4.1 to the Form 8-K dated May 27, 1993, and filed on June 3, 1993).
4c.	Form of 7.15% Debenture due 2023 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4.2 to the Form 8-K dated May 27, 1993, and filed on June 3, 1993).
4d.	Form of 6.80% Debenture due 2026 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4e to the Form 10-K for the fiscal year ended December 31, 1996).
4e.	Form of 6.875% Debenture due 2097 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4f to the Form 10-Q for the quarterly period ended September 30, 1997).
4f.	$2,000,000,000 Five Year Competitive Advance and Revolving Credit Facility Agreement dated as of December 22, 2004 among Bristol-Myers Squibb Company, the borrowing subsidiaries, the lenders named in the agreement, Bank of America, N.A. as syndication agent, and JPMorgan Chase Bank and Citicorp North America, Inc., as administrative agents (filed herewith).
4g.	Second Supplemental Indenture, dated September 28, 2001, between Bristol-Myers Squibb Company and JPMorgan Chase Bank (as successor trustee to The Chase Manhattan Bank) to the indenture dated June 1, 1993 (previously filed as an exhibit to the Annual Report on Form 10-K).
4h.	Form of 4.75% Note due 2006 and Form of 5.75% Note Due 2011 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4g to the Form 10-K for the fiscal year ended December 31, 2003).
4i.	Third Supplemental Indenture, dated August 18, 2003, between Bristol-Myers Squibb Company and JPMorgan Chase Bank, as Trustee, to the indenture dated June 1, 1993 (incorporated herein by reference to Exhibit 4k to the Form 10-Q for the quarterly period ended September 30, 2003).
4j.	Purchase Agreement dated August 12, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives to the several purchasers, named in Schedule I of the Agreement, of 4.00% Senior Notes due 2008 and 5.25% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4l to the Form 10-Q for the quarterly period ended September 30, 2003).

125

4k.	Exchange and Registration Rights Agreement, dated August 18, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of 4.00% Senior Notes due 2008 and 5.25% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4m to the Form 10-Q for the quarterly period ended September 30, 2003).
4l.	Form of 4.00% Senior Note due 2008 (incorporated herein by reference to Exhibit 4j to the Form 10-Q for the quarterly period ended September 30, 2003) (incorporated herein by reference to Exhibit 4n to the Form 10-Q for the quarterly period ended September 30, 2003).
4m.	Form of 5.25% Senior Note due 2013 (incorporated herein by reference to Exhibit 4o to the Form 10-Q for the quarterly period ended September 30, 2003).
4n.	Indenture, dated October 1, 2003, between Bristol-Myers Squibb Company, as Issuer, and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4q to the Form 10-Q for the quarterly period ended September 30, 2003).
4o.	Registration Rights Agreement, dated October 1, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of Floating Rate Convertible Senior Debentures due 2023 (incorporated herein by reference to Exhibit 4r to the Form 10-Q for the quarterly period ended September 30, 2003).
4p.	Form of Floating Rate Convertible Senior Debenture due 2023 (incorporated herein by reference to Exhibit 4s to the Form 10-Q for the quarterly period ended September 30, 2003).
4q.	Purchase Agreement dated September 25, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of Floating Rate Convertible Debentures due 2023 (incorporated herein by reference to Exhibit 4t to the Form 10-Q for the quarterly period ended September 30, 2003).
4r.	Specimen Certificate of Common Stock (incorporated herein by reference to Exhibit 4s to the Form 10-K for the fiscal year ended December 31, 2003).
4s.	Specimen Certificate of Convertible Preferred Stock (incorporated herein by reference to Exhibit 4t to the Form 10-K for the fiscal year ended December 31, 2003).
**10a.	Bristol-Myers Squibb Company 1997 Stock Incentive Plan, effective as of May 6, 1997 and as amended effective July 17, 2002 (incorporated herein by reference to Exhibit 10a to the Form 10-Q for the quarterly period ended June 30, 2002).
**10b.	Bristol-Myers Squibb Company 2002 Stock Incentive Plan, effective as of May 7, 2002 and as amended effective July 17, 2002 (incorporated herein by reference to Exhibit 10b to the Form 10-Q for the quarterly period ended June 30, 2002).
**10c.	Bristol-Myers Squibb Company TeamShare Stock Option Plan, as amended and restated effective September 10, 2002 (incorporated herein by reference to Exhibit 10c to the Form 10-K for the fiscal year ended December 31, 2002).
**10d.	Bristol-Myers Squibb Company Executive Performance Incentive Plan (effective January 1, 1997 and incorporated herein by reference to Exhibit 10b to the Form 10-K for the fiscal year ended December 31, 1996).
**10e.	Bristol-Myers Squibb Company Executive Performance Incentive Plan (effective January 1, 2003 and incorporated herein by reference to Exhibit D to the 2003 Proxy Statement dated April 4, 2003).
**10f.	Bristol-Myers Squibb Company 1983 Stock Option Plan, as amended and restated as of October 1, 2001 (filed herewith).
**10g.	Bristol-Myers Squibb Company Performance Incentive Plan, as amended (as adopted, incorporated herein by reference to Exhibit 2 to the Form 10-K for the fiscal year ended December 31, 1978; as amended as of January 8, 1990, incorporated herein by reference to Exhibit 19b to the Form 10-K for the fiscal year ended December 31, 1990; as amended on April 2, 1991, incorporated herein by reference to Exhibit 19b to the Form 10-K for the fiscal year ended December 31, 1991; as amended effective January 1, 1994, incorporated herein by reference to Exhibit 10d to the Form 10-K for the fiscal year ended December 31, 1993; and as amended effective January 1, 1994, incorporated herein by reference to Exhibit 10d to the Form 10-K for the fiscal year ended December 31, 1994).

126

**10h.	Benefit Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Retirement Income Plan or the Bristol-Myers Squibb Puerto Rico, Inc. Retirement Income Plan, as amended (as amended and restated as of January 1, 1993, as amended effective October 1, 1993, incorporated herein by reference to Exhibit 10e to the Form 10-K for the fiscal year ended December 31, 1993; and as amended effective February 1, 1995, incorporated herein by reference to Exhibit 10e to the Form 10-K for the fiscal year ended December 31, 1996).
**10i.	Benefit Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Savings and Investment Program, as amended and restated effective as of January 1, 1996 (incorporated herein by reference to Exhibit 10h to the Form 10-K for the fiscal year ended December 31, 2001).
**10j.	Squibb Corporation Supplementary Pension Plan, as amended (as previously amended and restated, incorporated herein by reference to Exhibit 19g to the Form 10-K for the fiscal year ended December 31, 1991; as amended as of September 14, 1993, and incorporated herein by reference to Exhibit 10g to the Form 10-K for the fiscal year ended December 31, 1993).
**10k.	Bristol-Myers Squibb Company Retirement Income Plan for Non-Employee Directors, as amended to March 5, 1996 (incorporated herein by reference to Exhibit 10k to the Form 10-K for the fiscal year ended December 31, 1996).
**10l.	Bristol-Myers Squibb Company 1987 Deferred Compensation Plan for Non-Employee Directors, as amended to January 13, 2004 (filed herewith).
**10m.	Bristol-Myers Squibb Company Non-Employee Directors’ Stock Option Plan, as amended (as approved by the Stockholders on May 1, 1990, incorporated herein by reference to Exhibit 28 to Registration Statement No. 33-38587 on Form S-8; as amended May 7, 1991, incorporated herein by reference to Exhibit 19c to the Form 10-K for the fiscal year ended December 31, 1991), as amended January 12, 1999 (incorporated herein by reference to Exhibit 10m to the Form 10-K for the fiscal year ended December 31, 1998).
**10n.	Bristol-Myers Squibb Company Non-Employee Directors’ Stock Option Plan, as amended (as approved by the Stockholders on May 2, 2000, incorporated herein by reference to Exhibit A to the 2000 Proxy Statement dated March 20, 2000.)
**10o.	Squibb Corporation Deferral Plan for Fees of Outside Directors, as amended (as adopted, incorporated herein by reference to Exhibit 10e Squibb Corporation 1991 Form 10-K for the fiscal year ended December 31, 1987, File No. 1-5514; as amended effective December 31, 1991 incorporated herein by reference to Exhibit 10m to the Form 10-K for the fiscal year ended December 31, 1992).
**10p.	Amendment to all of the Company’s plans, agreements, legal documents and other writings, pursuant to action of the Board of Directors on October 3, 1989, to reflect the change of the Company’s name to Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10v to the Form 10-K for the fiscal year ended December 31, 1989).
**10q.	Form of Agreement entered into between the Bristol-Myers Squibb Company and each of the named executive officers and certain other executives effective January 1, 2005 (filed herewith).
12.	Statement re computation of ratios (filed herewith).
21.	Subsidiaries of the Registrant (filed herewith).
23.	Consent of PricewaterhouseCoopers LLP (filed herewith).
31a.	Section 302 Certification Letter (filed herewith).
31b.	Section 302 Certification Letter (filed herewith).
32a.	Section 906 Certification Letter (filed herewith).
32b.	Section 906 Certification Letter (filed herewith).

* Indicates, in this Form 10-K, brand names of products, which are registered trademarks not owned by the Company or its subsidiaries. ERBITUX is a trademark of ImClone; AVAPRO, APROVEL, AVALIDE and PLAVIX are trademarks of Sanofi-Synthelabo S.A.; GLUCOPHAGE and GLUCOVANCE are trademarks of Merck Sante S.A.S., an associate of Merck KGaA of Darmstadt, Germany; ABILIFY is a trademark of Otsuka Pharmaceuticals, Ltd.; MOISTUREL and DURICEF are trademarks of Galen (Chemicals) Limited; JAVLOR is a trademark of Pierre Fabre Medicament, S.A.; TRUVADA is a trademark of Gilead Sciences, Inc.; and EMSAM is a trademark of Somerset Pharmaceuticals, Inc.

127

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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)
By	/s/    PETER R. DOLAN
	Peter R. Dolan
	Chairman of the Board of Directors and Chief Executive Officer
Date: March 3, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    PETER R. DOLAN         (Peter R. Dolan)	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	March 3, 2005
/s/    ANDREW R.J. BONFIELD         (Andrew R.J. Bonfield)	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	March 3, 2005
/s/    DAVID L. ZABOR         (David L. Zabor)	Vice President and Controller (Principal Accounting Officer)	March 3, 2005
/s/    ROBERT E. ALLEN         (Robert E. Allen)	Director	March 3, 2005
/s/    LEWIS B. CAMPBELL         (Lewis B. Campbell)	Director	March 3, 2005
/s/    VANCE D. COFFMAN         (Vance D. Coffman)	Director	March 3, 2005
/s/    JAMES M. CORNELIUS         (James M. Cornelius)	Director	March 3, 2005
/s/    ELLEN V. FUTTER         (Ellen V. Futter)	Director	March 3, 2005
/s/    LOUIS V. GERSTNER, JR.         (Louis V. Gerstner, Jr.)	Director	March 3, 2005
/s/    LAURIE H. GLIMCHER, M.D.         (Laurie H. Glimcher, M.D.)	Director	March 3, 2005
/s/    LEIF JOHANSSON         (Leif Johansson)	Director	March 3, 2005
/s/    JAMES D. ROBINSON III         (James D. Robinson III)	Director	March 3, 2005
/s/    LOUIS W. SULLIVAN, M.D.         (Louis W. Sullivan, M.D.)	Director	March 3, 2005

128

EXHIBIT INDEX

The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by two asterisks (**) are management contracts or compensatory plans or arrangements required to be filed pursuant to Item 15. An asterisk (*) in the Page column indicates that the Exhibit has been previously filed with the Commission and is incorporated herein by reference. Unless otherwise indicated, all Exhibits are part of Commission File Number 1-1136.

Exhibit No.	Description	Page No.
3a.	Restated Certificate of Incorporation of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 3c to the Form 10-Q for the quarterly period ended September 30, 2003).	*
3b.	Bylaws of Bristol-Myers Squibb Company, as amended as of January 3, 2005 (filed herewith).	E-3-1
4a.	Letter of Agreement dated March 28, 1984 (incorporated herein by reference to Exhibit 4 to Form 10-K for the fiscal year ended December 31, 1983).	*
4b.	Indenture, dated as of June 1, 1993, between Bristol-Myers Squibb Company and JPMorgan Chase Bank (as successor trustee to The Chase Manhattan Bank (National Association)) (incorporated herein by reference to Exhibit 4.1 to the Form 8-K dated May 27, 1993, and filed on June 3, 1993).	*
4c.	Form of 7.15% Debenture due 2023 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4.2 to the Form 8-K dated May 27, 1993, and filed on June 3, 1993).	*
4d.	Form of 6.80% Debenture due 2026 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4e to the Form 10-K for the fiscal year ended December 31, 1996).	*
4e.	Form of 6.875% Debenture due 2097 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4f to the Form 10-Q for the quarterly period ended September 30, 1997).	*
4f.	$2,000,000,000 Five Year Competitive Advance and Revolving Credit Facility Agreement dated as of December 22, 2004 among Bristol-Myers Squibb Company, the borrowing subsidiaries, the lenders named in the agreement, Bank of America, N.A. as syndication agent, and JPMorgan Chase Bank and Citicorp North America, Inc., as administrative agents (filed herewith).	E-4-1
4g.	Second Supplemental Indenture, dated September 28, 2001, between Bristol-Myers Squibb Company and JPMorgan Chase Bank (as successor trustee to The Chase Manhattan Bank) to the indenture dated June 1, 1993 (previously filed as an exhibit to the Annual Report on Form 10-K).	*
4h.	Form of 4.75% Note due 2006 and Form of 5.75% Note Due 2011 of Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 4g to the Form 10-K for the fiscal year ended December 31, 2003).	*
4i.	Third Supplemental Indenture, dated August 18, 2003, between Bristol-Myers Squibb Company and JPMorgan Chase Bank, as Trustee, to the indenture dated June 1, 1993 (incorporated herein by reference to Exhibit 4k to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4j.	Purchase Agreement dated August 12, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives to the several purchasers, named in Schedule I of the Agreement, of 4.00% Senior Notes due 2008 and 5.25% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4l to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4k.	Exchange and Registration Rights Agreement, dated August 18, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of 4.00% Senior Notes due 2008 and 5.25% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4m to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4l.	Form of 4.00% Senior Note due 2008 (incorporated herein by reference to Exhibit 4j to the Form 10-Q for the quarterly period ended September 30, 2003) (incorporated herein by reference to Exhibit 4n to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4m.	Form of 5.25% Senior Note due 2013 (incorporated herein by reference to Exhibit 4o to the Form 10-Q for the quarterly period ended September 30, 2003).	*

129

4n.	Indenture, dated October 1, 2003, between Bristol-Myers Squibb Company, as Issuer, and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4q to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4o.	Registration Rights Agreement, dated October 1, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of Floating Rate Convertible Senior Debentures due 2023 (incorporated herein by reference to Exhibit 4r to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4p.	Form of Floating Rate Convertible Senior Debenture due 2023 (incorporated herein by reference to Exhibit 4s to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4q.	Purchase Agreement dated September 25, 2003, between Bristol-Myers Squibb Company and Goldman, Sachs & Co., J.P. Morgan Securities Inc., as representatives of the several purchasers named in Schedule I to the Purchase Agreement, of Floating Rate Convertible Debentures due 2023 (incorporated herein by reference to Exhibit 4t to the Form 10-Q for the quarterly period ended September 30, 2003).	*
4r.	Specimen Certificate of Common Stock (incorporated herein by reference to Exhibit 4s to the Form 10-K for the fiscal year ended December 31, 2003).	*
4s.	Specimen Certificate of Convertible Preferred Stock (incorporated herein by reference to Exhibit 4t to the Form 10-K for the fiscal year ended December 31, 2003).	*
**10a.	Bristol-Myers Squibb Company 1997 Stock Incentive Plan, effective as of May 6, 1997 and as amended effective July 17, 2002 (incorporated herein by reference to Exhibit 10a to the Form 10-Q for the quarterly period ended June 30, 2002).	*
**10b.	Bristol-Myers Squibb Company 2002 Stock Incentive Plan, effective as of May 7, 2002 and as amended effective July 17, 2002 (incorporated herein by reference to Exhibit 10b to the Form 10-Q for the quarterly period ended June 30, 2002).	*
**10c.	Bristol-Myers Squibb Company TeamShare Stock Option Plan, as amended and restated effective September 10, 2002 (incorporated herein by reference to Exhibit 10c to the Form 10-K for the fiscal year ended December 31, 2002).	*
**10d.	Bristol-Myers Squibb Company Executive Performance Incentive Plan (effective January 1, 1997 and incorporated herein by reference to Exhibit 10b to the Form 10-K for the fiscal year ended December 31, 1996).	*
**10e.	Bristol-Myers Squibb Company Executive Performance Incentive Plan (effective January 1, 2003 and incorporated herein by reference to Exhibit D to the 2003 Proxy Statement dated April 4, 2003).	*
**10f.	Bristol-Myers Squibb Company 1983 Stock Option Plan, as amended and restated as of October 1, 2001 (filed herewith).	E-10-1
**10g.	Bristol-Myers Squibb Company Performance Incentive Plan, as amended (as adopted, incorporated herein by reference to Exhibit 2 to the Form 10-K for the fiscal year ended December 31, 1978; as amended as of January 8, 1990, incorporated herein by reference to Exhibit 19b to the Form 10-K for the fiscal year ended December 31, 1990; as amended on April 2, 1991, incorporated herein by reference to Exhibit 19b to the Form 10-K for the fiscal year ended December 31, 1991; as amended effective January 1, 1994, incorporated herein by reference to Exhibit 10d to the Form 10-K for the fiscal year ended December 31, 1993; and as amended effective January 1, 1994, incorporated herein by reference to Exhibit 10d to the Form 10-K for the fiscal year ended December 31, 1994).	*
**10h.	Benefit Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Retirement Income Plan or the Bristol-Myers Squibb Puerto Rico, Inc. Retirement Income Plan, as amended (as amended and restated as of January 1, 1993, as amended effective October 1, 1993, incorporated herein by reference to Exhibit 10e to the Form 10-K for the fiscal year ended December 31, 1993; and as amended effective February 1, 1995, incorporated herein by reference to Exhibit 10e to the Form 10-K for the fiscal year ended December 31, 1996).	*
**10i.	Benefit Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Savings and Investment Program, as amended and restated effective as of January 1, 1996 (incorporated herein by reference to Exhibit 10h to the Form 10-K for the fiscal year ended December 31, 2001).	*

130

**10j.	Squibb Corporation Supplementary Pension Plan, as amended (as previously amended and restated, incorporated herein by reference to Exhibit 19g to the Form 10-K for the fiscal year ended December 31, 1991; as amended as of September 14, 1993, and incorporated herein by reference to Exhibit 10g to the Form 10-K for the fiscal year ended December 31, 1993).	*
**10k.	Bristol-Myers Squibb Company Retirement Income Plan for Non-Employee Directors, as amended to March 5, 1996 (incorporated herein by reference to Exhibit 10k to the Form 10-K for the fiscal year ended December 31, 1996).	*
**10l.	Bristol-Myers Squibb Company 1987 Deferred Compensation Plan for Non-Employee Directors, as amended to January 13, 2004 (filed herewith).	E-10-2
**10m.	Bristol-Myers Squibb Company Non-Employee Directors’ Stock Option Plan, as amended (as approved by the Stockholders on May 1, 1990, incorporated herein by reference to Exhibit 28 to Registration Statement No. 33-38587 on Form S-8; as amended May 7, 1991, incorporated herein by reference to Exhibit 19c to the Form 10-K for the fiscal year ended December 31, 1991), as amended January 12, 1999 (incorporated herein by reference to Exhibit 10m to the Form 10-K for the fiscal year ended December 31, 1998).	*
**10n.	Bristol-Myers Squibb Company Non-Employee Directors’ Stock Option Plan, as amended (as approved by the Stockholders on May 2, 2000, incorporated herein by reference to Exhibit A to the 2000 Proxy Statement dated March 20, 2000.)	*
**10o.	Squibb Corporation Deferral Plan for Fees of Outside Directors, as amended (as adopted, incorporated herein by reference to Exhibit 10e Squibb Corporation 1991 Form 10-K for the fiscal year ended December 31, 1987, File No. 1-5514; as amended effective December 31, 1991 incorporated herein by reference to Exhibit 10m to the Form 10-K for the fiscal year ended December 31, 1992).	*
**10p.	Amendment to all of the Company’s plans, agreements, legal documents and other writings, pursuant to action of the Board of Directors on October 3, 1989, to reflect the change of the Company’s name to Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10v to the Form 10-K for the fiscal year ended December 31, 1989).	*
**10q.	Form of Agreement entered into between Bristol-Myers Squibb Company and each of the named executive officers and certain other executives effective January 1, 2005 (filed herewith).	E-10-3
12.	Statement re computation of ratios (filed herewith).	E-12-1
21.	Subsidiaries of the Registrant (filed herewith).	E-21-1
23.	Consent of PricewaterhouseCoopers LLP (filed herewith).	E-23-1
31a.	Section 302 Certification Letter (filed herewith).	E-31-1
31b.	Section 302 Certification Letter (filed herewith).	E-31-2
32a.	Section 906 Certification Letter (filed herewith).	E-32-1
32b.	Section 906 Certification Letter (filed herewith).	E-32-2

131

SCHEDULE II

BRISTOL-MYERS SQUIBB COMPANY

VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at beginning of period		Additions charged to costs and expenses		Deductions- bad debts written off		Balance at End of period
	(dollars in millions)
Allowances for Discounts and Doubtful accounts:
For the year ended December 31, 2004	$	154	$	161	$	137	$	178
For the year ended December 31, 2003		129		83		58		154
For the year ended December 31, 2002		122		91		84		129

132

EX-3.(B)

Exhibit 3b.

BRISTOL-MYERS SQUIBB COMPANY

BYLAWS

As Adopted on November 1, 1965

And as Amended to January 3, 2005

E-3-1

INDEX

No.	SUBJECT	Page
1.	Principal Office	1
2.	Other Offices	1
3.	Seal	1
4.	Meetings of Shareholders — Date and Time	1-2
5.	Meetings of Shareholders — Place	2
6.	Meetings of Shareholders — No Action By Written Consent, Call	2-3
7.	Meetings of Shareholders — Notice	3
8.	Meetings of Shareholders — Quorum	3
9.	Meetings of Shareholders — Presiding Officer and Secretary	3-4
10.	Meetings of Shareholders — Voting	4
11.	Meetings of Shareholders — Voting List	4-5
12.	Annual Meeting of Shareholders — Statement of Business and Condition of Company	5
13.	Meetings of Shareholders — Inspectors of Election	5
14.	Board of Directors — Powers	5
15.	Board of Directors — Number, Election, Term, Resignation or Retirement, Removal and Filling Vacancies	5-6
16.	Board of Directors — Location of Meetings and Books	6
17.	Board of Directors — Scheduling of Regular Meetings	6
18.	Board of Directors — Scheduling of Special Meetings	6-7

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No.	SUBJECT	Page
19.	Board of Directors — Waiver of Meeting Notice and Action by Consent	7
20.	Board of Directors — Quorum for Meeting	7
21.	Board of Directors — Meeting Procedure	7
22.	Board of Directors — Fees	8
23.	Board of Directors — Indemnification	8-9
24.	Committees of the Board — Executive, Audit, Others	9-10
25.	Committees of the Board — Minutes and Reports	10
26.	Officers	10
27.	Officers — Election and Term	11
28.	Appointment of Other Officers, Committees or Agents	11
29.	Officers — Removal	11
30.	Officers — Resignation	11
31.	Officers — Unable to Perform Duties	11-12
32.	Officers — Vacancy	12
33.	The Chairman of the Board and Chief Executive Officer – Powers and Duties	12
34.	The Vice Chairman of the Board — Powers and Duties	12
35.	Duties of President	12
36.	Vice Presidents — Powers and Duties	12-13
37.	The Treasurer — Powers and Duties	13
38.	The Secretary — Powers and Duties	13

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No.	SUBJECT	Page
39.	The Controller — Powers and Duties	13
40.	Assistant Treasurers and Assistant Secretaries — Powers and Duties	14
41.	Officers — Compensation	14
42.	Contracts, Other Instruments, Authority to Enter Into or Execute	14
43.	Loans and Negotiable Paper	14
44.	Checks, Drafts, etc.	14-15
45.	Banks — Deposit of Funds	15
46.	Stock Certificates — Form, Issuance	15
47.	Stock — Transfer	15-16
48.	Stock Certificates – Loss, Replacement	16
49.	Record Dates	16
50.	Registered Shareholders	17
51.	Fiscal Year	17
52.	Notices	17
53.	Notices — Waiver	17
54.	Amendments of Bylaws	17

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BYLAWS

of

BRISTOL-MYERS SQUIBB COMPANY

OFFICES

1. The registered office of the Company shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is The Corporation Trust Company.

2. The Company may also have offices at such place or places as the Board of Directors may from time to time appoint or the business of the Company may require.

SEAL

3. The corporate seal shall have inscribed thereon the name of the Company, the year of its organization and the words “Corporate Seal, Delaware.” Said seal may be used in causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

MEETINGS OF SHAREHOLDERS

4. The annual meeting of the shareholders for the election of directors and for the transaction of any other proper business shall be held at such time as the Board of Directors may determine. For nominations or other business to be properly brought before any annual meeting by a shareholder, a shareholder must give timely notice in writing thereof to the Secretary of the Company and, in the case of business other than nominations, such other business must be a proper matter for shareholder action. To be considered timely, a shareholder’s notice must be received by the Secretary at the principal executive offices of the Company not less than 120 calendar days before the date of the Company’s proxy statement released to shareholders in connection with the prior year’s annual meeting. If the annual meeting for the election of directors is not held on the date designated therefor, the directors shall cause the meeting to be held as soon thereafter as convenient. A shareholder’s notice shall set forth: (a) as to each person whom the shareholder proposes to nominate

for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Company’s books, and of such beneficial owner, (ii) the number of shares of stock held of record and beneficially by such shareholder and such beneficial owner, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Company, (iv) a representation that the shareholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions intended to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (vi) any personal or other material interest of the shareholder in the business to be submitted, and (vii) all other information relating to the proposed business which may be required to be disclosed under applicable law. In addition, a shareholder seeking to submit such business at the meeting shall promptly provide any other information reasonably requested by the Company. The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall, if the facts warrant, determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures prescribed by this bylaw, in which case such business shall not be transacted. Notwithstanding the foregoing provisions of this bylaw, a shareholder who seeks to have any proposal included in the Company’s proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934.

5. Meetings of the shareholders may be held at such places either within or without the State of Delaware as the Board of Directors may determine.

6. Any action required or permitted to be taken by the stockholders of the Company must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Except as otherwise required by law and subject to

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the rights under Article FOURTH of the Certificate of Incorporation of the Company of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Company may be called only by the Chairman of the Board or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors.

7. Except as hereinafter provided or as may be otherwise required by law, notice of the place, date and hour of holding each annual and special meeting of the shareholders shall be in writing and shall be delivered personally or mailed in a postage prepaid envelope, not less than ten days before such meeting, to each person who appears on the books of the Company as a shareholder entitled to vote at such meeting, and to any shareholders who, by reason of any action proposed at such meeting, would be entitled to have their shares appraised if such action were taken. The notice of every special meeting, besides stating the time and place of such meeting, shall state briefly the purpose or purposes thereof; and no business other than that specified in such notice or germane thereto shall be transacted at the meeting, except with the unanimous consent in writing of the holders of record of all of the shares of the Company entitled to vote at such meeting. Notice of any meeting of shareholders shall not be required to be given to any shareholder entitled to participate in any action proposed to be taken at such meeting who shall attend such meeting in person or by proxy or who before or after any such meeting shall waive notice thereof in writing or by telegram, cable or wireless. Notice of any adjourned meeting need not be given.

8. At all meetings of shareholders of the Company, except as otherwise provided by law, the holders of a majority in number of the outstanding shares of the Company, present in person or by proxy and entitled to vote thereat, shall constitute a quorum for the transaction of business. In the absence of a quorum the holders of a majority in number of the shares of stock so present or represented and entitled to vote may adjourn the meeting from time to time until a quorum is present. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called.

9. The Chairman of the Board shall preside as chairman at every meeting of shareholders. The Chairman of the Board may designate another officer of the Company or any shareholder to preside as chairman of a meeting of shareholders in place of the Chairman of the Board and in the absence of the Chairman of the Board and an officer or shareholder designated by the Chairman of the Board to preside as chairman of the meeting, the Board of Directors may designate an officer or shareholder to preside as chairman of the meeting. In the event the Chairman of the Board and the

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Board of Directors fail to so designate a chairman of the meeting the shareholders may designate an officer or shareholder as chairman. The Secretary shall act as secretary of the meeting, or, in the absence of the Secretary, the presiding officer shall appoint a secretary of the meeting.

10. At each meeting of the shareholders every shareholder of record entitled to vote thereat shall be entitled to one vote for each share of the Company standing in that shareholder’s name on the books of the Company provided that no share of stock shall be voted at any election of directors which shall have been transferred on the books of the Company later than the record date announced by the Board of Directors or fixed by operation of these bylaws. The vote on shares may be given by the shareholder entitled thereto in person or by proxy duly appointed by an instrument in writing subscribed by such shareholder or that shareholder’s duly authorized attorney (or in any other manner prescribed by the General Corporation Law of the State of Delaware), and delivered to the secretary of the meeting; provided, however, that no proxy shall be valid after the expiration of three years from the date of its execution unless the shareholder executing it shall have specified therein the length of time it is to continue in force, which shall be for some limited period. At all meetings of shareholders, a quorum being present, all matters, except as otherwise provided by law or by the Certificate of Incorporation of the Company or these bylaws, shall be decided by the holders of a majority in number of the shares of stock of the Company present in person or by proxy and entitled to vote. A share vote may be by ballot and each ballot shall state the name of the shareholder voting and the number of shares owned by that shareholder and shall be signed by such shareholder or by that shareholder’s proxy. Except as otherwise required by law or by these bylaws all voting may be viva voce.

11. The Secretary or other officer in charge of the stock ledger of the Company shall prepare and make at least ten days before every meeting of shareholders a complete list of the shareholders entitled to vote at the meeting arranged in alphabetical order and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder for any purpose germane to the meeting during ordinary business hours for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any shareholder who is present. The stock ledger shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by this bylaw, or the books of

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the Company or to vote in person or by proxy at any meeting of shareholders.

12. The Board of Directors shall present at each annual meeting, and when called for by vote of the shareholders at any special meeting of the shareholders, a full and clear statement of the business and condition of the Company.

13. At all elections of directors and when otherwise required by law, the chairman of the meeting shall appoint two inspectors of election. The inspectors shall be responsible for receiving, tabulating and reporting the result of the votes taken. No director or candidate for the office of director shall be appointed such inspector. The chairman of the meeting shall open and close the polls.

DIRECTORS

14. The property, business and affairs of the Company shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Company and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the shareholders.

15.    (a) The Board of Directors shall consist of eleven directors. The number of directors may be fixed from time to time by a majority vote of the entire Board of Directors.

(b) Except as otherwise provided by the Certificate of Incorporation, by these bylaws or by law, at each meeting of the shareholders for the election of directors at which a quorum shall be present, the persons receiving a plurality of the votes cast shall be directors. Such election shall be by ballot.

(c) The directors shall be elected as specified in the Certificate of Incorporation and by these bylaws.

(d) Except as otherwise provided in the Certificate of Incorporation or in these bylaws, each director shall continue in office until the next annual meeting of stockholders and until a successor shall have been elected and shall have qualified, or until the director shall have resigned, or, in the case of a director who is an employee of the Company, until the director shall have resigned from employment with the Company or the director’s employment shall have been terminated by the Company. In addition, a director who is not an employee of the Company or who is the Chief Executive Officer of the Company or a retired Chief Executive Officer of

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the Company shall retire from the position of director at the Annual Meeting following attainment of age 72; an employee who is a director of the Company (other than the Chief Executive Officer or a retired Chief Executive Officer) shall retire from the position of director on the effective date of the director’s retirement as an employee of the Company. Any director of the Company may resign at any time by giving written notice to the Chairman of the Board or to the Secretary of the Company. Such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Exceptions to the requirements for the retirement of a director may be made by the Board of Directors.

(e) Subject to the rights under Article FOURTH of the Certificate of Incorporation of the Company of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors or by a sole remaining director. Any director elected in accordance with the preceding sentence (i) prior to the 2006 annual meeting of stockholders shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or (ii) after such meeting shall hold office until the next annual meeting of stockholders and, in either case, until such director’s successor shall have been elected and qualified.

16. The directors may hold their meetings and keep the books of the Company at such place or places as they may from time to time determine.

17. Regular meetings of the Board of Directors may be held at such time as may be fixed from time to time by resolution of the Board of Directors. Unless required by said resolution, notice of any such meeting need not be given.

18. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board or any of three of the directors for the time being in office. Notice of each such special meeting shall be mailed, postage prepaid, to each director, addressed to the director at the director’s residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to the director at such place by telegraph, cable, or wireless, or be delivered personally or by telephone, not later than the day before the day on which the meeting is to be held. Every such notice shall state the time and place

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but, except as provided by these bylaws or by resolution of the Board of Directors, need not state the purposes of the meetings.

19. Anything in these bylaws or in any resolution adopted by the Board of Directors to the contrary notwithstanding, notice of any meeting of the Board of Directors need not be given to any director, if, before or after any such meeting, notice thereof shall be waived by such director in writing or by telegraph, cable or wireless. Any meeting of the Board of Directors shall be a legal meeting without any notice having been given or regardless of the giving of any notice or the adoption of any resolution in reference thereto, if all the directors shall be present thereat or shall have so waived notice thereof. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board and such written consent is filed with the minutes of proceedings of the Board of Directors.

20. Five of the directors in office at the time of any regular or special meeting of the Board of Directors shall constitute a quorum for the transaction of business at such meeting and except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these bylaws, the act of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum a majority of the directors present may adjourn any meeting from time to time until a quorum is present. Notice of any adjourned meeting need not be given. The directors shall act only as a board and the individual directors shall have no power as such.

21. At each meeting of the Board of Directors the Chairman of the Board shall preside. The Chairman of the Board may designate another member of the Board of Directors to preside as chairman of a meeting in place of the Chairman of the Board, and in the absence of the Chairman of the Board and any member of the Board of Directors designated by the Chairman of the Board to preside as chairman of the meeting, a majority of the directors present may designate a member of the Board of Directors as chairman to preside at the meeting. The Secretary of the Company or, in the absence of the Secretary, a person appointed by the chairman of the meeting, shall act as secretary of the Board of Directors. The Board of Directors may adopt such rules and regulations for the conduct of their meetings and the management of the affairs of the Company, as they shall deem proper and not inconsistent with the law or with these bylaws. At all meetings of the Board of Directors business shall be transacted in such order as the Board of Directors may determine.

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22. Each director shall be paid such fee, if any, for each meeting of the Board attended and/or such annual fee as shall be determined from time to time by resolution of the Board of Directors.

23.    (a) Definitions. As used herein, the term “director” shall include each present and former director of the Company and the term “officer” shall include each present and former officer of the Company as such, and the terms “director” and “officer” shall also include each employee of the Company, who, at the Company’s request, is serving or may have served as a director or officer of another corporation in which the Company owns directly or indirectly, shares of capital stock or of which it is a creditor. The term “officer” also includes each assistant or divisional officer. The term “expenses” shall include, but not be limited to, reasonable amounts for attorney’s fees, costs, disbursements and other expenses and the amount or amounts of judgments, fines, penalties and other liabilities.

(b) Indemnification Granted. Each director and officer shall be and hereby is indemnified by the Company, to the full extent permitted by law, against:

(i) expenses incurred or paid by the director or officer in connection with any claim made against such director or officer, or any actual or threatened action, suit or proceeding (civil, criminal, administrative, investigative or other, including appeals and whether or not relating to a date prior to the adoption of this bylaw) in which such director or officer may be involved as a party or otherwise, by reason of being or having been a director or officer of the Company, or of serving or having served at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action taken or not taken by such director or officer in such capacity, and

(ii) the amount or amounts paid by the director or officer in settlement of any such claim, action, suit or proceeding or any judgment or order entered therein, however, notwithstanding anything to the contrary herein where a director or officer seeks indemnification in connection with a proceeding voluntarily initiated by such director or officer the right to indemnification granted hereunder shall be limited to proceedings where such director or officer has been wholly successful on the merits.

(c) Miscellaneous.

(i) Expenses incurred and amounts paid in settlement with respect to any claim, action, suit or proceeding of the character described in paragraph (b)(i) above may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on

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behalf of the recipient to repay such amounts as shall not ultimately be determined to be payable to such recipient under this bylaw.

(ii) The rights of indemnification herein provided for shall be severable, shall not be exclusive of other rights to which any director or officer now or hereafter may be entitled, shall continue as to a person who has ceased to be an indemnified person and shall inure to the benefit of the heirs, executors, administrators and other legal representatives of such a person.

(iii) The provisions of this bylaw shall be deemed to be a contract between the Company and each director or officer who serves in such capacity at any time while such bylaw is in effect.

(iv) The Board of Directors shall have power on behalf of the Company to grant indemnification to any person other than a director or officer to such extent as the Board in its discretion may from time to time determine.

COMMITTEES OF THE BOARD

24.    (a) The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board of Directors, designate an Executive Committee (and may discontinue the same at any time) to consist of three or more of the Directors of the Company. The members shall be appointed by the Board of Directors and shall hold office during the pleasure of the Board of Directors; provided, however, that in the absence or disqualification of any member of the Executive Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Executive Committee shall have and may exercise, during the intervals between the meetings of the Board of Directors, all of the powers of the Board of Directors in the management of the business and affairs of the Company (and shall have power to authorize the seal of the Company to be affixed to all papers which may require it), except that the Executive Committee shall have no power to (i) elect Directors to fill any vacancies or appoint any officers; (ii) fix the compensation of any officer or the compensation of any Director for serving on the Board of Directors or on any committee; (iii) declare any dividend or make any other distribution to the shareholders of the Company; (iv) submit to shareholders any action that needs shareholder authorization; (v) amend or repeal the bylaws or adopt any new bylaw; (vi) amend or repeal any resolution of the Board of Directors which by its terms shall not be so amendable or repealable; (vii)

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take any final action with respect to acquisitions, divestitures and equity investment transactions in excess of $25 million in upfront payments or $100 million in upfront and conditional milestone payments.

(b) The Audit Committee shall consist of three or more independent directors of the Company designated by the Committee on Directors and Corporate Governance and approved by a majority of the whole Board of Directors by resolution or resolutions. Any director who is a present or former employee of the Company may not serve on the Audit Committee. The members of the Audit Committee shall hold office during the pleasure of the Board of Directors. A majority of the members of the Audit Committee will constitute a quorum for the transaction of business. The responsibilities and duties of the Audit Committee shall be set forth in an Audit Committee Charter that shall be approved by the entire Board of Directors, from time to time.

(c) The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate such other committees as may be deemed advisable (and may discontinue the same at any time), to consist of two or more of the directors of the Company. The members shall be appointed by and shall hold office during the pleasure of the Board of Directors, and the Board of Directors shall prescribe the name or names of such committees, the number of their members and their duties and powers.

(d) Any action required or permitted to be taken at any meeting of any committee may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the committee and such written consent is filed with the minutes of proceedings of the committee.

25. All committees shall keep written minutes of their proceedings and report the same to the Board of Directors when required.

OFFICERS

26. The officers of the Company shall be a Chairman of the Board, a Chief Executive Officer, two or more Vice Presidents (which shall include Senior Vice President, Executive Vice President and other Vice President titles), a Treasurer, a Secretary, a Controller, and such other officers as may be appointed in accordance with these bylaws (such as a Vice Chairman of the Board or a President). The Secretary and Treasurer may be the same person, or a Vice President may hold at the same time the office of Secretary, Treasurer, or Controller.

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27. The Board of Directors shall designate certain officers to be members of a senior management team (the “Senior Management Team”). The Senior Management Team shall be called the Management Committee, the Executive Committee or such other name as the Chief Executive Officer shall determine. The members of the Senior Management Team, the Treasurer, Secretary and Controller shall be appointed by the Board of Directors. Each other officer shall be appointed by a member of the Senior Management Team, or by an officer of the Company to whom such power may from time to time be delegated by a member of the Senior Management Team. Each officer shall hold office until a successor shall have been duly chosen and shall have qualified or until the death or retirement of the officer or until the officer shall resign or shall have been removed in the manner hereinafter provided. The Chairman of the Board and Vice Chairman of the Board, if appointed, shall be chosen from among the directors.

28. The Board of Directors may appoint such other officers, committees or agents, as the business of the Company may require, including one or more Assistant Treasurers and one or more Assistant Secretaries, each of whom shall hold office for such period, and have such authority and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine. The Board of Directors may delegate to any officer or committee the power to appoint and to remove any such subordinate officer or agent.

29. Subject to the provisions of any written agreement, any officer may be removed, either with or without cause, by a vote of the majority of the whole Board of Directors at a regular meeting or a special meeting called for the purpose. Any officer, except an officer elected by the Board of Directors, may also be removed, with or without cause, by any committee or superior officer upon whom such power of removal may be conferred by the Board of Directors.

30. Subject to the provisions of any written agreement, any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board or the Secretary of the Company. Any such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

31. Except as otherwise provided in these bylaws, in the event any officer shall be unable to perform the duties of the office held, whether by reason of absence, disability or otherwise, the Chairman of the Board may designate another officer of the Company to assume the duties of the officer who is unable to carry out the duties of the office; in the event the Chairman of the Board shall be absent and unable to perform the duties of

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the office of Chairman of the Board, the Chairman of the Board shall designate another officer to assume the duties of the Chairman of the Board; if another officer has not been designated by the Chairman of the Board to assume the duties of the Chairman of the Board, then the Board of Directors shall designate another officer to assume the duties of the Chairman of the Board; in the event the Chairman of the Board shall be disabled and unable to perform the duties of the office of Chairman of the Board, then the Board of Directors shall designate another officer to assume the duties of the Chairman of the Board. Any officer designated to assume the duties of another officer shall have all the powers of and be subject to all the restrictions imposed upon the officer whose duties have been assumed.

32. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these bylaws for the regular appointment or election to such office.

33. The Chairman of the Board shall be the Chief Executive Officer of the Company and shall have general supervision of the business and operations of the Company, subject, however, to the control of the Board of Directors. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. The Chairman of the Board shall perform all of the duties usually incumbent upon a Chief Executive Officer of a corporation and incident to the office of the Chairman of the Board. The Chairman of the Board shall also have such powers and perform such duties as are assigned by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as may from time to time be assigned by the Board of Directors.

34. The Vice Chairman, if one shall be appointed, shall have such powers and perform such duties as are assigned by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from time to time may be assigned by the Board of Directors or the Chairman of the Board.

35. The President, if one shall be appointed, shall have such powers and perform such duties as are assigned by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from time to time may be assigned by the Board of Directors or the Chairman of the Board.

36. Each Vice President shall have such powers and perform such duties as are assigned by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from

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time to time may be assigned by the Board of Directors or the Chairman of the Board.

37. The Treasurer shall have charge and custody of, and be responsible for, all funds of the Company. The Treasurer shall regularly enter or cause to be entered in books to be kept by the Treasurer or under the Treasurer’s direction for this purpose full and adequate account of all moneys received or paid by the Treasurer for the account of the Company; the Treasurer shall exhibit such books of account and records to any of the directors of the Company at any time upon request at the office of the Company where such books and records shall be kept and shall render a detailed statement of these accounts and records to the Board of Directors as often as it shall require the same. The Treasurer shall also have such powers and perform such duties as are assigned the Treasurer by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from time to time may be assigned by the Board of Directors.

38. It shall be the duty of the Secretary to act as Secretary of all meetings of the Board of Directors and of the shareholders of the Company, and to keep the minutes of all such meetings in the proper book or books to be provided for that purpose; the Secretary shall see that all notices required to be given by or for the Company or the Board of Directors or any committee are duly given and served; the Secretary shall be custodian of the seal of the Company and shall affix the seal, or cause it to be affixed, to all documents, the execution of which on behalf of the Company, under its seal shall have been duly authorized in accordance with the provisions of these bylaws. The Secretary shall have charge of the share records and also of the other books, records, and papers of the Company relating to its organization and management as a corporation and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall in general perform all the duties usually incident to the office of Secretary. The Secretary shall also have such powers and perform such duties as are assigned by these bylaws, and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from time to time may be assigned by the Board of Directors.

39. The Controller shall perform the usual duties pertaining to the office of the Controller. The Controller shall have charge of the supervision of the accounting system of the Company, including the preparation and filing of all reports required by law to be made to any public authorities and officials, and shall also have such powers and perform such duties, not inconsistent with these bylaws, as from time to time may be assigned by the Board of Directors.

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40. The Assistant Treasurers and the Assistant Secretaries shall have such powers and perform such duties as are assigned to them by these bylaws and shall have such other powers and perform such other duties, not inconsistent with these bylaws, as from time to time may be assigned to them by the Treasurer or the Secretary, respectively, or by the Board of Directors.

41. The compensation of the Chairman of the Board, the Chief Executive Officer, members of the Senior Management Team, Treasurer, Secretary and Controller shall be fixed by the Board of Directors. The compensation of such other officers as may be appointed in accordance with the provisions of these bylaws may be fixed by any member of the Senior Management Team, or by an officer of the Company to whom such power may from time to time be delegated by a member of the Senior Management Team. No officer shall be prevented from receiving such compensation by reason of also being a director of the Company.

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

42. The Board of Directors except as in these bylaws otherwise provided, may authorize any officer or officers, agent or agents, in the name of and on behalf of the Company, to enter into any contract or execute and deliver any instrument, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors or expressly authorized by these bylaws, no officer or agent or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it pecuniarily liable for any purpose or to any amount.

43. No loans shall be contracted on behalf of the Company and no negotiable paper shall be issued in its name unless authorized by resolution of the Board of Directors. When authorized by the Board of Directors, any officer or agent of the Company thereunto authorized may effect loans and advances at any time for the Company from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other certificates or evidences of indebtedness of the Company and, when authorized so to do, may pledge, hypothecate or transfer any securities or other property of the Company as security for any such loans or advances. Such authority may be general or confined to specified instances.

44. All checks, drafts and other orders for the payment of moneys out of the funds of the Company and all notes or other evidences of indebtedness of the Company shall be signed on behalf of the Company in such manner

14

as shall from time to time be determined by resolution of the Board of Directors.

45. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositories as the Board of Directors may select or as may be selected by any officer or officers, agent or agents of the Company to whom such power may from time to time be delegated by the Board of Directors; and for the purpose of such deposit, the Chairman of the Board, the Chief Executive Officer, a Vice President, the Treasurer, the Controller, the Secretary or any other officer or agent or employee of the Company to whom such power may be delegated by the Board of Directors, may endorse, assign and deliver checks, drafts and other orders for the payment of moneys which are payable to the order of the Company.

CERTIFICATES AND TRANSFERS OF SHARES

46. The shares of the Company shall be represented by certificates or shall be uncertificated. Each registered holder of shares, upon request to the Company, shall be provided with a certificate of stock, representing the number of shares owned by such holder. Certificates for shares of the Company shall be in such form as shall be approved by the Board of Directors. Such certificates shall be numbered and registered in the order in which they are issued and shall be signed by the Chairman of the Board, the Chief Executive Officer or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Where any such certificate is countersigned by a transfer agent, other than the Company or its employee, or by a registrar, other than the Company or its employee, any other signature on such certificate may be a facsimile, engraved, stamped or printed. In the event that an officer whose facsimile signature appears on such certificate ceases for any reason to hold the office indicated and the Company or its transfer agent has on hand a supply of share certificates bearing such officer’s facsimile signature, such certificates may continue to be issued and registered until such supply is exhausted.

47. Transfers of shares of the Company shall be made only on the books of the Company by the holder thereof, or by the holder’s attorney thereunto duly authorized and on either the surrender of the certificate or certificates for such shares properly endorsed or upon receipt of proper transfer instructions from the registered owner of uncertificated shares. Every certificate surrendered to the Company shall be marked “Cancelled,” with the date of cancellation, and no new certificate shall be issued in exchange therefor until the old certificate has been surrendered and

15

cancelled, except as hereinafter provided. Uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Company.

48. The holder of any shares of the Company shall immediately notify the Company of any loss, destruction or mutilation of the certificate therefor and the Company may issue a new certificate in the place of any certificate theretofore issued by it alleged to have been lost, destroyed or mutilated. The Board of Directors may, in its discretion, as conditions to the issue of any such new certificate, require the owner of the lost or destroyed certificate or the owner’s legal representatives to make proof satisfactory to the Board of Directors of the loss or destruction thereof and to give the Company a bond in such form, in such sum and with such surety or sureties as the Board of Directors may direct, to indemnify the Company against any claim that may be made against it on account of any such certificate so alleged to have been lost or destroyed.

DETERMINATION OF RECORD DATE

49. In order that the Company may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix in advance a record date which shall not be more than 60 nor less than 10 days before the date of such meeting nor more than 60 days prior to any other action.

If no record date is fixed:

(i) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(ii) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

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REGISTERED SHAREHOLDERS

50. The Company shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware.

FISCAL YEAR

51. The fiscal year shall begin on the first day of January and end on the thirty-first day of December in each year.

NOTICES

52. Whenever under the provision of these bylaws notice is required to be given to any director or shareholder, it shall be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such director or shareholder at such address as appears on the books of the Company, or, in default of other address, to such director or shareholder, at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed.

53. Any notice required to be given under these bylaws may be waived in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein.

AMENDMENTS

54. Except as otherwise provided in the Certificate of Incorporation of the Company and consistent therewith, these bylaws may be altered, amended or repealed or new bylaws may be made by the affirmative vote of the holders of record of a majority of the shares of the Company entitled to vote, at any annual or special meeting, provided that such proposed action shall be stated in the notice of such meeting, or, by a vote of the majority of the whole Board of Directors, at any regular meeting without notice, or at any special meeting provided that notice of such proposed action shall be stated in the notice of such special meeting.

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EX-4.(F)

Exhibit 4f.

EXECUTION COPY

$2,000,000,000

FIVE YEAR COMPETITIVE ADVANCE AND

REVOLVING CREDIT FACILITY AGREEMENT

Among

BRISTOL-MYERS SQUIBB COMPANY,

THE BORROWING SUBSIDIARIES,

THE LENDERS NAMED HEREIN,

BANK OF AMERICA, N.A.

as Syndication Agent,

JPMORGAN CHASE BANK, N.A.

as Administrative Agent

and

CITICORP NORTH AMERICA, INC.,

as Administrative Agent

Dated as of December 22, 2004

J.P. MORGAN SECURITIES INC., CITIGROUP GLOBAL MARKETS INC.

and

BANC OF AMERICA SECURITIES LLC

as Joint Lead Arrangers and Bookrunners

E-4-1

TABLE OF CONTENTS

	Page
ARTICLE I Definitions	1
SECTION 1.1. Defined Terms	1
SECTION 1.2. Classification of Loans and Borrowings	15
SECTION 1.3. Terms Generally	15
SECTION 1.4. Accounting Terms; GAAP	16
ARTICLE II The Credits	16
SECTION 2.1. Commitments	16
SECTION 2.2. Loans and Borrowings	16
SECTION 2.3. Requests for Revolving Borrowings	17
SECTION 2.4. Competitive Bid Procedure	18
SECTION 2.5. Extension of Maturity Date	20
SECTION 2.6. Funding of Borrowings	21
SECTION 2.7. Interest Elections	22
SECTION 2.8. Termination and Reduction of Commitments	23
SECTION 2.9. Repayment of Loans; Evidence of Debt	23
SECTION 2.10. Prepayment of Loans	24
SECTION 2.11. Fees	25
SECTION 2.12. Interest	25
SECTION 2.13. Alternate Rate of Interest	26
SECTION 2.14. Increased Costs	27
SECTION 2.15. Break Funding Payments	28
SECTION 2.16. Taxes	29
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs	32
SECTION 2.18. Mitigation Obligations; Replacement of Lenders	33
SECTION 2.19. Borrowing Subsidiaries	34
SECTION 2.20. Prepayments Required Due to Currency Fluctuation	34
ARTICLE III Representations and Warranties	34
SECTION 3.1. Organization; Powers	34
SECTION 3.2. Authorization	35
SECTION 3.3. Enforceability	35
SECTION 3.4. Governmental Approvals	35
SECTION 3.5. Financial Statements; No Material Adverse Change	35
SECTION 3.6. Litigation; Compliance with Laws	36
SECTION 3.7. Federal Reserve Regulations	36
SECTION 3.8. Use of Proceeds	36
SECTION 3.9. Taxes	36
SECTION 3.10. Employee Benefit Plans	36
SECTION 3.11. Environmental and Safety Matters	37

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SECTION 3.12. Properties	37
SECTION 3.13. Investment and Holding Company Status	37
ARTICLE IV Conditions	37
SECTION 4.1. Effective Date	37
SECTION 4.2. Each Credit Event	38
SECTION 4.3. Initial Borrowing by Each Borrowing Subsidiary	39
ARTICLE V Covenants	39
SECTION 5.1. Existence	39
SECTION 5.2. Business and Properties	39
SECTION 5.3. Financial Statements, Reports, Etc.	39
SECTION 5.4. Insurance	40
SECTION 5.5. Obligations and Taxes	40
SECTION 5.6. Litigation and Other Notices	40
SECTION 5.7. Books and Records	41
SECTION 5.8. Consolidations, Mergers, and Sales of Assets	41
SECTION 5.9. Liens	41
SECTION 5.10. Limitation on Sale and Leaseback Transactions	42
SECTION 5.11. Leverage Ratio	42
ARTICLE VI Events of Default	43
ARTICLE VII The Administrative Agents	45
ARTICLE VIII Miscellaneous	47
SECTION 8.1. Notices	47
SECTION 8.2. Survival of Agreement	49
SECTION 8.3. Binding Effect	49
SECTION 8.4. Successors and Assigns	49
SECTION 8.5. Expenses; Indemnity	52
SECTION 8.6. Applicable Law	53
SECTION 8.7. Waivers; Amendment	53
SECTION 8.8. Entire Agreement	53
SECTION 8.9. Severability	53
SECTION 8.10. Counterparts	54
SECTION 8.11. Headings	54
SECTION 8.12. Right of Setoff	54
SECTION 8.13. Jurisdiction; Consent to Service of Process	54
SECTION 8.14. Waiver of Jury Trial	55
SECTION 8.15. Conversion of Currencies	55
SECTION 8.16. Guaranty	55
SECTION 8.17. European Monetary Union	57
SECTION 8.18. Confidentiality	57
SECTION 8.19. USA PATRIOT Act	58

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SCHEDULES

Schedule 2.1	Commitments
EXHIBITS
Exhibit A-1	Form of Competitive Bid Request
Exhibit A-2	Form of Notice of Competitive Bid Request
Exhibit A-3	Form of Competitive Bid
Exhibit A-4	Form of Competitive Bid Accept/Reject Letter
Exhibit A-5	Form of Borrowing Request
Exhibit B	Form of Assignment and Acceptance
Exhibit C	Form of Opinion of Company’s Counsel
Exhibit D	Form of Borrowing Subsidiary Agreement
Exhibit E	Form of Borrowing Subsidiary Termination

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FIVE YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (the “Agreement”) dated as of December 22, 2004, among BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation (the “Company”), the BORROWING SUBSIDIARIES (as defined herein), the lenders listed in Schedule 2.1 (the “Lenders”), BANK OF AMERICA, N.A. as Syndication Agent, JPMORGAN CHASE BANK, N.A., a national banking association, as administrative agent for the Lenders (in such capacity, “JPMCB”), and CITICORP NORTH AMERICA, INC., as Administrative Agent for the Lenders (in such capacity, “CNAI”; JPMCB and CNAI are referred to herein individually as an “Administrative Agent” and collectively as the “Administrative Agents”) and as competitive advance facility agent (in such capacity, the “Advance Agent”).

The Company has requested that the Lenders, on the terms and subject to the conditions herein set forth (i) extend credit to the Company and the applicable Borrowing Subsidiaries to enable them to borrow on a standby revolving credit basis on and after the date hereof and at any time and from time to time prior to the Maturity Date (such term and each other capitalized term used but not defined herein having the meaning assigned to it in Article I) a principal amount not in excess of $2,000,000,000 and (ii) provide a procedure pursuant to which the Company and the Borrowing Subsidiaries may invite the Lenders to bid on an uncommitted basis on short-term borrowings by the Company or the applicable Borrowing Subsidiary. The proceeds of such borrowings are to be used for working capital and other general corporate purposes of the Company and its subsidiaries (other than funding hostile acquisitions), including commercial paper backup and repurchase of shares. The Lenders are willing to extend such credit on the terms and subject to the conditions herein set forth.

Accordingly, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.1. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“Administrative Fees” shall have the meaning assigned to such term in Section 2.11(c).

“Administrative Questionnaire” shall mean an administrative questionnaire delivered by a Lender pursuant to Section 8.4(e) in form acceptable to the Administrative Agents.

“Affiliate” shall mean, when used with respect to a specified Person, another Person that directly, or indirectly, Controls or is Controlled by or is under common Control with the Person specified.

“Alternate Base Rate” shall mean for any day, a rate per annum equal to the greatest of (a) the rate of interest per annum publicly announced from time to time by CNAI as its base rate in effect at its principal office in New York City, (b) 1/2 of one percent above the Federal Funds Effective Rate and (c) the Base CD Rate in effect for such day plus 1%. If for any reason CNAI shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or Federal Funds Effective Rate, or both, specified in clause (b) or (c), respectively, of the first sentence of this definition, for any reason, including, without limitation, the inability or failure of CNAI to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate shall be effective on the effective date of any change in such rate.

“Alternative Currency” shall mean at any time, Euro, Sterling and any currency (other than Dollars) that is readily available, freely traded and convertible into Dollars in the London market and as to which a Dollar Equivalent can be calculated.

“Applicable Percentage” shall mean, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitment. If the Commitments have terminated or expired, Applicable Percentage shall mean, with respect to any Lender, the percentage of the Dollar Equivalent of the aggregate outstanding principal amount of the Loans represented by the Dollar Equivalent of the aggregate outstanding principal amount of each Lender’s Loans.

“Applicable Rate” shall mean on any date, with respect to any Eurocurrency Revolving Loan, or with respect to the facility fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption “Applicable Rate for Eurocurrency Revolving Loans” or “Applicable Rate for Facility Fees”, as the case may be, based upon the Ratings by Moody’s and S&P, respectively, in effect on such date:

S&P/Moody’s Rating of the Company’s senior unsecured non-credit-enhanced long-term debt	Applicable Rate for Eurocurrency Revolving Loans (in Basis Points)	Applicable Rate for Facility Fees (in Basis Points)
AA/Aa2 or better	15.0	5.0
AA-/Aa3	19.0	6.0
A+/A1	23.0	7.0
A/A2	31.0	9.0
A-/A3	37.5	12.5
BBB+/Baa1 or worse	60.0	15.0

The higher Rating shall determine the Applicable Rate unless the S&P and Moody’s Ratings are more than one level apart, in which case the Rating one level above the lower Rating shall be determinative. In the event that the Company’s senior unsecured non-credit-enhanced long-term debt is rated by only one of S&P and Moody’s, then that single Rating shall be determinative. The Company hereby agrees that at all times it shall maintain a senior unsecured non-credit-enhanced long-term debt rating from either S&P or Moody’s.

2

“Assessment Rate” shall mean, for any day, the net annual assessment rate (rounded upwards, if necessary, to the next higher Basis Point) as most recently estimated by CNAI for determining the then current annual assessment payable by CNAI to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in Dollars at CNAI’s domestic offices.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee in the form of Exhibit B.

“Availability Period” shall mean the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments.

“Base CD Rate” shall mean the sum of (a) the product of (i) the Average Weekly Three-Month Secondary CD Rate times (ii) a fraction of which the numerator is 100% and the denominator is 100% minus the aggregate rates of (A) basic and supplemental reserve requirements in effect on the date of effectiveness of such Average Weekly Three-Month Secondary CD Rate, as set forth below, under Regulation D of the Board applicable to certificates of deposit in units of $100,000 or more issued by a “member bank” located in a “reserve city” (as such terms are used in Regulation D) and (B) marginal reserve requirements in effect on such date of effectiveness under Regulation D applicable to time deposits of a “member bank” and (b) the Assessment Rate. “Average Weekly Three-Month Secondary CD Rate” shall mean the three-month secondary certificate of deposit (“CD”) rate for the most recent weekly period covered therein in the Federal Reserve Statistical release entitled “Weekly Summary of Lending and Credit Measures (Averages of daily figures)” released in the week during which occurs the day for which the CD rate is being determined. The CD rate so reported shall be in effect, for the purposes of this definition, for each day of the week in which the release date of such publication occurs. If such publication or a substitute containing the foregoing rate information is not published by the Federal Reserve for any week, such average rate shall be determined by CNAI on the basis of quotations received by it from three New York City negotiable certificate of deposit dealers of recognized standing on the first Business Day of the week succeeding such week for which such rate information is not published.

“Basis Point” shall mean 1/100th of 1%.

“Board” shall mean the Board of Governors of the Federal Reserve System of the United States of America.

“Board of Directors” shall mean either the board of directors of the Company or any duly authorized committee thereof or any committee of officers of the Company acting pursuant to authority granted by the board of directors of the Company or any committee of such board.

“Borrower” shall mean the Company or any Borrowing Subsidiary.

3

“Borrowing” shall mean (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period and a single Currency are in effect or (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period and a single Currency are in effect.

“Borrowing Request” shall mean a request by the Company for a Revolving Borrowing in accordance with Section 2.3.

“Borrowing Subsidiary” shall mean any Subsidiary of the Company designated as a Borrowing Subsidiary by the Company pursuant to Section 2.19.

“Borrowing Subsidiary Agreement” shall mean a Borrowing Subsidiary Agreement substantially in the form of Exhibit D.

“Borrowing Subsidiary Obligations” shall mean the due and punctual payment of (i) the principal of and interest on any Loans made by the Lenders to the Borrowing Subsidiaries pursuant to this Agreement, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations, including fees, costs, expenses and indemnities (including, without limitation, the obligations described in Section 2.19) of the Borrowing Subsidiaries to the Lenders under this Agreement and the other Loan Documents.

“Borrowing Subsidiary Termination” shall mean a Borrowing Subsidiary Termination substantially in the form of Exhibit E.

“Business Day” shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; provided, however, that, when used in connection with a Eurocurrency Loan, the term “Business Day” shall also exclude (i) any day on which banks are not open for dealings in dollar deposits or in the applicable Alternative Currency in the London interbank market, (ii) in the case of a Eurocurrency Loan denominated in Euros, any day on which the TARGET payment system is not open for settlement of payment in Euros or (iii) in the case of a Eurocurrency Loan denominated in an Alternative Currency other than Sterling or Euro, any day on which banks are not open for dealings in such Alternative Currency in the city which is the principal financial center of the country of issuance of the applicable Alternative Currency.

“Capital Lease Obligations” of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

“Change in Control” shall be deemed to have occurred if (a) any Person or group of Persons (other than (i) the Company, (ii) any Subsidiary or (iii) any employee or director benefit plan or stock plan of the Company or a Subsidiary or any trustee or fiduciary with respect to any such plan when acting in that capacity or any trust related to any such plan) shall have

4

acquired beneficial ownership of shares representing more than 20% of the combined voting power represented by the outstanding Voting Shares of the Company (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder), or (b) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who on the first day of such period were directors of the Company (together with any replacement or additional directors who were nominated or elected by a majority of directors then in office) cease to constitute a majority of the Board of Directors of the Company.

“Change in Law” shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.8 or (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 8.4. The initial amount of each Lender’s Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders’ Commitments is $2,000,000,000.

“Commitment Utilization Percentage” shall mean on any day, the percentage equivalent of a fraction (a) the numerator of which is the aggregate outstanding principal amount of the Loans and (b) the denominator of which is the aggregate Commitments (or, on any day after termination of the Commitments, the aggregate Commitments in effect immediately preceding such termination).

“Company” shall mean Bristol-Myers Squibb Company, a Delaware corporation.

“Competitive Bid” shall mean an offer by a Lender to make a Competitive Loan pursuant to Section 2.4.

“Competitive Bid Accept/Reject Letter” shall mean a notification made by the Company pursuant to Section 2.4(d) in the form of Exhibit A-4.

5

“Competitive Bid Rate” shall mean, as to any Competitive Bid, the Competitive Loan Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid.

“Competitive Bid Request” shall mean a request made pursuant to Section 2.4 in the form of Exhibit A-1.

“Competitive Borrowing” shall mean a Borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted under the bidding procedure described in Section 2.4.

“Competitive Loan” shall mean a Loan made pursuant to Section 2.4. Each Competitive Loan shall be a Eurocurrency Competitive Loan or a Fixed Rate Loan.

“Competitive Loan Exposure” shall mean, with respect to any Lender at any time, the sum of (a) the aggregate principal amount of the outstanding Competitive Loans of such Lender denominated in Dollars and (b) the sum of the Dollar Equivalents of the aggregate principal amounts of the outstanding Competitive Loans of such Lender denominated in Alternative Currencies.

“Competitive Loan Margin” shall mean, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate in order to determine the interest rate applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid.

“Consolidated Capitalization” shall mean at any time the sum of short term borrowings, long-term debt and shareholders’ equity, all as shown at such time in the Company’s consolidated balance sheet determined in accordance with GAAP.

“Consolidated Net Indebtedness” shall mean at any time (i) the sum of short-term borrowings and long-term debt less (ii) cash, cash equivalents, time deposits and marketable securities, all as shown at such time on the Company’s consolidated balance sheet determined in accordance with GAAP.

“Consolidated Net Tangible Assets” shall mean, with respect to the Company, the total amount of its assets (less applicable reserves and other properly deductible items) after deducting (i) all current liabilities (excluding the amount of those which are by their terms extendable or renewable at the option of the obligor to a date more than 12 months after the date as of which the amount is being determined) and (ii) all goodwill, tradenames, trademarks, patents, unamortized debt discount and expense and other like intangible assets, all as set forth on the most recent balance sheet of the Company and its consolidated subsidiaries and determined on a consolidated basis in accordance with GAAP.

“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

6

“Currency” shall mean Dollars or any Alternative Currency.

“Debt” shall mean (i) all obligations represented by notes, bonds, debentures or similar evidences of indebtedness; (ii) all indebtedness for borrowed money or for the deferred purchase price of property or services other than, in the case of any such deferred purchase price, on normal trade terms and (iii) all rental obligations as lessee under leases which shall have been or should be recorded as Capital Lease Obligations.

“Default” shall mean any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Dollar Equivalent” shall mean on any date, with respect to any principal amount of any Loan denominated in an Alternative Currency, the equivalent in Dollars of such amount, determined by CNAI using the Exchange Rate in effect for such Alternative Currency at approximately 11:00 a.m. London time on such date; provided, however, that with respect to determining the amount of any Loan that is being made, the Dollar Equivalent shall be determined on the date of the relevant Borrowing Request or Competitive Bid Request, as applicable, that resulted in the making of such Loan. As appropriate, amounts specified herein as amounts in Dollars shall be or include any relevant Dollar Equivalent amount.

“Dollars” or “$” shall mean lawful money of the United States of America.

“Effective Date” means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 8.7).

“EMU Legislation” means the legislative measures of the European Council (including, without limitation, the European Council regulations) for the introduction of, changeover to or operation of the Euro in one or more member states.

“Environmental and Safety Laws” shall mean any and all applicable current and future treaties, laws (including without limitation common law), regulations, enforceable requirements, binding determinations, orders, decrees, judgments, injunctions, permits, approvals, authorizations, licenses, permissions, written notices or binding agreements issued, promulgated or entered by any Governmental Authority, relating to the environment, to employee health or safety as it pertains to the use or handling of, or exposure to, any hazardous substance or contaminant, to preservation or reclamation of natural resources or to the management, release or threatened release of any hazardous substance, contaminant, or noxious odor, including without limitation the Hazardous Materials Transportation Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, the Clean Air Act of 1970, as amended, the Toxic Substances Control Act of 1976, the Occupational Safety and Health Act of 1970, as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the Safe Drinking Water Act of 1974, as amended, any similar or implementing state law, all amendments of any of them, and any regulations promulgated under any of them.

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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414 of the Code.

“ERISA Termination Event” shall mean (i) a “Reportable Event” described in Section 4043 of ERISA and the regulations issued thereunder (other than a “Reportable Event” not subject to the provision for 30-day notice to the PBGC under such regulations), or (ii) the withdrawal of the Company or any of its ERISA Affiliates from a “single employer” Plan during a plan year in which it was a “substantial employer”, both of such terms as defined in Section 4001(a) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) any other event or condition which is reasonably likely to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or (vi) the partial or complete withdrawal of the Company or any ERISA Affiliate of the Company from a Multiemployer Plan as defined in Section 4001(a)(3) of ERISA.

“Euro” shall mean the lawful currency of the Participating Member States of the European monetary union.

“Eurocurrency”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the LIBO Rate.

“Event of Default” shall have the meaning assigned to such term in Article VI.

“Excess Utilization Day” shall mean each day on which the Commitment Utilization Percentage exceeds 50%.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exchange Rate” shall mean, with respect to any Alternative Currency on a particular date, the rate at which such Alternative Currency may be exchanged into Dollars, as set forth on such date on the applicable Reuters World Currency Page with respect to such Alternative Currency; provided, that the Company may make a one time election, with the approval of CNAI (such approval not to be unreasonably withheld), to use Bloomberg currency pages to determine the Exchange Rate instead of Reuters currency pages. In the event that such rate does not appear on the applicable Reuters World Currency Page, or Bloomberg currency page, as the case may be, the Exchange Rate with respect to such Alternative Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by CNAI and the Company or, in the absence of such agreement, such Exchange Rate shall instead be CNAI’s spot rate of exchange in the London interbank market or other market where its foreign currency exchange operations in respect of such Alternative

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Currency is then being conducted, at or about 10:00 A.M., local time, at such date for the purchase of Dollars with such Alternative Currency for delivery two Business Days later; provided, however, that if at the time of any such determination, for any reason, no such spot rate is being quoted, CNAI may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.

“Extension Letter” shall mean a letter from the Company requesting an extension of the Maturity Date.

“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as released on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so released for any day which is a Business Day, the arithmetic average (rounded upwards to the next 1/100th of 1%), as determined by CNAI, of the quotations for the day of such transactions received by CNAI from three Federal funds brokers of recognized standing selected by it.

“Financial Officer” of any corporation shall mean the chief financial officer, principal accounting officer or treasurer of such corporation.

“Fixed Rate” shall mean, with respect to any Competitive Loan (other than a Eurocurrency Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid.

“Fixed Rate Loan” shall mean a Competitive Loan bearing interest at a Fixed Rate.

“Foreign Lender” shall mean, with respect to any Borrower, any Lender that is organized under the laws of a jurisdiction other than that in which such Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Funded Debt” shall mean Debt of the Company or a Subsidiary owning Restricted Property maturing by its terms more than one year after its creation and Debt classified as long-term debt under GAAP and, in the case of Funded Debt of the Company, ranking at least pari passu with the Loans.

“GAAP” shall mean generally accepted accounting principles in the United States of America.

“Governmental Authority” shall mean the government of any nation, including, but not limited to, the United States of America, or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of

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guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

“Hazardous Substances” shall mean any toxic, radioactive, mutagenic, carcinogenic, noxious, caustic or otherwise hazardous substance, material or waste, including petroleum, its derivatives, by-products and other hydrocarbons, including, without limitation, polychlorinated biphenyls (“PCBs”), asbestos or asbestos-containing material, and any substance, waste or material regulated or that could reasonably be expected to result in liability under Environmental and Safety Laws.

“Indenture” shall mean the Indenture dated as of June 1, 1993 between the Company and JPMCB, as successor to The Chase Manhattan Bank (National Association), as Trustee, as amended, supplemented or otherwise modified from time to time.

“Interest Election Request” shall mean a request by the Company to convert or continue a Revolving Borrowing in accordance with Section 2.7.

“Interest Payment Date” shall mean (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days’ duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days’ duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing.

“Interest Period” shall mean (a) as to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Company may elect, and (b) as to any Fixed Rate Borrowing, the period (which shall not be less than seven days or more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding

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Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Lenders” shall mean (a) the financial institutions listed on Schedule 2.1 (other than any such financial institution that has ceased to be a party hereto, pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance.

“LIBO Rate” shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, the rate appearing on (i) Page 3740 or Page 3750, as the case may be, of Dow Jones Markets (with respect to deposits in Dollars, Sterling or the applicable Alternative Currency (other than Euros)) or (ii) on the applicable page of the Telerate Service sponsored by the Banking Federation of the European Union and the Financial Markets Association (with respect to deposits in Euros) (or in either case on any successor or substitute page of either such service, or any successor to or substitute for either such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by CNAI from time to time for purposes of providing quotations of interest rates applicable to (A) deposits in Dollars, Sterling, Euros or the applicable Alternative Currency, as applicable, in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in Dollars or the applicable Alternative Currency with a maturity comparable to such Interest Period. In the event that any such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurocurrency Borrowing for such Interest Period shall be the rate per annum (rounded upwards, if necessary, to the next Basis Point) equal to the arithmetic average of the rates at which deposits in Dollars or the applicable Alternative Currency approximately equal in principal amount to such Borrowing and for a maturity comparable to such Interest Period are offered to the principal London offices of the Reference Lenders (or, if any Reference Lender does not at the time maintain a London office, the principal London office of any Affiliate of such Reference Lender) in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided, however, that, if only two Reference Lenders notify CNAI of the rates offered to such Reference Lenders (or any Affiliates of such Reference Lenders) as aforesaid, the LIBO Rate with respect to such Eurocurrency Borrowing shall be equal to the arithmetic average of the rates so offered to such Reference Lenders (or any such Affiliates).

“Lien” shall mean any mortgage, lien, pledge, encumbrance, charge or security interest.

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“Loan Documents” means this Agreement, each Borrowing Subsidiary Agreement, each Borrowing Subsidiary Termination and each promissory note held by a Lender pursuant to Section 2.9(e).

“Loans” shall mean the loans made by the Lenders to the Borrowers pursuant to this Agreement.

“Margin Regulations” shall mean Regulations T, U and X of the Board as from time to time in effect, and all official rulings and interpretations thereunder or thereof.

“Material Adverse Effect” shall mean a material adverse effect on the business, operations, properties or financial condition of the Company and its consolidated Subsidiaries, taken as a whole.

“Maturity” when used with respect to any Security, shall mean the date on which the principal of such Security becomes due and payable as provided therein or in the Indenture, whether on a Repayment Date, at the Stated Maturity thereof or by declaration of acceleration, call for redemption or otherwise.

“Maturity Date” shall mean December 22, 2009, subject to extension pursuant to Section 2.5.

“Moody’s” shall mean Moody’s Investors Service, Inc. or any successor thereto.

“Notice of Competitive Bid Request” shall mean a notification made pursuant to Section 2.4 in the form of Exhibit A-2.

“Original Issue Discount Security” shall mean (i) any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof, and (ii) any other Security deemed an Original Issue Discount Security for United States Federal income tax purposes.

“Overnight Rate” means, for any day, (a) with respect to any amount denominated in Dollars, the Federal Funds Effective Rate, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum at which overnight deposits in the applicable Alternative Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of CNAI in the applicable offshore interbank market for such currency to major banks in such interbank market.

“Participating Member State” means a member of the European Communities that adopts or has adopted the Euro as its currency in accordance with EMU Legislation.

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Person” shall mean any natural Person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

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“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan as defined in Section 4001(a)(3) of ERISA), subject to the provisions of Title IV of ERISA or Section 412 of the Code that is maintained for current or former employees, or any beneficiary thereof, of the Company or any ERISA Affiliate.

“Rating Agencies” shall mean Moody’s and S&P.

“Ratings” shall mean the ratings from time to time established by the Rating Agencies for senior, unsecured, non-credit-enhanced long-term debt of the Company.

“Reference Lenders” shall mean JPMCB, CNAI and Bank of America, N.A.

“Register” shall have the meaning given such term in Section 8.4(d).

“Repayment Date”, when used with respect to any Security to be repaid, shall mean the date fixed for such repayment pursuant to such Security.

“Required Lenders” shall mean, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing at least 51% of the sum of the total Revolving Credit Exposures and unused Commitments at such time; provided that, for purposes of declaring the Loans to be due and payable pursuant to Article VI, and for all purposes after the Loans become due and payable pursuant to Article VI or the Commitments shall have expired or terminated, the Competitive Loan Exposures of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Required Lenders.

“Restricted Property” shall mean (i) any manufacturing facility, or portion thereof, owned or leased by the Company or any Subsidiary and located within the continental United States of America which, in the opinion of the Board of Directors of the Company, is of material importance to the business of the Company and its Subsidiaries taken as a whole, but no such manufacturing facility, or portion thereof, shall be deemed of material importance if its gross book value (before deducting accumulated depreciation) is less than 2% of Consolidated Net Tangible Assets, and (ii) any shares of capital stock or indebtedness of any Subsidiary owning any such manufacturing facility. As used in this definition, “manufacturing facility” means property, plant and equipment used for actual manufacturing and for activities directly related to manufacturing, and it excludes sales offices, research facilities and facilities used only for warehousing, distribution or general administration.

“Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the Dollar Equivalent of the aggregate outstanding principal amount of such Lender’s Revolving Loans at such time.

“Revolving Loan” shall mean a Loan made pursuant to Section 2.3.

“Sale and Leaseback Transaction” shall mean any arrangement with any Person pursuant to which the Company or any Subsidiary leases any Restricted Property that has been or is to be sold or transferred by the Company or the Subsidiary to such Person, other than (i) temporary leases for a term, including renewals at the option of the lessee, of not more than three years, (ii) leases between the Company and a Subsidiary or between Subsidiaries,

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(iii) leases of Restricted Property executed by the time of, or within 12 months after the latest of, the acquisition, the completion of construction or improvement, or the commencement of commercial operation, of such Restricted Property, and (iv) arrangements pursuant to any provision of law with an effect similar to that under former Section 168(f)(8) of the Internal Revenue Code of 1954.

“S&P” shall mean Standard & Poor’s Ratings Group or any successor thereto.

“SEC” shall mean the Securities and Exchange Commission.

“Security” or “Securities” shall mean any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, of any series authenticated and delivered from time to time under the Indenture.

“Stated Maturity”, when used with respect to any Security or any installment of principal thereof or interest thereon, shall mean the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.

“Sterling” shall mean the lawful currency of the United Kingdom.

“subsidiary” shall mean, with respect to any Person (the “parent”) at any date, (i) for purposes of Sections 5.9 and 5.10 only, any Person the majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the parent or one or more subsidiaries of the parent of such Person and (ii) for all other purposes under this Agreement, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held.

“Subsidiary” shall mean a subsidiary of the Company.

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority and all liabilities with respect thereto.

“Transactions” means the execution and delivery by the Borrowers of this Agreement (or, in the case of the Borrowing Subsidiaries, the Borrowing Subsidiary Agreements), the performance by the Borrowers of this Agreement, the borrowing of the Loans and the use of the proceeds thereof.

“Type”, when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, “Rate” shall include the LIBO Rate, the Alternate Base Rate and the Fixed Rate.

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“Value” shall mean, with respect to a Sale and Leaseback Transaction, an amount equal to the present value of the lease payments with respect to the term of the lease remaining on the date as of which the amount is being determined, without regard to any renewal or extension options contained in the lease, discounted at the weighted average interest rate on the Securities of all series (including the effective interest rate on any Original Issue Discount Securities) which are outstanding on the effective date of such Sale and Leaseback Transaction and which have the benefit of Section 1007 of the Indenture under which the Securities are issued.

“Voting Stock” shall mean, as applied to the stock of any corporation, stock of any class or classes (however designated) having by the terms thereof ordinary voting power to elect a majority of the members of the board of directors (or other governing body) of such corporation other than stock having such power only by reason of the happening of a contingency.

“Wholly Owned Subsidiary” of any Person shall mean a subsidiary of such Person of which securities (except for directors’ qualifying shares) or other ownership interests representing 100% of the equity are, at the time any determination is being made, owned by such Person or one or more wholly owned subsidiaries of such Person or by such Person and one or more wholly owned subsidiaries of such Person.

SECTION 1.2. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurocurrency Loan”) or by Class and Type (e.g., a “Eurocurrency Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurocurrency Borrowing”) or by Class and Type (e.g., a “Eurocurrency Revolving Borrowing”).

SECTION 1.3. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

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SECTION 1.4. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time.

ARTICLE II

The Credits

SECTION 2.1. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Company and any Borrowing Subsidiary from time to time during the Availability Period in Dollars, Pounds Sterling, Euros or any Alternative Currency in an aggregate principal amount that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the sum of the total Revolving Credit Exposures plus the total Competitive Loan Exposures exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Company and each applicable Borrowing Subsidiary may borrow, prepay and reborrow Revolving Loans.

SECTION 2.2. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.4. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

(b) Subject to Section 2.13, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans (which shall be denominated in Dollars) or Eurocurrency Loans as the Company (on its own behalf or on behalf of any other applicable Borrower) may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed Rate Loans as the Company (on its own behalf or on behalf of any other Borrower) may request in accordance herewith. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of any Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurocurrency Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 (or the Dollar Equivalent thereof in the case of Loans denominated in an Alternative Currency) and not less than $10,000,000 (or the Dollar Equivalent thereof in the case of Loans denominated in an Alternative Currency). At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. ABR Loans shall be denominated only in Dollars. Each Competitive Borrowing denominated in

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Dollars shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000, and each Competitive Borrowing denominated in an Alternative Currency shall be in an aggregate principal amount that is not less than the Dollar Equivalent of $10,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 15 Eurocurrency Revolving Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Company (on its own behalf or on behalf of any other Borrower) shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

SECTION 2.3. Requests for Revolving Borrowings. To request a Revolving Borrowing, the Company (on its own behalf or on behalf of any other applicable Borrower) shall notify CNAI of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 10:30 a.m., New York City time three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:30 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to CNAI of a written Borrowing Request in the form of Exhibit A-5. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.2:

(i) the aggregate amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;

(iv) in the case of a Eurocurrency Borrowing, (A) the Currency of the requested Borrowing and (B) the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”;

(v) the location and number of the account of the Company or the other applicable Borrowers to which funds are to be disbursed, which shall comply with the requirements of Section 2.6; and

(vi) the applicable Borrower.

If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no election as to the Currency of the Revolving Borrowing is specified, then the requested Revolving Borrowing shall be denominated in Dollars. If no Interest Period is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Company shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, CNAI shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

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SECTION 2.4. Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period the Company (on its own behalf or on behalf of any other Borrower) may request Competitive Bids and the Company (on its own behalf and on behalf of any other Borrowers) may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that no Competitive Loan may be requested that would result in the sum of the total Revolving Credit Exposures plus the total Competitive Loan Exposures exceeding the total Commitments. To request Competitive Bids, the Company (on its own behalf and on behalf of any other Borrowers) shall hand deliver or telecopy to the Advance Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Advance Agent, in the case of a Eurocurrency Borrowing, not later than 10:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing. A Competitive Bid Request that does not conform substantially to Exhibit A-1 may be rejected in the Advance Agent’s sole discretion, and the Advance Agent shall promptly notify the Company of such rejection by telecopy. Each Competitive Bid Request shall specify the following information in compliance with Section 2.2:

(i) the aggregate amount of the requested Borrowing;

(ii) the Currency of the requested Borrowing;

(iii) the date of such Borrowing, which shall be a Business Day;

(iv) whether such Borrowing is to be a Eurocurrency Borrowing or a Fixed Rate Borrowing;

(v) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term “Interest Period”;

(vi) the location and number of the account of the Company or any other Borrower to which funds are to be disbursed, which shall comply with the requirements of Section 2.6; and

(vii) the applicable Borrower.

If no election as to the Currency of a Borrowing is specified in any Competitive Bid Request, then the applicable Borrower shall be deemed to have requested a Borrowing in Dollars. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Advance Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids.

(b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to such Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be received by the Advance Agent by telecopy, in the form of Exhibit A-3 hereto, in the case of a Eurocurrency Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m.,

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New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the format of Exhibit A-3 may be rejected by the Advance Agent, and the Advance Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount of the Competitive Loan or Loans that the Lender is willing to make (which, in the case of a Competitive Borrowing denominated in Dollars, shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and, in the case of a Competitive Borrowing denominated in an Alternative Currency, shall be a minimum principal amount the Dollar Equivalent of which is equal to $5,000,000, and which may equal the entire principal amount of the Competitive Borrowing request by such Borrower), (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof.

(c) The Advance Agent shall promptly notify such Borrower by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid.

(d) Subject only to the provisions of this paragraph, such Borrower may accept or reject any Competitive Bid. Such Borrower shall notify the Advance Agent by telephone, confirmed by telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurocurrency Competitive Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 2:00 p.m., New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of such Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) such Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Company rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by such Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, such Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is, in the case of a Competitive Borrowing denominated in Dollars, in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000 and, in the case of a Competitive Borrowing denominated in an Alternative Currency, in a minimum principal amount the Dollar Equivalent of which is $5,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 or an amount in an Alternative Currency of which the Dollar Equivalent is less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $5,000,000 or an amount in an Alternative Currency of which the Dollar Equivalent is $5,000,000 or any integral multiple of $1,000,000 thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of such Borrower. A notice given by such Borrower pursuant to this paragraph (d) shall be irrevocable.

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(e) The Advance Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted.

(f) If the Advance Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Company at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Advance Agent pursuant to paragraph (b) of this Section.

(g) All notices required by this Section 2.4 shall be given in accordance with Section 8.1.

SECTION 2.5. Extension of Maturity Date.

(a) The Company may, by sending an Extension Letter to CNAI (in which case CNAI shall promptly deliver a copy to each of the Lenders), during the period of not less than 30 days and not more than 60 days prior to any anniversary of the Closing Date, request that the Lenders extend the Maturity Date at the time in effect to the first anniversary of the Maturity Date then in effect. Each Lender, acting in its sole discretion, shall, by notice to CNAI given not more than 20 days after the date of the Extension Letter, advise CNAI in writing whether or not such Lender agrees to such extension (each Lender that so advises CNAI that it will not extend the Maturity Date, being referred to herein as a “Non-extending Lender”); provided that any Lender that does not advise CNAI by the 20th day after the date of the Extension Letter shall be deemed to be a Non-extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to agree.

(b) (i) If Lenders holding Commitments that aggregate at least 51% of the total Commitments on the 20th day after the date of the Extension Letter shall not have agreed to extend the Maturity Date, then the Maturity Date shall not be so extended and the outstanding principal balance of all Loans and other amounts payable hereunder shall be payable on such Maturity Date.

(ii) If (and only if) Lenders holding Commitments that aggregate at least 51% of the total Commitments on the 20th day after the date of the Extension Letter shall have agreed to extend the Maturity Date, then the Maturity Date applicable to the Lenders that shall so have agreed shall be the first anniversary of the current Maturity Date. In the event of such extension, the Commitment of each Non-extending Lender shall terminate on the Maturity Date in effect prior to such extension, all Loans and other amounts payable hereunder to such Non-extending Lenders shall become due and payable on such Maturity Date and the total Commitment of the Lenders hereunder shall be reduced by the Commitments of Non-extending Lenders so terminated on such Maturity Date.

(c) In the event that the conditions of clause (ii) of paragraph (b) above have been satisfied, the Company shall have the right on or before the Maturity Date in effect prior to

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the requested extension, at its own expense, to require any Non-extending Lender to transfer and assign without recourse (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in Section 8.4) all its interests, rights and obligations under this Agreement to one or more banks or other financial institutions identified to the Non-extending Lender, which may include any Lender (each an “Additional Commitment Lender”), provided that (x) such Additional Commitment Lender, if not already a Lender hereunder, shall be subject to the approval of CNAI and the Company (such approvals not to be unreasonably withheld), (y) such assignment shall become effective as of a date specified by the Company (which shall not be later than the Maturity Date in effect prior to the requested extension) and (z) the Additional Commitment Lender shall pay to such Non-extending Lender in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by it hereunder and all other amounts accrued for its account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Maturity Date shall become effective unless, on the Maturity Date in effect prior to the requested extension the conditions set forth in paragraphs (a) and (b) of Section 4.2 shall be satisfied (with all references in such paragraphs to a Borrowing being deemed to be references to the current Maturity Date) and CNAI shall have received a certificate to that effect dated such Maturity Date and executed by a Financial Officer of the Company.

SECTION 2.6. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds in Dollars or in the applicable Alternative Currency, as the case may be, to the account of CNAI or an Affiliate thereof most recently designated by it for such purpose by notice to the Lenders, by 2:00 p.m., New York City time (or, in the case of any Competitive Loan with respect to which a Borrower shall have requested funding in another jurisdiction, to such account in such jurisdiction as CNAI shall designate for such purpose by notice to the applicable Lenders, by 2:00 p.m., local time). CNAI will make such Loans available to such Borrower by promptly crediting the amounts so received, in like funds, to an account of such Borrower maintained with CNAI in New York City (or, in the case of any Loan with respect to which such Borrower shall have requested funding in another jurisdiction, to such account in such jurisdiction as such Borrower shall have designated in the applicable Borrowing Request or Competitive Bid Request).

(b) Unless CNAI shall have received notice from a Lender prior to the proposed time of any Borrowing that such Lender will not make available to CNAI such Lender’s share of such Borrowing, CNAI may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to such Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to CNAI, then the applicable Lender and the applicable Borrower severally agree to pay to CNAI forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to CNAI, at (i) in the case of such Lender, the applicable Overnight Rate from time to time in effect or (ii) in the case of such Borrower, the interest rate on the applicable Borrowing; provided that no repayment by such Borrower pursuant to this sentence shall be deemed to be a prepayment for purposes of Section 2.15. If such Lender pays such amount to CNAI, then such amount shall constitute such Lender’s Loan included in such Borrowing.

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SECTION 2.7. Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type and in the Currency specified in the applicable Borrowing Request and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Company (on its own behalf or on behalf of any other Borrower) may elect to convert such Borrowing (if denominated in Dollars) to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Revolving Borrowing, may elect Interest Periods or Currencies therefor, all as provided in this Section. Eurocurrency Loans may not be converted to Loans of a different Type. The Company (on its own behalf or on behalf of any other Borrower) may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued.

(b) To make an election pursuant to this Section, the Company (on its own behalf or on behalf of any other Borrower) shall notify CNAI of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Company (on its own behalf or on behalf of any other Borrower) were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to CNAI of a written Interest Election Request in a form approved by CNAI and signed by the Company.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and

(iv) if the resulting Borrowing is a Eurocurrency Borrowing, (A) the Currency of the resulting Borrowing and (B) the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify (x) an Interest Period, then the Company (on its own behalf or on behalf of any other Borrower) shall be deemed to have selected an Interest Period of one month’s duration or (y) a Currency, then the Company (on its own behalf or on behalf of any other Borrowing Subsidiary) shall be deemed to have selected a Borrowing denominated in Dollars (in the case of an initial Eurocurrency Borrowing) or the same Currency as the Eurocurrency Borrowing being continued.

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(d) Promptly following receipt of an Interest Election Request, CNAI shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Company (on its own behalf or on behalf of any other Borrower) fails to deliver a timely Interest Election Request with respect to a Eurocurrency Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing (i) if denominated in Dollars shall be converted to an ABR Borrowing and (ii) if denominated in an Alternative Currency shall be converted to a one month Interest Period denominated in the same Currency as the Eurocurrency Revolving Borrowing being continued. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and CNAI, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.8. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date.

(b) The Company may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Company shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures plus the Competitive Loan Exposures would exceed the total Commitments.

(c) The Company shall notify CNAI of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, CNAI shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to CNAI on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.

SECTION 2.9. Repayment of Loans; Evidence of Debt. (a) Each Borrower hereby unconditionally promises to pay (i) to CNAI for the account of each Lender the then unpaid principal amount of its Revolving Loans on the Maturity Date and (ii) to CNAI for the account of each Lender the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan.

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(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) CNAI shall maintain a Register pursuant to subsection 8.4(d), and an account for each Lender in which it shall record (i) the amount of each Loan made hereunder and any promissory note evidencing such Loan, the Class, Type and Currency thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by CNAI hereunder for the account of the Lenders and each Lender’s share thereof.

(d) The entries made in the Register and the accounts of each Lender maintained pursuant to paragraphs (b) and (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or CNAI to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Lender may request that Loans made by it be evidenced by a promissory note for its Competitive Loans and a promissory note for its Revolving Loans. In such event, the applicable Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by CNAI. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its assigns).

SECTION 2.10. Prepayment of Loans. (a) The applicable Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section; provided that no Borrower shall have the right to prepay any Competitive Loan without the prior consent of the Lender thereof.

(b) The Company (on its own behalf or on behalf of any other Borrower) shall notify CNAI by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurocurrency Revolving Borrowing, not later than 10:00 a.m., New York City time three Business Days before the date of prepayment and (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.8, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.8. Promptly following receipt of any such notice relating to a Revolving Borrowing, CNAI shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.2. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12.

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SECTION 2.11. Fees. (a) The Company agrees to pay to CNAI for the account of each Lender a facility fee in Dollars which shall accrue at the Applicable Rate on the average daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the date hereof to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender’s Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b) The Company agrees to pay to CNAI for the account of each Lender a utilization fee in Dollars for each Excess Utilization Day at a rate per annum equal to 0.050% on the aggregate amount of such Lender’s Revolving Credit Exposure and Competitive Loan Exposure on such Excess Utilization Day. Accrued utilization fees shall be payable in arrears on the last day of March, June, September and December of each year, commencing on the first such date to occur after the date hereof; provided that any utilization fees accruing after the date on which the Commitments terminate shall be payable on demand. All utilization fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(c) The Company agrees to pay to the Administrative Agents, for their own account, the administrative, auction and other fees separately agreed upon between the Company and the Administrative Agents (collectively, the “Administrative Fees”).

(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to CNAI for distribution, in the case of facility fees and utilization fees, to the Lenders. Fees paid shall not be refundable under any circumstances.

SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate.

(b) The Loans comprising each Eurocurrency Borrowing shall bear interest (i) in the case of a Eurocurrency Revolving Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Competitive Loan Margin applicable to such Loan.

(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan.

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(d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by any Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 1% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 1% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at time when the Alternate Base Rate is based on clause (a) of the first sentence of the definition of Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or LIBO Rate shall be determined by CNAI, and such determination shall be conclusive absent manifest error.

SECTION 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing:

(a) CNAI shall have determined (which determination shall be made in good faith and shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; or

(b) CNAI is advised by the Required Lenders (or, in the case of a Eurocurrency Competitive Loan, the Lender that is required to make such Loan) that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;

then CNAI shall give notice thereof to the Company (on its own behalf or on behalf of the applicable Borrower) and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until CNAI notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurocurrency Revolving Borrowing, such Borrowing shall be made in Dollars as an ABR Borrowing and (iii) any request by the Company (on its own behalf or on behalf of any Borrower) for a Eurocurrency

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Competitive Borrowing shall be ineffective; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Company for Eurocurrency Competitive Borrowings may be made to Lenders that are not affected thereby, (B) if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted and (C) if the circumstances giving rise to such notice effect only one Currency, then the other Borrowings in other Currencies shall be permitted.

SECTION 2.14. Increased Costs. (a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender; or

(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans or Fixed Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) by an amount deemed by such Lender to be material or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender to be material, then the applicable Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

(b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time the Company will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) of this Section, and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined, shall be delivered to the applicable Borrower and shall be conclusive absent manifest error. The applicable Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrowers shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 60 days prior to the date that such Lender notifies such Borrower of the Change in Law giving rise to such increased costs or

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reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 60-day period referred to above shall be extended to include the period of retroactive effect thereof.

(e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made.

(f) If the cost to any Lender of making or maintaining any Loan (other than a Competitive Loan) to a Borrowing Subsidiary incorporated or organized in a jurisdiction other than the United States or any state thereof is increased (or the amount of any sum received or receivable by any Lender or its lending office is reduced) by an amount deemed by such Lender to be material, by reason of the fact that such Borrowing Subsidiary is incorporated or organized in a jurisdiction outside of the United States, such Borrowing Subsidiary shall indemnify such Lender for such increased cost or reduction within fifteen (15) days after demand by such Lender (with a copy to CNAI), which such Lender shall make within sixty (60) days from the day such Lender has notice of such increased cost or reduction; provided, however, this Section 2.14(f) shall not apply to Taxes which are governed by Section 2.16.

SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is revoked in accordance therewith), (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by any Borrower pursuant to Section 2.18, then, in any such event, the applicable Borrower shall compensate each Lender for the out-of-pocket loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the present value of the excess, if any, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, refinanced or not borrowed (assumed to be the LIBO Rate applicable thereto) for the period from the date of such payment, prepayment, refinancing or failure to borrow or refinance to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow or refinance the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying the funds so paid, prepaid or not borrowed or refinanced for such period or Interest Period, as the case may be. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined shall be delivered to the applicable Borrower and shall be conclusive absent manifest error. Such Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

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SECTION 2.16. Taxes. (a) Any and all payments to the Lenders or the Administrative Agents hereunder by a Borrower or on behalf of any Borrower shall be made free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) taxes imposed on any Administrative Agent or any Lender (or participant) as a result of a present or former connection between such Administrative Agent or such Lender (or participant) and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than as a result of entering into this Agreement, performing any obligations hereunder, receiving any payments hereunder or enforcing any rights hereunder) and (ii) any taxes that are attributable solely to the failure of any Non-U.S. Lender (as defined in Section 2.16(g) below) to comply with Section 2.16 (g) or 2.16(h) (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, “Non-Excluded Taxes”). If the relevant Borrower shall be required to deduct any Non-Excluded Taxes from or in respect of any sum payable hereunder to any Lender or any Administrative Agent, (i) the sum payable shall be increased by the amount (an “Additional Amount”) necessary so that after making all required deductions (including deductions applicable to Additional Amounts payable under this Section 2.16) such Lender or such Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the relevant Borrower shall make such deductions and (iii) the relevant Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the relevant Borrower (or the Company, as guarantor, as applicable) shall pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp, intangibles or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document that are imposed by a Governmental Authority in a jurisdiction in which the relevant Borrower or the Company is incorporated, organized, managed and controlled or considered to have its seat or otherwise has a connection (other than as a result of entering into this Agreement, performing any obligations hereunder, receiving any payments hereunder or enforcing any rights hereunder) (“Other Taxes”).

(c) The relevant Borrower (or the Company, as guarantor, as applicable) shall indemnify each Lender (or participant) and each Administrative Agent for the full amount of Non-Excluded Taxes and Other Taxes paid by such Lender (or participant) or such Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney’s fees and expenses)) arising therefrom or with respect thereto, whether or not such Non-Excluded Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared by a Lender, or an Administrative Agent on its behalf and setting forth in reasonable detail the manner in which such amount shall have been determined, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Lender or the Administrative Agent, as the case may be, makes written demand therefor, which written demand shall be made within 60 days of the date such Lender or Administrative Agent receives written demand for payment of such Taxes or Other Taxes from the relevant Governmental Authority.

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(d) If a Lender (or participant) or an Administrative Agent receives a refund in respect of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the relevant Borrower or with respect to which the relevant Borrower has paid Additional Amounts pursuant to this Section 2.16, it shall within 30 days from the date of such receipt pay over such refund to the relevant Borrower (but only to the extent of indemnity payments made, or Additional Amounts paid, by the relevant Borrower under this Section 2.16 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Lender (or participant) or such Administrative Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the relevant Borrower, upon the request of such Lender (or participant) or such Administrative Agent, agrees to repay the amount paid over to the relevant Borrower (plus penalties, interest or other charges) to such Lender (or participant) or such Administrative Agent in the event such Lender (or participant) or such Administrative Agent is required to repay such refund to such Governmental Authority.

(e) As soon as practicable after the date of any payment of Non-Excluded Taxes or Other Taxes by the relevant Borrower to the relevant Governmental Authority, the relevant Borrower will deliver to CNAI, at its addresses referred to in Section 8.1, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof.

(f) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.16 shall survive the payment in full of the principal of and interest on all Loans made hereunder.

(g) Each Lender (or participant) that is not a United States Person as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Lender”) shall deliver to the Borrower and CNAI two copies of either United States Internal Revenue Service Form W-8BEN or W-8ECI (or successor forms), or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W8-BEN, or any subsequent or substitute versions thereof or successors thereto (and a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c)(3)(A) of the Code, is not a 10 percent shareholder (within the meaning of Section 881(c)(3)(B) of the Code) of the Company and is not a controlled foreign corporation related to the Company (within the meaning of Section 881(c)(3)(C) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Company under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a participant, on or before the date such participant becomes a participant hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.16(g), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.16(g) that such Non-U.S. Lender is not legally able to deliver.

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(h) A Lender (or participant) that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which a Borrowing Subsidiary is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrowing Subsidiary (with a copy to CNAI), at the time or times prescribed by applicable law or reasonably requested by the Borrowing Subsidiary, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender (or participant) is legally entitled to complete, execute and deliver such documentation and in such Lender’s reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender (or participant).

(i) The relevant Borrower shall not be required to indemnify any Lender, or to pay any Additional Amounts to any Lender, in respect of any withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to such withholding tax was in effect and would apply to amounts payable to such Lender on the date such Lender became a party to this Agreement (or, in the case of a participant, on the date such participant became a participant hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan or, with respect to payments by a Borrower pursuant to a Competitive Loan, as of the date the Company accepts a Competitive Bid pursuant to Section 2.4(d); provided, however, that this clause (i) shall not apply to any Lender (or participant) if (A) in the judgment of such Lender (or participant), the Lender (or participant) was unable, using reasonable efforts, to reduce or eliminate any Additional Amount in respect of any withholding tax payable by the relevant Borrower by filing any certificate or document requested by the Company (consistent with legal and regulatory restrictions), designating a different lending office for funding or booking its Loans hereunder or assigning its rights and obligations hereunder to another of its offices, branches or affiliates; provided, that to the extent that the Lender has so acted and reduced to the extent possible but not eliminated such Additional Amount in respect of any withholding tax, clause (i) shall not apply solely to the extent of such reduced Additional Amount in respect of any withholding tax payable by the relevant Borrower pursuant to this Section 2.16 or (B) the assignment, participation, transfer or designation of a New Lending Office was made at the request of the relevant Borrower; and provided further, however, that this clause (i) shall not apply to the extent the indemnity payment or Additional Amounts any Lender (or participant) would be entitled to receive (without regard to this clause (i)) do not exceed the indemnity payment or Additional Amounts that the Lender (or participant) making the assignment, participation, transfer or designation of such New Lending Office would have been entitled to receive in the absence of such assignment, participation, transfer or designation, or (ii) the obligation to pay such Additional Amounts would not have arisen but for a failure by such Lender (or participant) to comply with the provisions of paragraph (g) or (h) above. Notwithstanding anything herein to the contrary, each Lender shall remain subject to the obligations under Section 2.18.

(j) Any Lender (or participant) claiming any indemnity payment or Additional Amounts payable pursuant to this Section 2.16 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the relevant Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity

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payment or Additional Amounts that may thereafter accrue and would not, in the sole determination of such Lender (or participant), be otherwise disadvantageous to such Lender (or participant).

(k) Nothing contained in this Section 2.16 shall require any Lender (or participant) or any Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 3:00 p.m., local time at the place of payment, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of CNAI, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to CNAI at its offices at 399 Park Avenue, New York, New York, or such other location as CNAI shall designate from time to time, except that payments pursuant to Sections 2.14, 2.15, 2.16 and 8.5 shall be made directly to the Persons entitled thereto. CNAI shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars or, in the case of principal of and interest on any Loan denominated in an Alternative Currency, the applicable Alternative Currency, as the case may be. Except as provided in clause (c) below, each payment or prepayment of principal or payment of interest in respect of a Borrowing of Revolving Loans shall be allocated ratably among the parties entitled thereto.

(b) If at any time insufficient funds are received by and available to CNAI to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the

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express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.

(d) Unless CNAI shall have received notice from a Borrower prior to the date on which any payment is due to CNAI for the account of the Lenders hereunder that such Borrower will not make such payment, CNAI may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to CNAI forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to CNAI, at the Overnight Rate in effect from time to time.

(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.6(b) or 2.17(d), then CNAI may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by CNAI for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.

SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to file any certificate or document requested by the Company (consistent with legal and regulatory restrictions), to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such filing, designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not otherwise be disadvantageous to such Lender.

(b) If any Lender requests compensation under Section 2.14, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then such Borrower may, upon notice to such Lender and CNAI, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.4), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it and any and all rights and interests related thereto) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) such Borrower shall have received the prior written consent of the Administrative Agents which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to

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the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or such Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments.

SECTION 2.19. Borrowing Subsidiaries. The Company may designate any Wholly Owned Subsidiary of the Company as a Borrowing Subsidiary upon ten Business Days notice to CNAI on behalf of the Lenders (such notice to include the name, primary business address and tax identification number of such proposed Borrowing Subsidiary). Upon proper notice and the receipt by CNAI of a Borrowing Subsidiary Agreement executed by such a Wholly Owned Subsidiary and the Company, such Wholly Owned Subsidiary shall be a Borrowing Subsidiary and a party to this Agreement. A Subsidiary shall cease to be a Borrowing Subsidiary hereunder at such time as no Loans, fees or any other amounts due in connection therewith pursuant to the terms hereof shall be outstanding to such Subsidiary and such Subsidiary and the Company shall have executed and delivered to CNAI a Borrowing Subsidiary Termination; provided that, notwithstanding anything herein to the contrary, no Borrowing Subsidiary shall cease to be a Borrowing Subsidiary solely because it no longer is a Wholly Owned Subsidiary of the Company so long as such Borrowing Subsidiary and the Company shall not have executed and delivered to CNAI a Borrowing Subsidiary Termination and the Company’s guarantee of the Borrowing Subsidiary Obligations of such Borrowing Subsidiary pursuant to Section 8.16 has not been released.

SECTION 2.20. Prepayments Required Due to Currency Fluctuation.

(a) Not later than 1:00 P.M., New York City time, on the last Business Day of each fiscal quarter or at such other time as is reasonably determined by CNAI (the “Calculation Time”), CNAI shall determine the Dollar Equivalent of the aggregate Revolving Credit Exposures and the aggregate Competitive Loans as of such date.

(b) (a) If at the Calculation Time, the Dollar Equivalent of the aggregate Revolving Credit Exposure and the aggregate Competitive Loans exceeds the Commitment by 5% or more, then within five Business Days after notice thereof to the Borrower from CNAI, the Borrower shall prepay Revolving Loans (or cause any Borrowing Subsidiary to make such prepayment) in an aggregate principal amount at least equal to the lesser of (i) such excess and (ii) the aggregate principal amount of Revolving Loans. Nothing set forth in this Section 2.20(b) shall be construed to require CNAI to calculate compliance under this Section 2.20(b) other than at the times set forth in Section 2.20(a).

ARTICLE III

Representations and Warranties

The Company represents and warrants to each of the Lenders and each of the Administrative Agents that:

SECTION 3.1. Organization; Powers. The Company (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted and (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect. Each Borrower has the corporate power and authority to execute and deliver this Agreement (or, in the case of the Borrowing Subsidiaries, the Borrowing Subsidiary Agreements), to perform its obligations under this Agreement and to borrow hereunder.

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SECTION 3.2. Authorization. The Transactions (a) are within each Borrower’s corporate powers and have been duly authorized by all requisite corporate action and (b) will not (i) violate (A) any provision of any law, statute, rule or regulation (including, without limitation, the Margin Regulations), (B) any provision of the certificate of incorporation or other constitutive documents or by-laws of the Company or any Subsidiary, (C) any order of any Governmental Authority or (D) any provision of any indenture, agreement or other instrument to which the Company or any Subsidiary is a party or by which it or any of its property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (iii) result in the creation or imposition of any lien upon any property or assets of the Company or any Subsidiary other than, in the case of clauses (i)(A), (i)(C), (i)(D), (ii) and (iii), any such violations, conflicts, breaches, defaults or liens that, individually or in the aggregate, would not have a Material Adverse Effect.

SECTION 3.3. Enforceability. Each Loan Document constitutes or, when executed and delivered, will constitute a legal, valid and binding obligation of each Borrower party thereto, enforceable in accordance with its terms (subject, as to enforceability, to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity)).

SECTION 3.4. Governmental Approvals. No action, consent or approval of, registration or filing with or other action by any Governmental Authority is required in connection with the Transactions.

SECTION 3.5. Financial Statements; No Material Adverse Change. (a) The Company has heretofore furnished to the Administrative Agents and the Lenders copies of (i) its audited consolidated financial statements for the years ended December 31, 2002 and December 31, 2003, respectively, which were included in its annual report on Form 10-K and its Form 10-K/A, respectively, as filed with the SEC under the Exchange Act on March 28, 2003 and June 28, 2004, respectively (the “10-Ks”) and (ii) its unaudited consolidated financial statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, which were included in its Quarterly Reports on Form 10-Q/A and Forms 10-Q, respectively, as filed with the SEC under the Exchange Act on June 28, 2004, August 6, 2004 and November 9, 2004, respectively (the “10-Qs”). Such financial statements present fairly, in all material respects, the financial condition and the results of operations of the Company and the Subsidiaries, taken as a whole, as of, and for accounting periods ending on, such dates in accordance with GAAP (subject, in the case of unaudited statements, to normal year-end audit adjustments and the absence of footnotes).

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(b) Since December 31, 2003, there has been no material adverse effect on the business, operations, properties or financial condition of the Company and its Subsidiaries, taken as a whole; provided, that no representation or warranty is made with respect to matters disclosed in the most recent 10-K/A or in any 10-Q or current report on Form 8-K filed with the SEC under the Exchange Act subsequent to December 31, 2003.

SECTION 3.6. Litigation; Compliance with Laws. (a) Except as disclosed in either the most recent 10-K or the most recent 10-Q, as of the date hereof, there are no actions, proceedings or investigations filed or (to the knowledge of the Company) threatened against the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal which question the validity or legality of this Agreement, the Transactions or any action taken or to be taken pursuant to this Agreement and no order or judgment has been issued or entered restraining or enjoining the Company from the execution, delivery or performance of this Agreement nor is there any other action, proceeding or investigation filed or (to the knowledge of the Company) threatened against the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal which would be reasonably likely to result in a Material Adverse Effect.

(b) Neither the Company nor any Subsidiary is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would be reasonably likely to result in a Material Adverse Effect.

SECTION 3.7. Federal Reserve Regulations. No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Margin Regulations.

SECTION 3.8. Use of Proceeds. All proceeds of the Loans shall be used for the purposes referred to in the recitals to this Agreement.

SECTION 3.9. Taxes. The Company and the Subsidiaries have filed or caused to be filed all Federal and material state, local and foreign Tax returns which are required to be filed by them, and have paid or caused to be paid all Taxes shown to be due and payable on such returns or on any assessments received by any of them, other than any Taxes or assessments the validity of which is being contested in good faith by appropriate proceedings, and with respect to which appropriate accounting reserves have, to the extent required by GAAP, been set aside.

SECTION 3.10. Employee Benefit Plans. The present aggregate value of accumulated benefit obligations of all Plans and all foreign employee pension benefit plans (based on those assumptions used for disclosure of such obligations in corporate financial statements in accordance with GAAP) did not, as of the most recent statements available, exceed the aggregate value of the assets for all such plans. Except as would not individually or in the aggregate have a Material Adverse Effect: (a) no ERISA Termination Event has occurred or (b)

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each Plan has been established and administered in accordance with its terms and in compliance with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations.

SECTION 3.11. Environmental and Safety Matters. Other than exceptions to any of the following that would not in the aggregate have a Material Adverse Effect: (i) the Company and the Subsidiaries comply and have complied with all applicable Environmental and Safety Laws; (ii) there are and have been no Hazardous Substances at any property owned, leased or operated by the Company now or in the past, or at any other location, that could reasonably be expected to result in liability of the Company or any Subsidiary under any Environmental and Safety Law or result in costs to any of them arising out of any Environmental and Safety Law; (iii) there are no past, present, or, to the knowledge of the Company and the Subsidiaries, anticipated future events, conditions, circumstances, practices, plans, or legal requirements that could reasonably be expected to prevent the Company or any of the Subsidiaries from, or increase the costs to the Company or any of the Subsidiaries of, complying with applicable Environmental and Safety Laws or obtaining or renewing all material permits, approvals, authorizations, licenses or permissions required of any of them pursuant to any such law; and (iv) neither the Company nor any of the Subsidiaries has retained or assumed, by contract or operation of law, any liability, fixed or contingent, under any Environmental and Safety Law.

SECTION 3.12. Properties. (a) Each of the Company and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property that are material to the business of the Company and its Subsidiaries taken as a whole, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.

(b) Each of the Company and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property that are material to the business of the Company and its Subsidiaries taken as a whole, and the use thereof by the Company and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.13. Investment and Holding Company Status. Neither the Company nor any of its Subsidiaries is (a) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

ARTICLE IV

Conditions

SECTION 4.1. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 8.7):

(a) CNAI (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to CNAI (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

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(b) CNAI shall have received a favorable written opinion (addressed to the Administrative Agents and the Lenders and dated the Effective Date) of Sandra Leung, Esq., Corporate Secretary of the Company, to the effect set forth in Exhibit C. The Company hereby requests such counsel to deliver such opinions.

(c) CNAI shall have received such documents and certificates as CNAI or its counsel may reasonably request relating to the organization, existence and good standing of the Company, the authorization of the Transactions and any other legal matters relating to the Company, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agents and their counsel.

(d) CNAI shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Company, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.2.

(e) The Administrative Agents shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced not less than two Business Days before the Effective Date, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder.

(f) Each of the Company’s (i) $500,000,000 Five Year Competitive Advance and Revolving Credit Agreement, dated as of September 11, 2001, as amended, and (ii) $500,000,000 Five Year Competitive Advance and Revolving Credit Agreement, dated as of August 18, 2003, shall have been terminated and all amounts owed thereunder shall have been paid in full.

CNAI shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding.

SECTION 4.2. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing (other than a Borrowing made solely to refinance outstanding Borrowings that does not increase the aggregate principal amount of the Loans of any Lender outstanding) is subject to the satisfaction of the following conditions:

(a) The representations and warranties of the Company set forth in this Agreement (other than those set forth in Sections 3.5(b), 3.6(a), 3.10 and 3.11 on any date other than the Effective Date) shall be true and correct in all material respects (provided that such representations and warranties qualified as to materiality shall be true and correct) on and as of the date of such Borrowing with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case those representations and warranties will be true and correct as of such earlier date.

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(b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing.

Each Borrowing shall be deemed to constitute a representation and warranty by the Company on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.

SECTION 4.3. Initial Borrowing by Each Borrowing Subsidiary. The obligation of each Lender to make a Loan on the occasion of the first Borrowing by each Borrowing Subsidiary is subject to the satisfaction of the condition that CNAI (or its counsel) shall have received a Borrowing Subsidiary Agreement properly executed by such Borrowing Subsidiary and the Company.

ARTICLE V

Covenants

Affirmative Covenants. The Company covenants and agrees with each Lender and each Administrative Agent that so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any fees or any other amounts payable hereunder shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will, and will cause each of the Subsidiaries to:

SECTION 5.1. Existence. Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises that are material to the business of the Company and its Subsidiaries as a whole, except as expressly permitted under Section 5.8 and except, in the case of any Subsidiary, where the failure to do so would not result in a Material Adverse Effect.

SECTION 5.2. Business and Properties. Comply in all respects with all applicable laws, rules, regulations and orders of any Governmental Authority (including Environmental and Safety Laws and ERISA), whether now in effect or hereafter enacted except instances that could not, in the aggregate, reasonably be expected to result in a Material Adverse Effect; and at all times maintain and preserve all property material to the conduct of the business of the Company and its Subsidiaries as a whole and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times, except where the failure to do so would not result in a Material Adverse Effect.

SECTION 5.3. Financial Statements, Reports, Etc. Furnish to the Administrative Agents and each Lender:

(a) within 95 days after the end of each fiscal year, its annual report on Form 10-K as filed with the SEC, including its consolidated balance sheet and the related consolidated earnings statement showing its consolidated financial condition as of the close of such fiscal year and the consolidated results of its operations during such year, all audited by PriceWaterhouseCoopers LLP or other independent certified public accountants of recognized

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national standing selected by the Company and accompanied by an opinion of such accountants (without a “going concern” qualification or exception and without any qualification or exception with respect to the scope of such opinion) to the effect that such consolidated financial statements fairly present the Company’s financial condition and results of operations on a consolidated basis in accordance with GAAP;

(b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year, its quarterly report on Form 10-Q as filed with the SEC, including its unaudited consolidated balance sheet and related consolidated earnings statement, showing its consolidated financial condition as of the close of such fiscal quarter and the consolidated results of its operations during such fiscal quarter and the then elapsed portion of the fiscal year (and each delivery of such statements shall be deemed a representation that such statements fairly present the Company’s financial condition and results of operations on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes);

(c) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate of a Financial Officer certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto;

(d) promptly after the same become publicly available, copies of all reports on Form 8-K filed by it with the SEC, or any Governmental Authority succeeding to any of or all the functions of the SEC, or copies of all reports distributed to its shareholders, as the case may be; and

(e) promptly, from time to time, such other information as any Lender shall reasonably request through CNAI.

SECTION 5.4. Insurance. Keep its insurable properties adequately insured at all times by financially sound and reputable insurers (which may include captive insurers), and maintain such other insurance or self insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses.

SECTION 5.5. Obligations and Taxes. Pay and discharge promptly when due all material taxes, assessments and governmental charges imposed upon it or upon its income or profits or in respect of its property, in each case before the same shall become delinquent or in default and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings and adequate reserves with respect thereto shall, to the extent required by GAAP, have been set aside.

SECTION 5.6. Litigation and Other Notices. Give CNAI written notice of the following within five Business Days after any executive officer of the Company obtains knowledge thereof:

(a) the filing or commencement of any action, suit or proceeding which the Company reasonably expects to result in a Material Adverse Effect;

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(b) any Event of Default or Default, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto; and

(c) any change in any of the Ratings.

SECTION 5.7. Books and Records. Keep proper books of record and account in which full, true and correct entries are made of all material dealings and transactions in relation to its business and activities.

Negative Covenants. The Company covenants and agrees with each Lender and each Administrative Agent that so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any fees or any other amounts payable hereunder shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will not, and will not permit any of the Subsidiaries to:

SECTION 5.8. Consolidations, Mergers, and Sales of Assets. In the case of the Company (a) consolidate or merge with or into any other Person or liquidate, wind up or dissolve (or suffer any liquidation or dissolution) or (b) sell, or otherwise transfer (in one transaction or a series of transactions), or permit any Subsidiary to sell, or otherwise transfer (in one transaction or a series of transactions), all or substantially all of the assets of the Company and the Subsidiaries, taken as a whole, to any other Person; provided that the Company may merge or consolidate with another Person if (A) the Company is the corporation surviving such merger and (B) immediately after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing.

SECTION 5.9. Liens. Create, assume or suffer to exist any Lien upon any Restricted Property to secure any Debt of the Company, any Subsidiary or any other Person, without making effective provision whereby the Loans that may then or thereafter be outstanding shall be secured by such Lien equally and ratably with (or prior to) such Debt for so long as such Debt shall be so secured, except that the foregoing shall not prevent the Company or any Subsidiary from creating, assuming or suffering to exist any of the following Liens:

(a) Liens existing on the date hereof;

(b) any Lien existing on property owned or leased by any Person at the time it becomes a Subsidiary;

(c) any Lien existing on property at the time of the acquisition thereof by the Company or any Subsidiary;

(d) any Lien to secure any Debt incurred prior to, at the time of, or within 12 months after the acquisition of any Restricted Property for the purpose of financing all or any part of the purchase price thereof and any Lien to the extent that it secures Debt which is in excess of such purchase price and for the payment of which recourse may be had only against such Restricted Property;

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(e) any Lien to secure any Debt incurred prior to, at the time of, or within 12 months after the completion of the construction, alteration, repair or improvement of any Restricted Property for the purpose of financing all or any part of the cost thereof and any Lien to the extent that it secures Debt which is in excess of such cost and for the payment of which recourse may be had only against such Restricted Property;

(f) any Liens securing Debt of a Subsidiary owing to the Company or to another Subsidiary;

(g) any Liens securing industrial development, pollution control or similar revenue bonds;

(h) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in clauses (a) through (g) above, so long as the principal amount of the Debt secured thereby does not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement (except that, where an additional principal amount of Debt is incurred to provide funds for the completion of a specific project, the additional principal amount, and any related financing costs, may be secured by the Lien as well) and such Lien is limited to the same property subject to the Lien so extended, renewed or replaced (and improvements on such property); and

(i) any Lien not permitted by clauses (a) through (h) above securing Debt which, together with the aggregate outstanding principal amount of all other Debt of the Company and its Subsidiaries owning Restricted Property which would otherwise be subject to the foregoing restrictions and the aggregate Value of existing Sale and Leaseback Transactions which would be subject to the restrictions of Section 5.10 but for this clause (i), does not at any time exceed 10% of Consolidated Net Tangible Assets.

SECTION 5.10. Limitation on Sale and Leaseback Transactions. Enter into any Sale and Leaseback Transaction, or permit any Subsidiary owning Restricted Property to do so, unless either:

(a) the Company or such Subsidiary would be entitled to incur Debt, in a principal amount at least equal to the Value of such Sale and Leaseback Transaction, which is secured by Liens on the property to be leased (without equally and ratably securing the Loans) without violating Section 5.9, or

(b) the Company, during the six months immediately following the effective date of such Sale and Leaseback Transaction, causes to be applied to (A) the acquisition of Restricted Property or (B) the voluntary retirement of Funded Debt (whether by redemption, defeasance, repurchase, or otherwise) an amount equal to the Value of such Sale and Leaseback Transaction.

SECTION 5.11. Leverage Ratio. Permit the ratio of Consolidated Net Indebtedness to Consolidated Capitalization to exceed 0.50 to 1.00 on the last day of each fiscal quarter of the Company.

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ARTICLE VI

Events of Default

In case of the happening of any of the following events (each an “Event of Default”):

(a) any representation or warranty made or deemed made in or in connection with the execution and delivery of this Agreement or the Borrowings hereunder or under any Borrowing Subsidiary Agreement shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;

(b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

(c) default shall be made in the payment of any interest on any Loan or any fee or any other amount (other than an amount referred to in paragraph (b) above) due hereunder, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days;

(d) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Section 5.6, 5.8, 5.9 or 5.10;

(e) default shall be made in the due observance or performance of any covenant, condition or agreement contained herein (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from any Administrative Agent or any Lender to the Company;

(f) the Company or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of one or more items of Debt in an aggregate principal amount greater than or equal to $100,000,000, when and as the same shall become due and payable (giving effect to any applicable grace period), or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Debt if the effect of any failure referred to in this clause (ii) is to cause such Debt to become due prior to its stated maturity;

(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Borrowing Subsidiary, or of a substantial part of the property or assets of the Company or any Borrowing Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Borrowing Subsidiary or for a substantial part of the property or assets of the Company or any Borrowing Subsidiary or (iii) the winding up or liquidation of the Company or any Borrowing Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

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(h) the Company or any Borrowing Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Borrowing Subsidiary or for a substantial part of the property or assets of the Company or any Borrowing Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; or

(i) one or more judgments for the payment of money in an aggregate amount equal to or greater than $100,000,000 (exclusive of any amount thereof covered by insurance) shall be rendered against the Company, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed (for this purpose, a judgment shall be effectively stayed during a period when it is not yet due and payable), or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Company or any Subsidiary to enforce any such judgment;

(j) (i) a Plan of the Company or any Borrowing Subsidiary shall fail to maintain the minimum funding standard required by Section 412 of the Code for any plan year or a waiver of such standard is sought or granted under Section 412(d), or (ii) an ERISA Termination Event shall have occurred with respect to the Company or any Borrowing Subsidiary or an ERISA Affiliate has incurred or is reasonably likely to incur a liability to or on account of a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA, or (iii) the Company or any Borrowing Subsidiary or any ERISA Affiliate shall engage in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the United States Department of Labor, or (iv) the Company or any Borrowing Subsidiary or any ERISA Affiliate shall fail to pay any required installment or any other payment required to be paid by such entity under Section 412 of the Code on or before the due date for such installment or other payment, or (v) the Company or any Borrowing Subsidiary or any ERISA Affiliate shall fail to make any contribution or payment to any Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA) which the Company or any Borrowing Subsidiary or any ERISA Affiliate is required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto, and there shall result from any such event or events either a liability or a material risk of incurring a liability to the PBGC or a Plan which will have a Material Adverse Effect;

(k) a Change in Control shall occur; or

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(l) at any time while a Borrowing Subsidiary Agreement is in effect, the guarantee in Section 8.16 shall cease to be, or shall be asserted by the Company not to be, a valid and binding obligation on the part of the Company;

then, and in every such event (other than an event with respect to the Company described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, CNAI, at the request of the Required Lenders, shall, by notice to the Company or any Borrowing Subsidiary (which notice to a Borrowing Subsidiary may be given to the Company), take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and all other liabilities of the Company or any Borrowing Subsidiary accrued hereunder, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived anything contained herein to the contrary notwithstanding; and, in any event with respect to the Company described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued fees and all other liabilities of the Company and the Borrowing Subsidiaries accrued hereunder shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived anything contained herein to the contrary notwithstanding.

ARTICLE VII

The Administrative Agents

In order to expedite the transactions contemplated by this Agreement, each of JPMorgan Chase Bank, N.A. and Citicorp North America, Inc. is hereby appointed to act as an Administrative Agent on behalf of the Lenders and CNAI is hereby appointed to act as Advance Agent on behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes each Administrative Agent (which term, for purposes of this Article VII, shall be deemed to include the Advance Agent) to take such actions on behalf of such Lender or holder and to exercise such powers as are specifically delegated to the Administrative Agents or an Administrative Agent individually, as the case may be, by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto. CNAI is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Company or any Borrowing Subsidiary of any Event of Default of which CNAI has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Company or any Borrowing Subsidiary pursuant to this Agreement as received by CNAI.

Notwithstanding the foregoing, JPMCB shall have no duties under the Loan Documents in its capacity as Administrative Agent and none of the Syndication Agent, Joint Lead Arrangers or Bookrunners listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as an agent or a Lender.

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Neither Administrative Agent nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his or her own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Company or any Borrowing Subsidiary of any of the terms, conditions, covenants or agreements contained in this Agreement. The Administrative Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or other instruments or agreements. The Administrative Agents may deem and treat the Lender which makes any Loan as the holder of the indebtedness resulting therefrom for all purposes hereof until it shall have received notice from such Lender, given as provided herein, of the transfer thereof. The Administrative Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. The Administrative Agents shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper Person or Persons. Neither Administrative Agent nor any of their respective directors, officers, employees or agents shall have any responsibility to the Company or any Borrowing Subsidiary on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Company of any of their respective obligations hereunder or in connection herewith. The Administrative Agents may execute any and all duties hereunder by or through their Affiliates, agents or employees and shall be entitled to rely upon the advice of legal counsel selected by them with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by them in accordance with the advice of such counsel.

The Lenders hereby acknowledge that the Administrative Agents shall be under no duty to take any discretionary action permitted to be taken by them pursuant to the provisions of this Agreement unless they shall be requested in writing to do so by the Required Lenders.

Subject, in the case of a resignation of both Administrative Agents, to the appointment and acceptance of a successor Administrative Agent as provided below, either Administrative Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation of both Administrative Agents, the Required Lenders shall have the right to appoint a successor Administrative Agent acceptable to the Company. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agents give notice of their resignation, then the retiring Administrative Agents may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring

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Administrative Agents and the retiring Administrative Agents shall be discharged from their duties and obligations hereunder. If only one of the Administrative Agents shall resign, the other Administrative Agent shall become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any Administrative Agent’s resignation hereunder, the provisions of this Article and Section 8.5 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

With respect to the Loans made by them hereunder, each Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Administrative Agent, and such Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not an Administrative Agent.

Each Lender agrees (i) to reimburse the Administrative Agents, on demand, in the amount of its Applicable Percentage of any expenses incurred for the benefit of the Lenders by the Administrative Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, which shall not have been reimbursed by the Company and (ii) to indemnify and hold harmless the Administrative Agents and any of their respective directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against either of them in its capacity as an Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by either of them under this Agreement to the extent the same shall not have been reimbursed by the Company; provided that no Lender shall be liable to any Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of such Administrative Agent or any of its directors, officers, employees or agents.

Each Lender acknowledges that it has, independently and without reliance upon any Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any related agreement or any document furnished hereunder or thereunder.

ARTICLE VIII

Miscellaneous

SECTION 8.1. Notices.

(a) Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy, as follows:

(i) if to the Company, to Bristol-Myers Squibb Company, 345 Park Avenue, New York, New York 10154, Attention of the Treasurer (Telecopy No. 212-605-9632) and the General Counsel (Telecopy No. 212-546-9562);

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(ii) if to CNAI, (i) for notices concerning operational matters, to Citicorp North America, Inc. c/o Citibank Delaware, Two Penns Way, Suite 200, New Castle, DE 19720, Attention of Janet Wallace (Telecopy No. (302) 894-6120) or (ii) for notices concerning credit matters, to Citicorp North America, Inc., 388 Greenwich Street, New York, New York 10013, Attention of William E. Clark (Telecopy No. 212-816-8051);

(iii) if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.1 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto; and

(iv) if to any Borrowing Subsidiary, to it at the address (or telecopy number) set forth above for the Company. Each Borrowing Subsidiary hereby irrevocably appoints the Company as its agent for the purpose of giving on its behalf any notice and taking any other action provided for in this Agreement and hereby agrees that it shall be bound by any such notice or action given or taken by the Company hereunder irrespective of whether or not any such notice shall have in fact been authorized by such Borrowing Subsidiary and irrespective of whether or not the agency provided for herein shall have theretofore been terminated.

All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy to such party as provided in this Section or in accordance with the latest unrevoked direction from such party given in accordance with this Section.

(b) So long as CNAI, JPMCB or any of their Affiliates is an Administrative Agent, materials required to be delivered pursuant to Section 5.3 shall be delivered to CNAI in an electronic medium in a format reasonably acceptable to the Administrative Agents by e-mail at oploanswebadmin@citigroup.com; provided, however, that if the Borrower also delivers such materials in paper format to the Administrative Agent, such paper materials shall be deemed the materials delivered pursuant to Section 5.3 for all purposes. The Company agrees that, except as directed otherwise by the Company, the Administrative Agents may make such materials (collectively, the “Communications”) available to the Lenders by posting such notices on Intralinks or a substantially similar electronic system (the “Platform”), subject to the implementation of confidentiality agreements and procedures reasonably acceptable to the Company. The Company acknowledges that (i) the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution, (ii) the Platform is provided “as is” and “as available” and (iii) neither the Administrative Agents nor any of their Affiliates warrants the accuracy, adequacy or completeness of the Communications or the Platform and each expressly disclaims liability for

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errors or omissions in the Communications or the Platform. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by the Company, either Administrative Agent or any of their Affiliates in connection with the Platform. Nothing in this Section 8.1(b) shall limit the obligations of the Administrative Agents and the Lenders under Section 8.18.

(c) Each Lender agrees that notice to it (as provided in the next sentence) (a “Notice”) specifying that any Communications or any other written information, documents, instruments and other material relating to the Company, any of its subsidiaries or any other materials or matters relating to this Agreement or any of the transactions contemplated hereby (collectively, with Communications, the “Materials”) have been posted to the Platform shall constitute effective delivery of such information, documents or other materials to such Lender for purposes of this Agreement; provided that if requested by any Lender CNAI shall deliver a copy of the Materials to such Lender by email or telecopier. Each Lender agrees (i) to notify CNAI in writing of such Lender’s e-mail address to which a Notice may be sent by electronic transmission (including by electronic communication) on or before the date such Lender becomes a party to this Agreement (and from time to time thereafter to ensure that CNAI has on record an effective e-mail address for such Lender), (ii) that any Notice may be sent to such e-mail address and (iii) the Company shall be responsible only for the Communications and shall not have any liability (unless otherwise agreed in writing by the Company) for any other Materials made available to the Lenders and shall not have any liability for any errors or omissions in the Communications other than errors or omissions in the materials delivered to the Administrative Agents by the Company.

SECTION 8.2. Survival of Agreement. All covenants, agreements, representations and warranties made by the Company herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making by the Lenders of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or the Commitments have not been terminated.

SECTION 8.3. Binding Effect. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agents and when the Administrative Agents shall have received copies hereof (telecopied or otherwise) which, when taken together, bear the signature of each Lender, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Company nor any Borrowing Subsidiary shall have the right to assign any rights hereunder or any interest herein without the prior consent of all the Lenders.

SECTION 8.4. Successors and Assigns. (a) Whenever in this Agreement any of the parties is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any party that are contained in this Agreement shall bind and inure to the benefit of its successors and assigns.

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(b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that, except in the case of an assignment to another Lender or an Affiliate of a Lender, (i) each of the Company (so long as no Event of Default shall have occurred and be continuing with respect to the Company under clause (g) or (h) of Article VI of this Agreement) and CNAI must give its prior written consent to such assignment (which consent in the case of the Borrower shall not be unreasonably withheld) and (ii) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to CNAI) shall not be less than $10,000,000 unless (x) it shall be the entire amount of such Lender’s Commitment or (y) the Borrower and CNAI shall otherwise agree. The parties to each assignment shall execute and deliver to CNAI an Assignment and Acceptance, and a processing and recordation fee of $3,500. Upon acceptance and recording pursuant to paragraph (e) of this Section, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (X) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (Y) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto (but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 8.5, as well as to any fees accrued for its account hereunder and not yet paid)). Notwithstanding the foregoing, any Lender assigning its rights and obligations under this Agreement may retain any Competitive Loans made by it outstanding at such time, and in such case shall retain its rights hereunder in respect of any Loans so retained until such Loans have been repaid in full in accordance with this Agreement.

(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim; (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or the financial condition of the Company or the performance or observance by the Company of any obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.3 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon any Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints

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and authorizes the Administrative Agents to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agents by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

(d) CNAI shall maintain at one of its offices in the City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and the principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time and any promissory notes evidencing such Loans (the “Register”). The entries in the Register shall be conclusive in the absence of manifest error and the Company, the other Borrowers, the Administrative Agents and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. No assignment or transfer of any Loan (or portion thereof) or any Note evidencing such Loan shall be effected unless and until it has been recorded in the Register as provided in this subsection 8.4(d). Notwithstanding any other provision of this Agreement, any assignment or transfer of all or part of a promissory note shall be registered on the Register only upon surrender for registration of assignment or transfer of the promissory note (and each promissory note shall expressly so provide), accompanied by a duly executed Assignment and Acceptance, and thereupon one or more new promissory notes in the same aggregate principal amount shall be issued to the designated Assignee and the old promissory notes shall be returned by CNAI to the Borrower marked “cancelled”. The Register shall be available for inspection by each party hereto, at any reasonable time and from time to time upon reasonable prior notice.

(e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee together with an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Company to such assignment, CNAI shall (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register.

(f) Each Lender may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto or thereto for the performance of such obligations, (iii) each participating bank or other entity shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.15 and 2.16 to the same extent as if it was the selling Lender (and limited to the amount that could have been claimed by the selling Lender had it continued to hold the interest of such participating bank or other entity, it being further agreed that the selling Lender will not be permitted to make claims against the Company under Section 2.14(b) for costs or reductions resulting from the sale of a participation), except that all claims made pursuant to such Sections shall be made through such selling Lender, and (iv) the Company, the Administrative Agents and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such Lender’s rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Company relating to the Loans and to

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approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or thereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending the final scheduled maturity of the Loans or any date scheduled for the payment of interest on the Loans, payments in connection with Section 2.20 or extending the Commitments).

(g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to the Company furnished to such Lender; provided that, prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall be subject to the same confidentiality agreement as are the Lenders.

(h) The Company and any Borrowing Subsidiary shall not assign or delegate any rights and duties hereunder without the prior written consent of all Lenders.

(i) Any Lender may at any time pledge or otherwise assign all or any portion of its rights under this Agreement to a Federal Reserve Bank; provided that no such pledge shall release any Lender from its obligations hereunder. In order to facilitate such an assignment to a Federal Reserve Bank, the Company shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made by the assigning Lender hereunder.

SECTION 8.5. Expenses; Indemnity. (a) The Company agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agents in connection with entering into this Agreement or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (including the reasonable fees, disbursements and other charges of a single counsel), or incurred by the Administrative Agents or any Lender in connection with the enforcement of their rights in connection with this Agreement or in connection with the Loans made hereunder or thereunder, including the fees and disbursements of counsel for the Administrative Agents and, in the case of enforcement, each Lender.

(b) The Company agrees to indemnify each Administrative Agent, the Syndication Agent and each Lender, each of their Affiliates and the directors, officers, employees and agents of the foregoing (each such Person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of (i) the consummation of the transactions contemplated by this Agreement, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that (A) such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee and (B) such indemnity shall not apply to losses, claims, damages, liabilities or related expenses that result from disputes solely between Lenders.

(c) The provisions of this Section shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the

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transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any investigation made by or on behalf of any Administrative Agent, the Syndication Agent or any Lender. All amounts due under this Section shall be payable on written demand therefor.

SECTION 8.6. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

SECTION 8.7. Waivers; Amendment. (a) No failure or delay of any Administrative Agent or any Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agents and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or consent to any departure therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Company or any Subsidiary in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, or amend or modify Section 8.16, without the prior written consent of each Lender directly affected thereby, (ii) increase the Commitment, or decrease the facility fees or utilization fees of any Lender without the prior written consent of such Lender or (iii) amend or modify the provisions of Section 2.17 or Section 8.4(h), the provisions of this Section or the definition of the “Required Lenders”, without the prior written consent of each Lender; provided further, however, that no such agreement shall amend, modify or otherwise affect the rights or duties of any Administrative Agent hereunder without the prior written consent of such Administrative Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section and any consent by any Lender pursuant to this Section shall bind any assignee of its rights and interests hereunder.

SECTION 8.8. Entire Agreement. This Agreement constitutes the entire contract among the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

SECTION 8.9. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the

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validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8.10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 8.3.

SECTION 8.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 8.12. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender, or any Affiliate thereof, to or for the credit or obligations of the Company and the applicable Borrowing Subsidiary now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after such setoff and application made by such Lender, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have.

SECTION 8.13. Jurisdiction; Consent to Service of Process. (a) The Company and any Borrowing Subsidiary hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to the foregoing and to paragraph (b) below, nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement against any other party hereto in the courts of any jurisdiction.

(b) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or thereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

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(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 8.14. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certification in this Section.

SECTION 8.15. Conversion of Currencies. (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures in the relevant jurisdiction the first currency could be purchased with such other currency on the Business Day immediately preceding the day on which final judgment is given.

(b) The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the “Applicable Creditor”) shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than the currency in which such sum is stated to be due hereunder (the “Agreement Currency”), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 8.15 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder.

SECTION 8.16. Guaranty. In order to induce the Lenders to make Loans to the applicable Borrowing Subsidiaries, the Company hereby unconditionally guarantees the Borrowing Subsidiary Obligations of all the Borrowing Subsidiaries. The Company further agrees that the Borrowing Subsidiary Obligations may be extended and renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its agreement hereunder notwithstanding any extension or renewal of any Borrowing Subsidiary Obligation.

The Company waives promptness, diligence, presentment to, demand of payment from and protest to the Borrowing Subsidiaries of any Borrowing Subsidiary Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The

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obligations of the Company hereunder shall be absolute and unconditional and not be affected by (a) the failure of any Lender or the Administrative Agents to assert any claim or demand or to enforce any right or remedy against the Borrowing Subsidiaries under the provisions of this Agreement or any of the other Loan Documents or otherwise; (b) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement, any other Loan Documents or any other agreement; (c) the failure of any Lender to exercise any right or remedy against any Borrowing Subsidiaries; (d) the invalidity or unenforceability of any Loan Document; (e) any change in the corporate existence or structure of any Borrowing Subsidiary; (f) any claims or rights of set off that may be claimed by the Company; (g) any law, regulation, decree or order of any jurisdiction or any event affecting any term of any Borrowing Subsidiary Obligation; or (h) any other circumstance which might otherwise constitute a defense available to or discharge of the Borrower or a guarantor (other than payment).

The Company further agrees that its agreement hereunder constitutes a promise of payment when due and not of collection, and waives any right to require that any resort be had by any Lender to any balance of any deposit account or credit on the books of any Lender in favor of any Borrowing Subsidiary or any other Person.

The obligations of the Company hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Borrowing Subsidiary Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Company hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agents or any Lender to assert any claim or demand or to enforce any remedy under this Agreement or under any other Loan Document or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Borrowing Subsidiary Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of the Company or otherwise operate as a discharge of the Company as a matter of law or equity.

The Company further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Borrowing Subsidiary Obligation is rescinded or must otherwise be restored by the Administrative Agents or any Lender upon the bankruptcy or reorganization of any of the Borrowing Subsidiaries or otherwise.

In furtherance of the foregoing and not in limitation of any other right which the Administrative Agents or any Lender may have at law or in equity against the Company by virtue hereof, upon the failure of any Borrowing Subsidiary to pay any Borrowing Subsidiary Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Company hereby promises to and will, upon receipt of written demand by CNAI, forthwith pay, or cause to be paid, in cash the amount of such unpaid Borrowing Subsidiary Obligation. In the event that, by reason of the bankruptcy of any Borrowing Subsidiary, (i) acceleration of Loans made to such Borrowing Subsidiary is prevented and (ii) the Company shall not have prepaid the outstanding Loans and other amounts due hereunder owed by such Borrowing Subsidiary, the Company will forthwith purchase such

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Loans at a price equal to the principal amount thereof plus accrued interest thereon and any other amounts due hereunder with respect thereto. The Company further agrees that if payment in respect of any Borrowing Subsidiary Obligation shall be due in a currency other than Dollars and/or at a place of payment other than New York and if, by reason of any Change in Law, disruption of currency or foreign exchange markets, war or civil disturbance or similar event, payment of such Borrowing Subsidiary Obligation in such currency or such place of payment shall be impossible or, in the judgment of any applicable Lender, not consistent with the protection of its rights or interests, then, at the election of any applicable Lender, the Company shall make payment of such Borrowing Subsidiary Obligation in Dollars (based upon the applicable Exchange Rate in effect on the date of payment) and/or in New York, and shall indemnify such Lender against any losses or expenses that it shall sustain as a result of such alternative payment.

Upon payment by the Company of any Borrowing Subsidiary Obligations, each Lender shall, in a reasonable manner, assign the amount of the Borrowing Subsidiary Obligations owed to it and paid by the Company pursuant to this guarantee to the Company, such assignment to be pro tanto to the extent to which the Borrowing Subsidiary Obligations in question were discharged by the Company, or make such disposition thereof as the Company shall direct (all without recourse to any Lender and without any representation or warranty by any Lender except with respect to the amount of the Borrowing Subsidiary Obligations so assigned).

Upon payment by the Company of any sums as provided above, all rights of the Company against any Borrowing Subsidiary arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full of all the Borrowing Subsidiary Obligations to the Lenders.

SECTION 8.17. European Monetary Union. If, as a result of any nation’s becoming a member of the European monetary union, (a) any currency ceases to be lawful currency of the nation issuing the same and is replaced by the Euro, then any amount payable hereunder by any party hereto in such currency shall instead be payable in Euros and the amount so payable shall be determined by translating the amount payable in such currency to Euros at the exchange rate recognized by the European Central Bank for the purpose of such nation’s becoming a member of the European monetary union, or (b) any currency and the Euro are at the same time recognized by the central bank or comparable authority of the nation issuing such currency as lawful currency of such nation, then (i) any Loan made at such time shall be made in Euros and (ii) any other amount payable by any party hereto in such currency shall be payable in such currency or in Euros (in an amount determined as set forth in clause (a)), at the election of the obligor. Prior to the occurrence of the event or events described in clause (a) or (b) of the preceding sentence, each amount payable hereunder in any currency will continue to be payable only in that currency.

SECTION 8.18. Confidentiality. Each of the Administrative Agents and the Lenders expressly agree, for the benefit of the Company and the Subsidiaries, to maintain the confidentiality of the Confidential Information (as defined below), except that Confidential Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the

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Persons to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and instructed to keep such Confidential Information confidential), (b) to the extent requested by any regulatory or self-regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an express agreement for the benefit of the Company and the Subsidiaries containing provisions substantially the same as those of this Section, to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Company or the Subsidiaries, as applicable, or (h) to the extent such Confidential Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to any Administrative Agent or any Lender on a nonconfidential basis from a source other than the Company or the Subsidiaries. For the purposes of this Section, “Confidential Information” means all information, including material nonpublic information within the meaning of Regulation FD promulgated by the SEC (“Regulation FD”), received from the Company or the Subsidiaries relating to such entities or their respective businesses, other than any such information that is available to any Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by such entities; provided that, in the case of information received from the Company or the Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Confidential Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information; provided, however, that with respect to disclosures pursuant to clauses (b) and (c) of this Section, unless prohibited by law or applicable court order, each Lender and each Administrative Agent shall attempt to notify the Company and the Subsidiaries of any request by any governmental agency or representative thereof or other Person for disclosure of Confidential Information after receipt of such request, and if reasonable, practicable and permissible, before disclosure of such Confidential Information. It is understood and agreed that the Company, the Subsidiaries and their respective Affiliates may rely upon this Section 8.18 for any purpose, including without limitation to comply with Regulation FD.

SECTION 8.19. USA PATRIOT Act. Each Lender hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (The “Act”), it may be required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of each Borrower and other information that will allow such Lender to identify the Borrowers in accordance with the Act.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BRISTOL-MYERS SQUIBB COMPANY
By:	/s/ Edward Dwyer
Name:	Edward Dwyer
Title:	Treasurer
By:	/s/ Sandra Leung
Name:	Sandra Leung
Title:	Secretary

Bristol-Myers Squibb Credit Agreement December 2004

JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender
By:	/s/ Stephanie Parker
Name:	Stephanie Parker
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

CITICORP NORTH AMERICA, INC., as Administrative Agent and Advance Agent and as a Lender
By:	/s/ Wajeeh Faheen
Name:	Wajeeh Faheen
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

BANK OF AMERICA, N.A., as Syndication Agent and as a Lender
By:	/s/ Craig Murlless
Name:	Craig Murlless
Title:	SVP

Bristol-Myers Squibb Credit Agreement December 2004

ABN AMRO BANK NV
By:	/s/ Robert H. Steelman
Name:	Robert H. Steelman
Title:	Director
By:	/s/ Michele Costello
Name:	Michele Costello
Title:	Assistant Vice President

Bristol-Myers Squibb Credit Agreement December 2004

Deutsche Bank AG New York Branch
By:	/s/ Frederick W. Laird
Name:	Frederick W. Laird
Title:	Managing Director
By:	/s/ David G. Dickinson. Jr.
Name:	David G. Dickinson. Jr.
Title:	Director

Bristol-Myers Squibb Credit Agreement December 2004

BNP PARIBAS
By:	/s/ William Van Nostrand
Name:	William Van Nostrand
Title:	Managing Director
By:	/s/ Bruno Lavole
Name:	Bruno Lavole
Title:	Managing Director

Bristol-Myers Squibb Credit Agreement December 2004

CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch
By:	/s/ Jay Chall
Name:	Jay Chall
Title:	Director
By:	/s/ Karim Blasetti
Name:	Karim Blasetti
Title:	Associate

Bristol-Myers Squibb Credit Agreement December 2004

The Royal Bank of Scotland plc.
By:	/s/ Charlotte Solia Fulks
Name:	Charlotte Solia Fulks
Title:	Senior Vice Presidentt

Bristol-Myers Squibb Credit Agreement December 2004

WILLIAM STREET COMMITMENT CORPORATION (Recourse only to assets of William Street Commitment Corp)
By:	/s/ Jennifer M. Hill
Name:	Jennifer M. Hill
Title:	Chief Financial Officer

Bristol-Myers Squibb Credit Agreement December 2004

BANCO SANTANDER CENTRAL HISPANO
By:	/s/ Daniel Keane
Name:	Daniel Keane
	Executive Vice President
Title:	U.S. Global Corporate Banking
By:	/s/ R. Schegel
Name:	R. Schegel
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By:	/s/ Cynthia Rietsha
Name:	Cynthia Rietsha
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

HARRIS NESBITT FINANCING, INC.
By:	/s/ Joseph W. Linder
Name:	Joseph W. Linder
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

HSBC Bank USA, National Association
By:	/s/ Jeffrey Wieser
Name:	Jeffrey Wieser
Title:	Managing Director

Bristol-Myers Squibb Credit Agreement December 2004

UBS LOAN FINANCE LLC
By:	/s/ Joselyn Fernandes
Name:	Joselyn Fernandes
Title:	Associate Director
	Banking Products
	Services. US
By:	/s/ Doris Mesa
Name:	Doris Mesa
Title:	Associate Director
	Banking Products
	Services, US Assistant

Bristol-Myers Squibb Credit Agreement December 2004

Banca Monte dei Pashi di Siena S.p.A.
By:	/s/ Romeo C. Cella
Name:	Romeo C. Cella
Title:	SVP & General Manager
By:	/s/ Nicolas A. Kanaris
Name:	Nicolas A. Kanaris
Title:	Vice President

Bristol-Myers Squibb Credit Agreement December 2004

PNC Bank, National Association
By:	/s/ Michael Nardo
Name:	Michael Nardo
Title:	Managing Director

Bristol-Myers Squibb Credit Agreement December 2004

ABN AMRO BANK NV
By:	/s/ Robert H. Steelman
Name:	Robert H. Steelman
Title:	Director
By:	/s/ Michele Costello
Name:	Michele Costello
Title:	Assistant Vice President

Bristol-Myers Squibb Credit Agreement December 2004

Standard Charter Bank
By:	/s/ Mark Sims
Name:	Mark Sims
Title:	SVP, Global Account Manager
By:	/s/ Robert K. Reddington
Name:	Robert K. Reddington
Title:	AVP/Credit Documentation
	Standard Chartered Bank

THE BANK OF NEW YORK
By:	/s/ Thomas J. McCoarmack
Name:	Mark Sims
Title:	Vice President

The Northern Trust Company
By:	/s/ Ashish S. Bhagwat
Name:	Ashish S. Bhagwat
Title:	Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Jeanette A. Griffin
Name:	Jeanette A. Griffin
Title:	Director

EX-10.(F)

Exhibit 10f.

BRISTOL-MYERS SQUIBB COMPANY

1983 STOCK OPTION PLAN

(as amended and restated as of October 1, 2001)

1. Purpose: The purpose of the 1983 Stock Option Plan (as amended and restated effective as of October 1, 2001) (the “Plan”) is to secure for the Company and its stockholders the benefits of the incentive inherent in common stock ownership by the officers and key employees of the Company and its Subsidiaries and Affiliates who will be largely responsible for the Company’s future growth and continued financial success and by providing long-term incentives in addition to current compensation to certain key executives of the Company and its Subsidiaries and Affiliates who contribute significantly to the long-term performance and growth of the Company and such Subsidiaries and Affiliates. It is intended that the former purpose will be effected through the grant of stock options and stock appreciation rights under the Plan and that the latter purpose will be effected through an award conditionally granting performance units under the Plan, either independently or in conjunction with and related to a nonqualified stock option grant under the Plan. The Bristol-Myers Squibb Company Long-Term Performance Award Plan (as amended to January 17, 1983 and in effect as of December 31, 1992) (“LTPAP”) has been merged into and consolidated with the Plan as of January 1, 1993. As used herein, the term “Prior Plan” shall mean the Bristol-Myers Squibb Company 1983 Stock Option Plan (as amended through May 1, 1991 and in effect as of December 31, 1992) prior to its amendment and restatement as of January 1, 1993.

2. Definitions: For purposes of this Plan:

(a) “Affiliate” shall mean any entity in which the Company has an ownership interest of at least 20%.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(c) “Common Stock” shall mean the Company’s common stock (par value $.10 per share).

(d) “Company” shall mean Bristol-Myers Squibb Company.

(e) “Disability” or “Disabled” shall mean qualifying for and receiving payments under a disability pay plan of the Company or any Subsidiary or Affiliate.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(g) “Fair Market Value” shall mean the average of the high and low sale prices of a share of Common Stock on the New York Stock Exchange, Inc. composite tape on the date of measurement or on any date as determined by the Committee and if there were no trades on such date, on the day on which a trade occurred next preceding such date.

(h) “Retirement” shall mean termination of the employment of an employee with the Company or a Subsidiary or Affiliate on or after (i) the employee’s 65th birthday or (ii) the employee’s 55th birthday if the employee has completed 10 years of service with the Company, its Subsidiaries and/or its Affiliates. For purposes of this Section 2(h) and all other purposes of this Plan, Retirement shall also mean termination of employment of an employee with the Company or a Subsidiary or Affiliate for any reason (other than the employee’s death, disability, resignation, willful misconduct or activity deemed detrimental to the interests of the Company) where, on termination, (iii) the employee’s age plus years of service (rounded up to the next higher whole number) equals at least 70 and the employee has completed 10 years of service with the Company, its Subsidiaries and/or its Affiliates or (iv) the employee is at least 50 years of age and the employee has completed 10 years of service with the Company, its Subsidiaries and/or its Affiliates provided the Optionee executes a general release agreement and, where applicable, a non-solicitation and/or non-compete agreement with the Company. This Section 2(h)(iv) shall expire on January 31, 2003.

E-10-1

Furthermore, an employee who makes an election to retire under Article 19 of the Bristol-Myers Squibb Company Retirement Income Plan (the “Retirement Income Plan”) shall have any additional years of age and service which are credited under Article 19 of the Retirement Income Plan taken into account when determining such employee’s age and service under this Section 2(h). Such election shall be deemed a Retirement for purposes of this Section 2(h) and all other purposes of this Plan.

(i) “Subsidiary” shall mean any corporation which at the time qualifies as a subsidiary of the Company under the definition of “subsidiary corporation” in Section 424 of the Code.

3. Amount of Stock: The amount of stock which may be made subject to grants of options or awards of performance units under the Plan in calendar year 1993 shall not exceed an amount equal to (i) 0.9% of the outstanding shares of the Company’s Common Stock on January 1, 1993, plus (ii) the amount of shares available for, and not made subject to, grants of options under the Prior Plan as of January 1, 1993, less (iii) the number of shares subject to options granted in 1993 under the Prior Plan and (iv) the number of shares corresponding to awards of performance units outstanding under the LTPAP on the date the Plan is approved by the stockholders of the Company. With respect to each succeeding year, the amount of stock which may be made subject to grants of options or awards of performance units under the Plan shall not exceed an amount equal to (i) 0.9% of the outstanding shares of the Company’s Common Stock on January 1 of such year plus, subject to this Section 3, (ii) in any year the number of shares equal to the amount of shares that were available for grants and awards in the prior year but were not made subject to a grant or award in such prior year and (iii) the number of shares that were subject to options or awards granted hereunder or under the Prior Plan, which options or awards terminated or expired in the prior year without being exercised. Common Stock issued hereunder may be authorized and reissued shares or issued shares acquired by the Company or its Subsidiaries on the market or otherwise.

4. Administration: The Plan shall be administered under the supervision of the Board of Directors of the Company which shall exercise its powers, to the extent herein provided, through the agency of a Compensation and Management Development Committee (the “Committee”) which shall be appointed by the Board of Directors of the Company and shall consist of not less than three directors who shall serve at the pleasure of the Board. No member of the Committee shall have been within one year prior to appointment to, or while serving on, the Committee granted or awarded equity securities of the Company pursuant to this or any other plan of the Company or its Subsidiaries or Affiliates except to the extent that participation in any such plan or receipt of any such grant or award would not adversely affect the Committee member’s status as a non-employee director for purposes of Rule 16b-3 under the Exchange Act.

The Committee, from time to time, may adopt rules and regulations for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate. The interpretation and construction of any provision of the Plan by the Committee shall, unless otherwise determined by the Board of Directors, be final and conclusive.

The Committee shall maintain a written record of its proceedings. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be the acts of the Committee.

5. Eligibility: Options and awards may be granted only to present or future officers and key employees of the Company and its Subsidiaries and Affiliates, including Subsidiaries and Affiliates which become such after the adoption of the Plan. Any officer or key employee of the Company or of any such Subsidiary or Affiliate shall be eligible to receive one or more options or awards under the Plan. Any director who is not an officer or employee of the Company or one of its Subsidiaries or Affiliates and any member of the Committee, during the time of the member’s service as such or thereafter, shall be ineligible to receive an option or award under the Plan. The adoption of this Plan shall not be deemed to give any officer or employee any right to an award or to be granted an option to purchase Common Stock of the Company, except to the extent and upon such terms and conditions as may be determined by the Committee.

6. Stock Options: Stock options under the Plan shall consist of incentive stock options under Section 422 of the Code or nonqualified stock options (options not intended to qualify as incentive stock options), as the Committee shall determine. In addition, the Committee may grant stock appreciation rights in conjunction with an option, as set forth in Section 6(b)(11), or may grant awards in conjunction with an option, as set forth in Section 6(b)(10) (an “Associated Option”).

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Each option shall be subject to the following terms and conditions:

(a) Grant of Options. The Committee shall (1) select the officers and key employees of the Company and its Subsidiaries and Affiliates to whom options may from time to time be granted, (2) determine whether incentive stock options or nonqualified stock options, are to be granted, (3) determine the number of shares to be covered by each option so granted, (4) determine the terms and conditions (not inconsistent with the Plan) of any option granted hereunder (including but not limited to restrictions upon the options, conditions of their exercise, or on the shares of Common Stock issuable upon exercise thereof), (5) determine whether nonqualified stock options or incentive stock options granted under the Plan shall include stock appreciation rights and, if so, shall determine the terms and conditions thereof in accordance with Section 6(b)(11) hereof, (6) determine whether any nonqualified stock options granted under the Plan shall be Associated Options, and (7) prescribe the form of the instruments necessary or advisable in the administration of options.

(b) Terms and Conditions of Option. Any option granted under the Plan shall be evidenced by a Stock Option Agreement executed by the Company and the optionee, in such form as the Committee shall approve, which agreement shall be subject to the following terms and conditions and shall contain such additional terms and conditions not inconsistent with the Plan, and in the case of an incentive stock option not inconsistent with the provisions of the Code applicable to incentive stock options, as the Committee shall prescribe:

(1) Number of Shares Subject to an Option. The Stock Option Agreement shall specify the number of shares of Common Stock subject to the Agreement. If the option is an Associated Option, the number of shares of Common Stock subject to such Associated Option shall initially be equal to the number of performance units subject to the award, but one share of Common Stock shall be canceled for each performance unit paid out under the award.

(2) Option Price. The purchase price per share of Common Stock purchasable under an option will be determined by the Committee but will be not less than the Fair Market Value of a share of Common Stock on the date of the grant of such option.

(3) Option Period. The period of each option shall be fixed by the Committee, but no option shall be exercisable after the expiration of ten years from the date the option is granted.

(4) Consideration. Each optionee, as consideration for the grant of an option, shall remain in the continuous employ of the Company or of one of its Subsidiaries or Affiliates for at least one year from the date of the granting of such option, and no option shall be exercisable until after the completion of such one year period of employment by the optionee.

(5) Exercise of Option. An option may be exercised in whole or in part from time to time during the option period (or, if determined by the Committee, in specified installments during the option period) by giving written notice of exercise to the Company specifying the number of shares to be purchased, such notice to be accompanied by payment in full of the purchase price and Withholding Taxes (as defined in Section 10 hereof) due either by certified or bank check, or in shares of Common Stock of the Company owned by the optionee having a Fair Market Value at the date of exercise equal to such purchase price and Withholding Taxes due, or in a combination of the foregoing; provided, however, that payment in shares of Common Stock of the Company will not be permitted unless at least 100 shares of Common Stock are required and delivered for such purpose. Delivery of shares for this purpose shall be made either through the physical delivery of shares or through an appropriate certification or attestation of valid ownership. No shares shall be issued until full payment therefor has been made. An optionee shall have the rights of a stockholder only with respect to shares of stock for which certificates have been issued to the optionee. Notwithstanding anything in the Plan to the contrary, the Company, may in its sole discretion, allow the exercise of a lapsed grant if the Company determines that: (i) the lapse was solely the result of the Company’s inability to execute the exercise of an option award due to conditions beyond the Company’s control and (ii) the optionee made valid and reasonable efforts to exercise the award. In the event the Company makes such a determination, the Company shall allow the exercise to occur as promptly as possible following its receipt of exercise instructions subsequent to such determination.

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(6) Nontransferability of Options. No option or stock appreciation right granted under the Plan shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and such option or stock appreciation right shall be exercisable, during the optionee’s lifetime, only by the optionee. Notwithstanding the foregoing, the Committee may set forth in a Stock Option Agreement at the time of grant or thereafter, that the options may be transferred to members of the optionee’s immediate family, to trusts solely for the benefit of such immediate family members and to partnerships in which such family members and/or trusts are the only partners. For this purpose, immediate family members means the optionee’s spouse, parents, children, stepchildren, grandchildren and legal dependents. Any transfer of options made under this provision will not be effective until notice of such transfer is delivered to the Company.

(7) Retirement and Termination of Employment Other than by Death or Disability. If an optionee shall cease to be employed by the Company or any of its Subsidiaries or Affiliates for any reason (other than termination of employment by reason of death or Disability) after the optionee shall have been continuously so employed for one year after the granting of the option, the option shall be exercisable only to the extent that the optionee was otherwise entitled to exercise it at the time of such cessation of employment with the Company, Subsidiary or Affiliate, but in no event after the expiration of the option period set forth therein except that in the case of cessation of employment other than by reason of Retirement or death, the option shall in no event be exercisable after the date three months next succeeding such cessation of employment. The Plan does not confer upon any optionee any right with respect to continuation of employment by the Company or any of its Subsidiaries or Affiliates.

(8) Disability of Optionee. An optionee who ceases to be employed by reason of Disability shall be treated as though the optionee remained in the employ of the Company or a Subsidiary or Affiliate until the earlier of (i) cessation of payments under a disability pay plan of the Company, Subsidiary or Affiliate, (ii) the optionee’s death, or (iii) the optionee’s 65th birthday.

(9) Death of Optionee. Except as otherwise provided in subsection (13), in the event of the optionee’s death (i) while in the employ of the Company or of any of its Subsidiaries or Affiliates, (ii) while Disabled as described in subsection (8) or (iii) after cessation of employment due to Retirement, the option shall be fully exercisable by the executors, administrators, legatees or distributees of the optionee’s estate, as the case may be, at any time following such death. In the event of the optionee’s death after cessation of employment for any reason other than Disability or Retirement, the option shall be exercisable by the executors, administrators, legatees or distributees of the optionee’s estate, as the case may be, at any time during the twelve month period following such death. Notwithstanding the foregoing, in no event shall an option be exercisable unless the optionee shall have been continuously employed by the Company or any of its Subsidiaries or Affiliates for a period of at least one year after the option grant, and no option shall be exercisable after the expiration of the option period set forth in the Stock Option Agreement. In the event any option is exercised by the executors, administrators, legatees or distributees of the estate of a deceased optionee, the Company shall be under no obligation to issue stock thereunder unless and until the Company is satisfied that the person or persons exercising the option are the duly appointed legal representatives of the deceased optionee’s estate or the proper legatees or distributees thereof.

(10) Long Term Performance Awards. The Committee may from time to time grant nonqualified stock options under the Plan in conjunction with and related to an award of performance units made under a Long Term Performance Award as set forth in Section 7(b)(11). In such event, notwithstanding any other provision hereof, (i) the number of shares to which the Associated Option applies shall initially be equal to the number of performance units granted by the award, but such number of shares shall be reduced on a one share-for-one unit basis to the extent that the Committee determines pursuant to the terms of the award, to pay to the optionee or the optionee’s beneficiary the performance units granted pursuant to such award; and (ii) such Associated Option shall be cancelable in the discretion of the Committee, without the consent of the optionee, under the conditions and to the extent specified in the award.

(11) Stock Appreciation Rights. In the case of any option granted under the Plan, either at the time of grant or by amendment of such option at any time after such grant there may be included a stock appreciation right which shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall impose, including the following:

(A) A stock appreciation right shall be exercisable to the extent, and only to the extent, that the option in which it is included is at the time exercisable, and may be exercised within such period only at such time or times as may be determined by the Committee;

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(B) A stock appreciation right shall entitle the optionee (or any person entitled to act under the provisions of subsection (9) hereof) to surrender unexercised the option in which the stock appreciation right is included (or any portion of such option) to the Company and to receive from the Company in exchange therefor that number of shares having an aggregate value equal to (or, in the discretion of the Committee, less than) the excess of the value of one share (provided such value does not exceed such multiple of the option price per share as may be specified by the Committee) over the option price per share specified in such option times the number of shares called for by the option, or portion thereof, which is so surrendered. The Committee shall be entitled to cause the Company to settle its obligation, arising out of the exercise of a stock appreciation right, by the payment of cash equal to the aggregate value of the shares the Company would otherwise be obligated to deliver or partly by the payment of cash and partly by the delivery of shares. Any such election shall be made within 30 business days after the receipt by the Committee of written notice of the exercise of the stock appreciation right. The value of a share for this purpose shall be the Fair Market Value thereof on the last business day preceding the date of the election to exercise the stock appreciation right;

(C) No fractional shares shall be delivered under this subsection (11) but in lieu thereof a cash adjustment shall be made;

(D) If a stock appreciation right included in an option is exercised, such option shall be deemed to have been exercised to the extent of the number of shares called for by the option or portion thereof which is surrendered on exercise of the stock appreciation right and no new option may be granted covering such shares under this Plan; and

(E) If an option which includes a stock appreciation right is exercised, such stock appreciation right shall be deemed to have been canceled to the extent of the number of shares called for by the option or portion thereof is exercised and no new stock appreciation rights may be granted covering such shares under this Plan.

(12) Incentive Stock Options. In the case of any incentive stock option granted under the Plan, the aggregate Fair Market Value of the shares of Common Stock of the Company (determined at the time of grant of each option) with respect to which incentive stock options granted under the Plan and any other plan of the Company or its parent or a Subsidiary which are exercisable for the first time by an employee during any calendar year shall not exceed $100,000 or such other amount as may be required by the Code. In any year, the maximum number of shares with respect to which incentive stock options may be granted shall not exceed 4,000,000 shares.

(13) Rights of Transferee. Notwithstanding anything to the contrary herein, if an option has been transferred in accordance with Section 6(b)(6), the option shall be exercisable solely by the transferee. The option shall remain subject to the provisions of the Plan, including that it will be exercisable only to the extent that the optionee or optionee’s estate would have been entitled to exercise it if the optionee had not transferred the option. In the event of the death of the optionee prior to the expiration of the right to exercise the transferred option, the period during which the option shall be exercisable will terminate on the date one year following the date of the optionee’s death. In the event of the death of the transferee prior to the expiration of the right to exercise the option, the period during which the option shall be exercisable by the executors, administrators, legatees and distributees of the transferee’s estate, as the case may be, will terminate on the date one year following the date of the transferee’s death. In no event will the option be exercisable after the expiration of the option period set forth in the Stock Option Agreement. The option shall be subject to such other rules as the Committee shall determine.

(14) Change in Control. In the event an optionee’s employment with the Company terminates for a qualifying reason during the three (3) year period following a change in control of the Company and prior to the

5

exercise of options granted under this Plan, all outstanding options shall become immediately fully vested and exercisable notwithstanding any provisions of the Plan or of the applicable stock option agreement to the contrary.

(A) For the purpose of this Plan a change in control shall be deemed to have occurred on the earlier of the following dates:

(1) The date any Person (as defined in Section 13(d)(3) of the Securities and Exchange Act) shall have become the direct or indirect beneficial owner of twenty percent (20%) or more of the then outstanding common shares of the Company;

(2) The date the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than (i) a merger or consolidation which would result in the voting securities of the company outstanding immediately prior thereto continuing to represent at least 75% of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company in which no Person acquires more than 50% of the combined voting power of the Company’s then outstanding securities;

(3) The date the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(4) The date there shall have been a change in a majority of the Board of Directors of the Company within a two (2) year period unless the nomination for election by the Company’s shareholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the two (2) year period.

(B) For purposes of this Plan provision, a qualifying termination shall be deemed to have occurred under the following circumstances:

(1) A Company initiated termination for reason other than the employee’s death, disability, resignation without good cause, willful misconduct or activity deemed detrimental to the interests of the Company provided the optionee executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company;

(2) The optionee resigns with good cause, which includes (i) a substantial adverse alternation in the nature or status of the optionee’s responsibilities, (ii) a reduction in the optionee’s base salary and/or levels of entitlement or participation under any incentive plan, award program or employee benefit program without the substitution or implementation of an alternative arrangement of substantially equal value, or, (iii) the Company requiring the optionee to relocate to a work location more than fifty (50) miles from his/her work location prior to the change in control.

7. Long-term Performance Awards: Awards under the Plan shall consist of the conditional grant to the participants of a specified number of performance units. The conditional grant of a performance unit to a participant will entitle the participant to receive a specified dollar value, variable under conditions specified in the award, if the performance objectives specified in the award are achieved and the other terms and conditions thereof are satisfied.

Each award will be subject to the following terms and conditions:

(a) Grant of Awards. The Committee shall (1) select the officers and key executives of the Company and its Subsidiaries and Affiliates to whom awards may from time to time be granted, (2) determine the number of performance units covered by each award, (3) determine the terms and conditions of each performance unit awarded and the award period and

6

performance objectives with respect to each award, (4) determine the periods during which a participant may request the Committee to approve deferred payment of a percentage (50% or 100%) of an award (the “Deferred Portion”) and the interest or rate of return thereon or the basis on which such interest or rate of return thereon is to be determined, (5) determine whether payment with respect to the portion of an award which has not been deferred (the “Current Portion”) and the payment with respect to the Deferred Portion of an award shall be made entirely in cash, entirely in Common Stock or partially in cash and partially in Common Stock, (6) determine whether the award is to be made independently of or in conjunction with a nonqualified stock option granted under the Plan, and (7) prescribe the form of the instruments necessary or advisable in the administration of the awards.

(b) Terms and Conditions of Award. Any award conditionally granting performance units to a participant shall be evidenced by a Performance Unit Agreement executed by the Company and the participant, in such form as the Committee shall approve, which Agreement shall contain in substance the following terms and conditions and such additional terms and conditions as the Committee shall prescribe:

(1) Number of Performance Units. The Performance Unit Agreement shall specify the number of performance units conditionally granted to the participant. If the award has been made in conjunction with the grant of an Associated Option, the number of performance units granted shall initially be equal to the number of shares which the participant is granted the right to purchase pursuant to the Associated Option, but one performance unit shall be canceled for each share of the Company’s Common Stock purchased upon exercise of the Associated Option or for each stock appreciation right included in such option that has been exercised.

(2) Value of Performance Units. The Performance Unit Agreement shall specify the threshold, target and maximum dollar values of each performance unit and corresponding performance objectives as provided under Section 7(b)(5).

(3) Award Periods. For each award, the Committee shall designate an award period with a duration to be determined by the Committee in its discretion but in no event less than three calendar years within which specified performance objectives are to be attained. There may be several award periods in existence at any one time and the duration of performance objectives may differ from each other.

(4) Consideration. Each participant, as consideration for the award of performance units, shall remain in the continuous employ of the Company or of one of its Subsidiaries or Affiliates for at least one year after the date of the making of such award, and no award shall be payable until after the completion of such one year of employment by the participant.

(5) Performance Objectives. The Committee shall establish performance objectives with respect to the Company for each award period on the basis of such criteria and to accomplish such objectives as the Committee may from time to time determine. Performance objectives may include objective and subjective criteria. During any award period, the Committee may adjust the performance objectives for such award period as it deems equitable in recognition of unusual or nonrecurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine.

(6) Determination and Payment of Performance Units Earned. As soon as practicable after the end of an award period, the Committee shall determine the extent to which awards have been earned on the basis of the Company’s actual performance in relation to the established performance objectives as set forth in the Performance Unit Agreement. The Performance Unit Agreement shall specify that as soon as practicable after the end of each award period, the Committee shall determine whether the conditions of Sections 7(b)(4) and 7(b)(5) hereof have been met and, if so, shall ascertain the amount payable to the participant in respect of the performance units. As promptly as practicable after it has determined that an amount is payable in respect of an award, the Committee shall cause the Current Portion of such award to be paid to the participant or the participant’s beneficiaries, as the case may be, in the Committee’s discretion, either entirely in cash, entirely in Common Stock or partially in cash and partially in Common Stock. The Deferred Portion of an award shall be contingently credited and payable to the participant over a deferred period and shall be credited with interest or a rate of return, as determined by the Committee. The Committee, in its discretion, shall determine the conditions upon, and method of, payment of such

7

deferred portions and whether such payment will be made entirely in cash, entirely in Common Stock or partially in cash and partially in Common Stock.

In making the payment of an award in Common Stock hereunder, the cash equivalent of such Common Stock shall be determined by the Fair Market Value of the Common Stock on the day the Committee designates the performance units shall be paid.

(7) Nontransferability of Awards and Designation of Beneficiaries. No award under the Plan shall be transferable by the participant other than by will or by the laws of descent and distribution, except that a participant may designate a beneficiary pursuant to the provisions hereof.

If any participant or the participant’s beneficiary shall attempt to assign the participant’s rights under the Plan in violation of the provisions thereof, the Company’s obligation to make any further payments to such participant or the participant’s beneficiaries shall forthwith terminate.

A participant may name one or more beneficiaries to receive any payment of an award to which the participant may be entitled under the Plan in the event of the participant’s death, on a form to be provided by the Committee. A participant may change the participant’s beneficiary designation from time to time in the same manner.

If no designated beneficiary is living on the date on which any payment becomes payable to a participant’s beneficiary, such payment will be payable to the person or persons in the first of the following classes of successive preference:

(i) Widow or widower, if then living,

(ii) Surviving children, equally,

(iii) Surviving parents, equally,

(iv) Surviving brothers and sisters, equally,

(v) Executors or administrators

and the term “beneficiary” as used in the Plan shall include such person or persons.

(8) Retirement and Termination of Employment Other Than by Death or Disability. In the event of the Retirement prior to the end of an award period of a participant who has satisfied the one year employment requirement of Section 7(b)(4) with respect to an award prior to Retirement, the participant, or his estate, shall be entitled to a payment of such award at the end of the award period, pursuant to the terms of the Plan and the participant’s Performance Unit Agreement, provided, however, that the participant shall be deemed to have earned that proportion (to the nearest whole unit) of the value of the performance units granted to the participant under such award as the number of months of the award period which have elapsed since the first day of the calendar year in which the award was made to the end of the month in which the participant’s Retirement occurs, bears to the total number of months in the award period. The participant’s rights in any remaining performance units shall be canceled and forfeited.

Subject to Section 7(b)(6) hereof, the Performance Unit Agreement shall specify that the rights of the participant in the performance units granted to such participant shall be conditional and shall be canceled, forfeited and surrendered if the participant’s continuous employment with the Company and its Subsidiaries and Affiliates shall terminate for any reason, other than the participant’s death, Disability or Retirement prior to the end of the award period.

The Committee may, in its discretion, waive, in whole or in part, the cancellation, forfeiture and surrender of any performance units.

(9) Disability of Participant. For the purposes of any award a participant who becomes Disabled shall be deemed to have suspended active employment by reason of Disability commencing on the date the participant

8

becomes entitled to receive payments under a disability pay plan of the Company or any Subsidiary or Affiliate and continuing until the date the participant is no longer entitled to receive such payments. In the event a participant becomes Disabled during an award period but only if the participant has satisfied the one year employment requirement of Section 7(b)(4) with respect to an award prior to becoming Disabled, upon the determination by the Committee of the extent to which an award has been earned pursuant to Section 7(b)(6) the participant shall be deemed to have earned that proportion (to the nearest whole unit) of the value of the performance units granted to the participants under such award as the number of months of the award period in which the participant was not Disabled bears to the total number of months of the award period. The participant’s rights in any remaining performance units shall be canceled and forfeited.

The Committee may, in its discretion, waive, in whole or in part, such cancellation and forfeiture of any performance units.

(10) Death of Participant. In the event of the death prior to the end of an award period of a participant who has satisfied the one year employment requirement with respect to an award prior to the date of death, the participant’s beneficiaries or estate, as the case may be, shall be entitled to a payment of such award upon the end of the award period, pursuant to the terms of the Plan and the participant’s Performance Unit Agreement, provided, however, that the participant shall be deemed to have earned that proportion (to the nearest whole unit) of the value of the performance units granted to the participant under such award as the number of months of the award period which have elapsed since the first day of the calendar year in which the award was made to the end of the month in which the participant’s death occurs, bears to the total number of months in the award period. The participant’s rights in any remaining performance units shall be canceled and forfeited.

The Committee may, in its discretion, waive, in whole or in part, such cancellation and forfeiture of any performance units.

(11) Grant of Associated Option. If the Committee determines that the conditional grant of performance units under the Plan is to be made to a participant in conjunction with the grant of a nonqualified stock option under the Plan, the Committee shall grant the participant an Associated Option under the Plan subject to the terms and conditions of this subsection (11). In such event, such award under the Plan shall be contingent upon the participant’s being granted such an Associated Option pursuant to which: (i) the number of shares the optionee may purchase shall initially be equal to the number of performance units conditionally granted by the award, (ii) such number of shares shall be reduced on a one share-for-one unit basis to the extent that the Committee determines, pursuant to Section 7(b)(6) hereof, to pay to the participant or the participant’s beneficiaries the performance units conditionally granted pursuant to the award, and (iii) the Associated Option shall be cancelable in the discretion of the Committee, without the consent of the participant, under the conditions and to the extent specified herein and in Section 7(b)(6) hereof.

If no amount is payable in respect of the conditionally granted performance units, the award and such performance units shall be deemed to have been canceled, forfeited and surrendered, and the Associated Option, if any, shall continue in effect in accordance with its terms. If any amount is payable in respect of the performance units and such units were granted in conjunction with an Associated Option, the Committee shall, within 30 days after the determination of the Committee referred to in the first sentence of Section 7(b)(6), determine, in its sole discretion, either:

(A) to cancel in full the Associated Option, in which event the value of the performance units payable pursuant to Sections 7(b)(5) and (6) shall be paid;

(B) to cancel in full the performance units, in which event no amount shall be paid to the participant in respect thereof but the Associated Option shall continue in effect in accordance with its terms; or

(C) to cancel some, but not all, of the performance units, in which event the value of the performance units payable pursuant to Sections 7(b)(5) and (6) which have not been canceled shall be paid

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and the Associated Option shall be canceled with respect to that number of shares equal to the number of conditionally granted performance units that remain payable.

Any action taken by the Committee pursuant to the preceding sentence shall be uniform with respect to all awards having the same award period. If the Committee takes no such action, it shall be deemed to have determined to cancel in full the award in accordance with clause (B) above.

8. Determination of Breach of Conditions: The determination of the Committee as to whether an event has occurred resulting in a forfeiture or a termination or reduction of the Company’s obligations in accordance with the provisions of the Plan shall be conclusive.

9. Adjustment in the Event of Change in Stock: In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, recapitalization, mergers, consolidations, split-ups, combinations or exchanges of shares and the like, the aggregate number and class of shares available under the Plan, and the number, class and the price of shares subject to outstanding options and/or awards and the number of performance units and/or the dollar value of each unit shall be appropriately adjusted by the Committee, whose determination shall be conclusive.

10. Taxes: In connection with the transfer of shares of Common Stock to an optionee, subject to Section 16 of the Exchange Act, as the result of the exercise of a nonqualified stock option or a stock appreciation right, or to a participant subject to Section 16 of the Exchange Act, upon payment of an award, the Company shall have the right to retain or sell without notice, or to demand surrender of, shares of Common Stock having a Fair Market Value (taking into account any commissions or other expenses the Company may incur upon the sale of such shares) on the date that the amount required by any governmental entity to be withheld or otherwise deducted and paid with respect to such transfer (“Withholding Tax”) is to be determined (the “Tax Date”) sufficient to cover the amount of any Applicable Tax (the amount of Withholding Tax plus the incremental amount determined on the basis of the highest marginal tax rate applicable to such optionee or participant, Federal Insurance Contribution Act taxes or other governmental impost or levy), and to make payment (or to reimburse itself for payment made) to the appropriate taxing authority of an amount in cash equal to the amount of such Applicable Tax, remitting any balance to the optionee or participant. Notwithstanding the foregoing, if the stock options have been transferred, the optionee shall provide the Company with funds sufficient to pay such Withholding or Applicable Tax. Furthermore, if such optionee does not satisfy his withholding obligation, the transferee may provide the funds sufficient to enable the Company to pay such Withholding Tax or Applicable Tax. However, if the stock options have been transferred, the Company shall have no right to retain or sell without notice, or to demand surrender from the transferee of, shares of Common Stock in order to pay such Withholding Tax or Applicable Tax.

An optionee or participant who is not an executive officer of the Company subject to Section 16 of the Exchange Act shall be entitled to satisfy the obligation to pay any Withholding Tax or Applicable Tax, by providing the Company with funds sufficient to enable the Company to pay such Withholding Tax or Applicable Tax or by requiring the Company to retain or to accept upon delivery thereof by the optionee or participant shares of Common Stock sufficient in value (determined in accordance with the last sentence of the preceding paragraph), to cover the amount of such Withholding Tax or Applicable Tax. Each election by an optionee or participant to have shares retained or to deliver shares for this purpose shall be subject to the following restrictions: (i) the election must be in writing and be made on or prior to the Tax Date; (ii) the election must be irrevocable; (iii) the election shall be subject to the disapproval of the Committee.

11. Amendment of the Plan: The Board of Directors may amend or suspend the Plan at any time and from time to time. No such amendment of the Plan may, however, increase the maximum number of shares to be offered under options or awards, or change the manner of determining the option price, or change the designation of employees or class of employees eligible to receive options or awards, or permit the transfer or issue of stock before payment therefor in full, or, without the written consent of the optionee or participant, alter or impair any option or award previously granted under the Plan, Prior Plan or LTPAP. Notwithstanding the foregoing, if an option has been transferred in accordance with Section 6(b)(6), written consent of the transferee (and not the optionee) shall be necessary to alter or impair any option or award previously granted under the Plan.

12. Amendment of Options Outstanding Under the Prior Plan: The Prior Plan and certain nonqualified options granted and outstanding thereunder are hereby amended to provide that any nonqualified option which is outstanding on the date this Plan is adopted by a vote of the holders of a majority of the shares of the Company’s Common Stock and $2.00 Convertible Preferred Stock present in person or by proxy at a duly held shareholders meeting at which a quorum representing a majority of all

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outstanding voting stock is present shall be exercisable in accordance with Sections 6(b)(7) and 6(b)(9), except that for the purpose of such options “Retirement” shall additionally mean termination of the employment of an employee after completing 35 years of service with the Company or its Subsidiaries.

Furthermore, an employee who makes an election to retire under Article 19 of the Retirement Income Plan shall have any additional years of age and service which are credited under Article 19 of the Retirement Income Plan taken into account when determining such employee’s age and years of service with the Company or its Subsidiaries under this Section 12. Such election shall be deemed a Retirement for purposes of this Section 12 and all other purposes of this Plan.

13. Miscellaneous: By accepting any benefits under the Plan, each optionee or participant and each person claiming under or through such optionee or participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken or made to be taken or made under the Plan by the Company, the Board, the Committee or any other Committee appointed by the Board. No participant or any person claiming under or through him shall have any right or interest, whether vested or otherwise, in the Plan or in any option, or stock appreciation right or award thereunder, contingent or otherwise, unless and until all of the terms, conditions and provisions of the Plan and the Agreement that affect such participant or such other person shall have been complied with. Nothing contained in the Plan or in any Agreement shall require the Company to segregate or earmark any cash or other property. Neither the adoption of the Plan nor its operation shall in any way affect the rights and powers of the Company or any of its Subsidiaries or Affiliates to dismiss and/or discharge any employee at any time.

14. Term of the Plan: The Plan shall become effective as of January 1, 1993 by action of the Board of Directors conditioned on and subject to approval of the Plan, by a vote of the holders of a majority of the shares of Common Stock and $2.00 Convertible Preferred Stock of the Company present in person or by proxy at a duly held shareholders meeting at which a quorum representing a majority of all outstanding voting stock is present. The Plan shall terminate on December 31, 2002, or at such earlier date as may be determined by the Board of Directors. Termination of the Plan, however, shall not affect the rights of optionees under options theretofore granted to them or the rights of participants under awards theretofore granted to them, and all unexpired options and awards shall continue in force and operation after termination of the Plan except as they may lapse or be terminated by their own terms and conditions.

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EX-10.(L)

Exhibit 10l.

BRISTOL-MYERS SQUIBB COMPANY

1987 DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

AMENDED EFFECTIVE JANUARY 13, 2004

Section 1. Effective Date.

The effective date of this Bristol-Myers Squibb Company 1987 Deferred Compensation Plan for Non-Employee Directors (the “Plan”) is January 20, 1987.

Section 2. Eligibility.

Any Director of Bristol-Myers Squibb Company (the “Company”) who is not an Officer or employee of the Company or a subsidiary thereof is eligible to participate in the Plan.

Section 3. Deferred Compensation Account.

There shall be established on the books of the Company for each participant a deferred compensation account in the participant’s name.

Section 4. Amount of Deferral.

Two Thousand (2,000) Share Units payable, as of February 1 of each year, to the participant for membership on the Board of Directors shall be deferred and credited to such participant’s deferred compensation account as Share Units equal to the number of shares of the Company’s common stock which could have been purchased with the amounts deferred, determined by dividing the dollar value of the amounts deferred by the fair market value of a share of the Company’s common share as reported in The Wall Street Journal on the effective date of such deferral until the cessation of the participant’s service as a Director. Twenty-five (25) percent of the basic fee payable to the participant for membership on the Board of Directors shall be deferred and credited to such participant’s deferred compensation account as Share Units equal to the number of shares of the Company’s common stock which could have been purchased with the amounts deferred, determined by dividing the dollar value of the amounts deferred by the fair market value of a share of the Company’s common share as reported in The Wall Street Journal on the effective date of such deferral until such time as the participant meets a guideline level of Share Unit or Company common stock ownership established by the Committee on Directors and Corporate Governance of the Company. A participant may elect, by filing the appropriate form pursuant to Section 9, to defer receipt for any calendar year of either (1) all of the compensation payable to the participant for serving on the Board of Directors and any committee thereof, (2) only the basic fee payable to the participant for membership on the Board of Directors, or (3) any percentage, in excess of twenty-five percent of the basic fee, specified by the participant of the compensation payable to the participant specified in clause (1) hereof.

E-10-2

Section 5. Form and Computation of Deferred Amounts.

Effective with respect to amounts deferred after the Effective Date of the Plan and subject to Section 4, a participant, at the time he elects to participate in the Plan, shall elect to have the amounts deferred credited to such participant’s deferred compensation account as Treasury Units or Dollar Units each equal to the number of shares of the Company’s common stock which could have been purchased with the amounts deferred determined by dividing the dollar value of the amounts deferred by the fair market value of a share of the Company’s common share as reported in The Wall Street Journal on the effective date of such deferral. Such deferrals shall be allocated to Treasury Units, Dollar Units and/or Share Units in increments of 0%, 33 1/3%, 50%, 66 2/3% or 100%. The amount credited to a participant’s deferred compensation account as Treasury Units shall be credited with interest at a rate that is equal to the three-month United States Treasury bill discount rates for the preceding quarter. The amount credited to a participant’s deferred compensation account as Dollar Units shall be credited with interest at a rate that is equal to the Company’s investment return on the invested cash of the Company for the preceding quarter. Upon payment by the Company of dividends on its common stock, the amount credited to a participant’s deferred compensation account as Share Units shall be credited with an amount equal to the number of Share Units multiplied by a fraction the numerator of which is the amount of such dividend and the denominator of which is the fair market value of a Share of the Company’s common stock as reported in The Wall Street Journal on the day such dividend is payable. The amount of Share Units in a participant’s deferred compensation account shall be adjusted in the discretion of the Corporate Secretary’s Office to take into account a merger, consolidation, reorganization, recapitalization, stock split or other change in corporate structure of capitalization affecting the Company’s common stock.

Section 6. Period of Deferral.

Subject to Section 4, a participant may elect to defer receipt of compensation either (1) until a specified year in the future, (2) until the cessation of the participant’s service as a Director or (3) until the end of the calendar year in which the cessation of the participant’s service as a Director occurs. If alternative (1) is elected, payment will be made or will commence within sixty days after the beginning of the year specified; if alternative (2) is elected, payment will be made or will commence within sixty days after the cessation of the participant’s service as a Director; and if alternative (3) is elected, payment will be made or will commence within sixty days after the end of the calendar year in which the cessation of the participant’s service as a Director occurs.

Section 7. Form of Payment.

A participant may elect to receive the compensation deferred under the Plan in either (1) a lump sum in cash or (2) a number of installments in cash, not more than ten, as specified by the participant. If installment payments are elected, the amount of each installment shall be equal to the balance in the participant’s deferred compensation account divided by the number of installments remaining to be paid (including the installment in question).

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Section 8. Death Prior to Receipt.

A participant may elect that, in the event he or she dies prior to receipt of any or all of the amounts payable pursuant to this Plan, any amounts remaining in the participant’s deferred compensation account shall be paid to the participant’s estate in cash in either (1) a lump sum within sixty days following notification to the Company of the participant’s death or (2) a number of annual installments, not more than ten, as specified by the participant. If alternative (2) is elected and payment to the participant pursuant to clause (2) of Section 7 has not commenced prior to death, the initial installment payment hereunder shall be made sixty days after notification to the Company of the participant’s death, and the amount of each such installment shall be determined as provided in the last sentence of Section 7. If alternative (2) is elected and payment to the participant pursuant to clause (2) of Section 7 had commenced prior to death, the installment payments to the participant’s estate shall be made at the same time and in the same amount as such payments would have been made to the participant had he or she survived. For purposes of this Section 8, any amounts deferred as Share Units shall be converted to Dollar Units by multiplying the number of Share Units credited to a participant’s deferred compensation account on the date of his death by the fair market value of a share of the Company’s common stock on such date as reported in The Wall Street Journal.

Section 9. Time of Election of Deferral.

An election to defer compensation may be made by (i) a nominee for election as a Director prior to his/her election for the calendar year in which he/she is being elected (except that a person elected a Director by the Board of Directors may make an election to defer compensation within 30 days after his/her election as a Director, in which event such election to defer compensation shall be effective only with respect to compensation paid after the election to defer compensation is made) and (ii) a person then currently serving as a Director for the next succeeding calendar year no later than the preceding December 31. This election will be deemed to be an election to defer compensation under this Plan for each succeeding calendar year, unless (1) the participant elects, in accordance with Section 12, to discontinue the deferral, (2) the Company discontinues the Plan, or (3) the election is stated, in writing, to apply only to the current calendar year.

Section 10. Status of Previous Deferrals.

Any deferral election made under the Bristol-Myers Squibb Company Amended and Restated Deferred Compensation Plan for Non-Employee Directors (the “Prior Plan”) shall be subject to and governed by the terms of the Prior Plan.

Section 11. Manner of Electing Deferral.

A participant may elect to defer compensation by giving written notice to the Corporate Secretary’s Office of the Company on a form provided by the Company, which notice shall include the amount to be deferred, the form in which the amount deferred is to be credited, the period of deferral, the form of payment, including the number of installments, if any.

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Section 12. Effect of Election.

An election to defer compensation including the form of deferral shall be irrevocable by the participant once the calendar year to which it applies has commenced. An election may be discontinued or modified by the participant with respect to calendar years not yet begun by notifying the Corporate Secretary’s Office of the Company in writing no later than November 30th of the preceding year.

Section 13. Further Election.

Prior to the commencement of the year in which a participant has elected to commence receipt of payment of amounts deferred, the participant shall have the one-time right with regard to funds previously deferred to elect a further deferral of the payment of such funds by delivering to the committee a written statement in a form provided by the Company specifying the further period of deferral and the form of payment, including the number of installments, if any.

In the event, however, there is a final determination by a court of appropriate jurisdiction that the further deferral was ineffective for the purpose of deferring tax obligations on the deferred amounts, then all amounts on which the further deferral was determined to be ineffective shall be paid to the participant within 15 days of such final determination being made, such payment to be made pursuant to the previously elected deferral.

Section 14. Participant’s Rights Unsecured.

The right of any participant to receive future payments under the provisions of the Plan shall be an unsecured claim against the general assets of the Company.

Section 15. Statement of Account.

A statement will be sent to each participant each year as to the value of his/her deferred compensation account as of the end of the preceding year.

Section 16. Assignability.

No right to receive payments hereunder shall be transferable or assignable by a participant, except by will or under the laws of descent and distribution.

Section 17. Administration.

This Plan will be administered by the Corporate Secretary’s Office of the Company, which shall have the authority to adopt rules and regulations to carry out the Plan and to interpret, construe and implement the provisions of the Plan.

Section 18. Amendment.

This Plan may at any time or from time to time be amended, modified or terminated by the Company. No amendment, modification or termination shall, without the consent of the participant, adversely affect such participant’s accruals in his/her deferred compensation account of the date of amendment, modification or termination.

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EX-10.(Q)

Exhibit 10q.

CHANGE-IN-CONTROL AGREEMENT

Date

PERSONAL AND CONFIDENTIAL

«First_Name» «Last_Name»

«Job_Title»

«Company»

Dear «First_Name»: :

Bristol-Myers Squibb Company (the “Company”) considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. Our Board of Directors (the “Board”) recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of key personnel to the detriment of the Company and our stockholders. Therefore, the Board has determined to enter into this agreement with you (i) to encourage and reinforce your attention and dedication to your assigned duties without distraction in the face of the disruptive circumstances that can arise from a possible change in control of the Company, (ii) to enhance our ability to retain you in those circumstances, and (iii) to provide you with fair and reasonable protection from the risks of a change in ownership and control so that you will be in a position to help the Company complete a transaction that would be beneficial to stockholders. Accordingly, you and the Company agree as follows:

1. Term of Agreement and Protected Period.

(a) Term of Agreement. This Agreement shall be effective as of January 1, 2005 and shall continue in effect through December 31, 2005, and commencing on January 1, 2006, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than December 1 of the year preceding the renewal date, either party to this Agreement has given notice to the other that the Agreement shall not be extended under this Section 1(a); provided, however, that if a Change in Control or Potential Change in Control (as defined below) have occurred during the term of this Agreement, this Agreement shall continue in effect until the later of 36 months beyond the month in which the latest Change in Control occurred or the next December 31 that is at least 18 months after the latest occurrence of a Potential Change in Control. The foregoing notwithstanding, this Agreement shall terminate upon your attaining your Retirement Date.

(b) Protected Period. The “Protected Period” is the period from the time of occurrence of a Change in Control until the end of the 36th month after the Change in Control, except that the introductory text to Section 4 provides that certain events occurring before a Change in Control shall be deemed to have occurred during the Protected Period.

2. Change in Control and Potential Change in Control.

(a) A “Change in Control” shall be deemed to have occurred if, during the term of this Agreement, on the earliest to occur of the following dates:

(i) The date any Person (as defined in Section 13(d)(3) of the Securities and Exchange Act) shall have become the direct or indirect beneficial owner of twenty percent (20%) or more of the then outstanding common shares of the Company;

(ii) The date of consummation of a merger or consolidation of the Company with any other corporation other than (i) a merger or consolidation which would result in the voting securities of the company outstanding immediately prior thereto continuing to represent at least 75% of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company in which no Person acquires more than 50% of the combined voting power of the Company’s then outstanding securities;

(iii) The date the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(iv) The date there shall have been a change in a majority of the Board of Directors of the Company within a two- (2) year period unless the nomination for election by the Company’s stockholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the two (2) year period [or were previously so approved].

The foregoing notwithstanding, a Change in Control shall not include any event, circumstance or transaction resulting from the actions of any entity or group which is affiliated with you, unless the event, circumstance or transaction is within six months following a Potential Change in Control which resulted from the action of an entity or group not affiliated with you. The term “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(b) A “Potential Change in Control” shall be deemed to have occurred if, during the term of this Agreement:

(i) The Company enters into a written agreement, the consummation of which would result in a Change in Control; or

(ii) The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; or

(iii) Any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company’s then outstanding securities (except, if the Beneficial Owner is an institutional investor eligible to file a Schedule 13G in respect of the Company under Rule 13d-1(b), this threshold shall be 15%), thereafter increases such Person’s beneficial ownership of such securities by 5% or more; or

(iv) The Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

3. Employee Covenants.

You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the Company or a subsidiary until the date that is six months after the earliest Potential Change in Control, except your commitment will end upon (i) the occurrence of a Change in Control, (ii) your Termination by reason of death , (iii) your Termination by the Company for any reason, or (iv) any other Termination under which you become entitled to severance and benefits under Section 4(b) of this

2

Agreement. A “Termination” means an event by which your employment relationship with the Company and all subsidiaries has ended.

4. Termination and Resulting Compensation and Benefits. The Agreement provides no compensation or benefits in connection with Terminations which occur at times other than during the Protected Period, except that, if you are Terminated prior to a Change in Control by the Company without Cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control, or if you Terminate with Good Reason prior to a Change in Control (determined by treating a Potential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person, then your Termination shall be deemed to have been during the Protected Period and following a Change in Control and shall qualify for the compensation and benefits specified in Section 4(b).

(a) Termination by the Company for Cause, by You Without Good Reason, or by Reason of Death, and Failure to Perform Duties Due to Disability. If during the Protected Period you are Terminated by the Company for Cause, you voluntarily Terminate without Good Reason, Termination occurs due to your death, or you fail to perform your duties with the Company as a result of Disability, the Company will have no obligation to pay any compensation or benefits to you under this Agreement, but the following obligations will apply:

(i) In the case of failure to perform your duties due to Disability, you will be compensated on terms at least as favorable as those of the Company’s short-term and long-term disability plans as in effect immediately prior to the Change in Control;

(ii) For any such Termination, you will be paid your salary through the Date of Termination plus all other compensation and benefits payable through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period. If any annual incentive compensation was potentially earnable by you by performance in a year that has been completed, and such year was completed at the date the Termination but the annual incentive compensation was not yet determined or not yet paid, the Company will determine the amount payable in good faith and with no exercise of negative discretion except as is consistent with the exercise of such negative discretion for other executives of the Company who have not Terminated (taking into account practice in prior years in determining such annual incentive awards); provided, however, that this sentence will not apply in the case of a Termination by the Company for Cause.

(iii) You will receive other compensation and benefits accrued and owing but not yet paid at the Date of Termination and any compensation and benefits as may be provided under the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements on terms at least as favorable as those in effect immediately prior to the Change in Control.

(b) Terminations Triggering Severance Compensation and Benefits. In lieu of any other severance compensation or benefits to which you may otherwise be entitled under any plan, program, policy or arrangement of the Company or any subsidiary, entitlement to which you hereby expressly waive, the Company will pay you the payments described in this Section 4(b) (the “Severance Payments”) upon Termination during the Protected Period and during the term of this Agreement, unless such termination is (i) by the Company for Cause, (ii) by reason of death, or (iii) by you without Good Reason. The compensation and benefits provided under this Section 4(b) are as follows:

(i) The Company will pay you the amounts specified in Section 4(a)(ii).

(ii) In lieu of any further salary payments to you and in lieu of any severance benefit otherwise payable to you, the Company will pay you a lump sum severance payment, in cash, equal to three or, if less, the number of years, including

3

fractions, from your Date of Termination until you reach your Retirement Date, times the sum of (i) the higher of your annual base salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or your annual base salary in effect immediately prior to the Change in Control, and (ii) the aggregate amount of your target annual bonus opportunity for the year in which the Notice of Termination was given under the annual incentive plan applicable to you as in effect immediately prior to the occurrence of the event or circumstances giving rise to the Notice of Termination or, if greater, your target annual bonus under the applicable plan for the preceding year.

(iii) The Company will pay to you a lump sum amount, in cash, equal to the sum of (A) any incentive compensation which has been earned, allocated or awarded by you or to you for a completed calendar year or other measuring period preceding the Date of Termination but has not yet been paid (this shall not result, however, in duplication of payments under Section 4(b)(i) and 4(a)(ii), with any further service requirement for the vesting of such compensation deemed met as of the Date of Termination, and (B), in the case of any incentive award contingent upon performance (i.e., a contingency other than continued service), an amount equal to the pro rata portion of each authorized award or award opportunity for any performance measurement period that was in effect at the Date of Termination, calculated as to each such award assuming that any performance goal or measurement will have been achieved (for the entire performance period) at a level which is the greater of the target level or the level of achievement that, for the accounting period including the date of the Notice of Termination, was deemed to be probable or expected for purposes of accruing accounting expense in connection with like awards under such plan; provided, however, any additional forfeiture conditions in the nature of a “clawback” contained in any plan or award agreement shall continue to apply to any payment under clause (A) or (B), and shall be deemed your covenants to be performed following termination. For purposes of clause (B), the pro rata portion shall be determined based on the proportion of the performance period elapsed from the beginning of such period until the Date of Termination, and any service, vesting or other non-performance requirement relating to such an award, including a service period that would have extended after the performance period, will be deemed met; provided, however, that the payment authorized by Section 4(b)(iii)(B) will be limited if the terms of any award or other agreement specifically limit the payment under this agreement (referring clearly to this agreement or a predecessor change in control agreement).

(iv) In the case of restricted stock, restricted stock units, options, stock appreciation rights (“SARs”) and other equity awards, other than performance-based awards governed by Section 4(b)(iii) above, such awards shall be deemed fully vested and non-forfeitable (to the extent not previously vested and non-forfeitable) and restrictions on such awards shall automatically lapse as of the Date of Termination, and options and SARs and other exercisable awards will be immediately exercisable in full at that date; provided, however, that (A) the enhanced rights and benefits specified in this Section 4(b)(iv) will be limited if and to the extent that the terms of any award or other agreement specifically limit such enhanced rights and benefits under this agreement (referring clearly to this agreement or a predecessor change-in-control agreement), (B), if minimum vesting requirements applicable to any award under the 2002 Stock Incentive Plan or other Company plan do not permit such accelerated vesting, the Company will make a cash payment to you equal to the fair market value (net of any exercise price) of such award at the Date of Termination, whereupon such award will be canceled; (C) any additional forfeiture conditions in the nature of a “clawback” contained in any plan or award agreement shall continue to apply, and shall apply to any payment under clause (B), and shall be deemed your covenants to be performed following termination; and (D) the acceleration of options and SARs provided for hereunder is subject to the limitations specified in Section 4(c).

(v) In addition to the retirement benefits to which you are entitled under the Bristol-Myers Squibb Company Retirement Income Plan (the “Retirement Plan”)

4

and the Bristol-Myers Squibb Company Benefit Equalization Plan relating to the Retirement Plan (the “BEP”), or any successor plans thereto, the Company will pay you an additional amount (the “Additional Amount”) equal to the excess of

(x) the retirement pension (determined as a straight life annuity commencing at Retirement Date) which you would have accrued under the terms of the Retirement Plan and BEP (without regard to any amendment to the Retirement Plan or BEP made subsequent to a Change in Control which is adverse to you), determined as if you (A) were fully vested thereunder, and (B) had accumulated (after the Date of Termination) 36 additional months of age and service credit thereunder at your highest annual rate of compensation during the 12 months immediately preceding the Date of Termination (but in no event will you be deemed to have accumulated additional service credit in excess of the maximums taken into account under the Retirement Plan and BEP) (the “Additional Age/Service Credit”)

over

(y) the vested retirement pension (determined as a straight life annuity commencing at your Retirement Date) which you had then accrued pursuant to the respective provisions of the Retirement Plan and BEP (the BEP portion of such retirement pension being the “Base BEP Benefit”).

Such Additional Amount together with the Base BEP Benefit, if paid as an annuity, will be paid at such time or times as the relevant benefits are payable to you under the Retirement Plan and BEP, (or any successor plans thereto) but, in determining the time of payment, assuming your age and service include the Additional Age/Service Credit, and if paid as a cash lump sum, the actuarial equivalent of such annuity will be paid. Subject to Section 4(d), if you have not elected to receive payments hereunder in the form of an annuity (such election to conform to requirements under the BEP) or if the transaction constituting the Change in Control has not been approved by the Board prior to the consummation thereof, the payments under this Section 4(b)(v) will be in a cash lump sum; otherwise, payments under this Section 4(b)(v) will be in an annuity (in the form provided under the BEP). If you have not attained age 55 with ten years of service credit as of the Date of Termination (after taking into account the Additional Age/Service Credit), you will nevertheless receive the payments under this Section 4(b)(v) at the same times as though you had attained age 55 with ten years of service credit as of the Date of Termination (notwithstanding any provision of the BEP to the contrary), and without actuarial reduction to reflect the fact that you have not attained age 55 with ten years of service as of the Date of Termination. For purposes of this Section 4(b)(v), “actuarial equivalent” will be determined using the same methods and assumptions utilized under the Retirement Plan immediately prior to the Date of Termination.

(vi) For a 36-month period after the Date of Termination, the Company will arrange to provide you with life and health (including medical and dental) insurance benefits and perquisites substantially similar to those which you are receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control). Benefits and perquisites otherwise receivable by you pursuant to this Section 4(b)(vi) will be reduced to the extent comparable benefits are actually received by or made available to you without greater cost to you than as provided by the Company during the 36-month period following your termination of employment (and any such benefits actually received by you will be reported to the Company by you).

(vii) Following the 36-month period described in Section 4(b)(vi), you will be immediately eligible to participate (although you may elect to defer commencement of such participation to such later date as you will determine) in the Company’s retiree medical and dental plans, whether or not you have satisfied any age and service

5

requirements then applicable. For purposes of determining the level of your participation thereunder, you will be deemed to have accumulated 36 months of additional age and service credit; it being understood that if your age and service credit (as augmented hereunder) do not satisfy the minimum requirements for eligibility, you will be eligible to participate at the level requiring the maximum contribution requirement by an eligible retiree.

(viii) In addition to the vested amounts, if any, to which you are entitled under the Savings Plan as of the Date of Termination, the Company will pay you a lump sum amount equal to the value of the unvested portion, if any, of the employer matching contributions credited to you under the Savings Plan (to the extent such unvested portion is forfeited as a result of your Termination).

(ix) The Company will provide you with (including reimbursements to you for) reasonable outplacement services consistent with past practices of the Company prior to the Change in Control.

(c) Excise Tax, Gross-Up and Related Provisions . In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the “CiC Payments”), if any of such CiC Payments are subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 4(d) hereof an additional amount (the “Gross-Up Payment”) such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax (taking into account the loss of itemized deductions) and employment tax and Excise Tax upon the payment provided for by this Section 4(c), shall be equal to present value of the Total Payments. If any portion of the Total Payments would be subject to the imposition of the Excise Tax, and if a reduction of any compensation or benefit under Section 4(b) by an amount not exceeding 10% of the Safe Harbor Amount would avoid the imposition of the Excise Tax on you, payments and benefits payable pursuant to Section 4(b) of this Agreement shall be reduced to the extent necessary (but not more than 10% of the Safe Harbor Amount and only to the extent necessary) to result in no imposition of the Excise Tax on you. This cut-back provision shall apply to amounts and benefits payable hereunder which are designated in writing by you prior to the applicable payment date or, if no designation has been made, to payments and benefits hereunder as determined by the Company so as to minimize the amount of your compensation that is reduced (i.e., the payments that to the greatest extent are parachute payments shall be reduced to the extent authorized hereunder). “Safe Harbor Amount” shall mean one dollar less than 300% of the “base amount” as determined in accordance with Section 280G(b)(3) of the Code.

For purposes of determining whether any of the CiC Payments will be subject to the Excise Tax and the amount of such Excise Tax:

(i) The Severance Payments and any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which together constitute the “Total Payments”) shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by the Company’s independent auditors and reasonably acceptable to you (the “Tax Counsel”), such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;

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(ii) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 4(c)(i) above), provided, however, that no payment or benefit shall be treated as subject to the Excise Tax or as a parachute payment if you have effectively waived in writing, prior to the Date of Termination, your right to receive such payment or benefit; and

(iii) The value of any non-cash benefits or any deferred payments or benefit shall be determined by the Tax Counsel in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation (taking into account the loss of itemized deductions) in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of your Termination, you shall repay to the Company, within ten days after the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you to the extent that such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. In the event that the subsequent determinations as to the Excise Tax affect the calculations relating to the cut-back provisions, such amounts will be recalculated and the provisions of this Section 4(c) applied based on the revised calculations, with interest applied to any payments by either party at the rate provided in Section 1274(b)(2)(B) of the Code.

(d) Time of Payment. The payments provided for in Sections 4(b)(i), (ii), (iii), (iv) and (viii) and Section 4(c) shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, you shall be obligated to repay such excess amount on the fifth business day after demand by the Company, together with interest at the rate provided in Section 1274(b)(2)(B) of the Code. At the time that payments are made under this Section, the Company will provide you with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including any opinions or other advice the Company received from Tax Counsel, outside counsel, auditors or consultants. The foregoing and other provisions of the Agreement notwithstanding, if any right to payment or other benefit hereunder would be deemed, under then applicable U.S. federal income tax laws and regulations, to be constructively received by you (and thus subject to income taxation) prior to the date such payment or benefit is payable hereunder, then (i) the distribution terms and your other rights to such payment or benefit shall be automatically modified to conform to the tax law requirements to ensure that you do not have such constructive receipt and, (ii), if no possible modification under clause (i) could preclude your constructive receipt of such payment or benefit, the payment or benefit will be paid as promptly as practicable on or after the date it would be deemed to have been constructively received by you.

7

(e) Notice. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto.

(f) Certain Definitions. Except as otherwise indicated in this Agreement, all definitions in this Section 4(f) shall be applicable during the Protected Period only.

(i) Cause “Cause” for termination by the Company of your employment, during the Protected Period, shall mean (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by you) for a period of at least 30 consecutive days after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise, or (C) you are convicted of, or have entered a plea of nolo contendere to, a felony. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on your part shall be deemed “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your act, or failure to act, was in the best interest of the Company. The foregoing notwithstanding, you will not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail.

(ii) Date of Termination. “Date of Termination” shall mean the date specified in the Notice of Termination which, in the case of a Termination by the Company (other than a Termination for Cause), shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a Termination by you, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given.

(iii) Disability. “Disability” shall have the meaning stated in the Company’s short- and long-term disability plans as in effect immediately prior to a Change in Control.

(iv) Good Reason. “Good Reason” for Termination of your employment will mean the occurrence, without your express written consent, of any one of the following unless, in the case of paragraph (A), (E), (F), (G), or (H) below, such circumstances are fully corrected prior to the Date of Termination:

(A) the assignment to you of any duties inconsistent with your status as an officer of the Company or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control;

(B) a reduction by the Company in your annual base salary or target annual incentive bonuses in effect immediately prior to the Change in Control or as the same may be increased from time to time;

(C) the relocation of the principal place of your employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company’s business to an extent substantially consistent with your business travel obligations prior to the Change in Control or, if you have consented to such a relocation, the failure by the Company to provide you with all of the benefits of the Company’s relocation policy as in operation immediately prior to a Change in Control;

8

(D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due;

(E) the failure by the Company to continue in effect any compensation or benefit plan which is material to your compensation and in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control;

(F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company’s pension (including, without limitation, the Company’s Retirement Plan, BEP and the Company’s Savings and Investment Program, including the Company’s Benefit Equalization Plan for the Savings and Investment Program), life insurance, medical, health and accident, or disability plans in which you were participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the Change in Control, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control; or

(G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or

(H) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 4(f)(iv) hereof (and, if applicable, the requirements of Section 4(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement.

Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. Notwithstanding the foregoing, the occurrence of an event that would otherwise constitute Good Reason hereunder shall cease to be an event constituting Good Reason if Notice of Termination is not timely provided to the Company by you within 120 days of the date that you first become aware (or reasonably should have become aware) of the occurrence of such event.

(iv) Notice of Termination. “Notice of Termination” shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated.

(v) Retirement Date. “Retirement Date” shall mean the later of (i) the Executive’s normal retirement date under the Retirement Plan and (ii) such other date for retirement by the Executive which has been approved by the Board with the consent of the Executive.

9

(g) Dispute Concerning Termination. If within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination stated in such Notice, the party receiving such Notice notifies the other party that a dispute exists concerning the Termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is no longer appealable); provided however, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. In case of such a dispute, the Company shall continue to pay you the full compensation in effect when the Notice giving rise to the dispute was given (including salary) or, if greater, the full compensation in effect immediately prior to the Change in Control, and continue you as a participant, on a basis at least as favorable to you as in effect immediately prior to the Change in Control, in all compensation, benefit and insurance plans in which you were participating when such Notice was given, until the dispute is finally resolved. Amounts paid under this Section 4(g) are in addition to all other amounts due under this Agreement but without duplication under Section 4(a) or 4(b)(i) hereof, and shall not be offset against or reduce any other amounts due under this Agreement.

5. Mitigation. Except as provided in Section 4(b)(vi) hereof, you shall not be required to mitigate the amount of payments or benefits provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise.

6. Noncompetition and Related Covenants. In consideration for the payments and benefits provided by the Company under this Agreement, you shall execute, concurrent with the execution of this Agreement, a noncompetition agreement with the Company in the form attached to this Agreement as Exhibit A, which agreement provides that, for a one-year period following your termination of employment with the Company or any of its subsidiaries or affiliates, you will not engage in any competitive activity with the Company or any of its subsidiaries or affiliates. In addition, if you receive any payment or benefit pursuant to Section 4(b)(iv), the forfeiture conditions in the nature of a “clawback” applicable to the award or the related payment or benefit shall become covenants to be performed following termination. A portion of the payments and benefits under Section 4(b) shall be deemed compensation for your performance of the covenants referred to in this Section 6.

7. Costs of Proceedings. The Company shall pay all costs and expenses, including all reasonable attorneys’ fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; provided that if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys’ fees and disbursements and reimburse the Company for any and all attorneys’ fees and disbursements the Company had paid on your behalf. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement.

8. Miscellaneous.

(a) Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

10

(b) Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate.

(c) Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (i) personally delivered or (ii) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; provided that all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

(d) Modifications. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time.

(e) Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES.

(f) Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law.

(g) Surviving Obligations. The obligations of the Company and your obligations under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement.

(h) Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

(i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(j) Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company.

If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject.

11

BRISTOL-MYERS SQUIBB COMPANY
By:
	Stephen E. Bear
	Senior Vice President, Human Resources

Agreed to this                              day

of                                 , 2004.

«First_Name» «Last_Name»

12

EX-12

EXHIBIT 12.

Statement Re Computation of Ratios

	2004			2003			2002			2001			2000
	(dollars in millions)
5-Year Ratio of Earnings to Fixed Charges:
Earnings
Earnings from Continuing Operations Before Minority Interest and Income Taxes	$	4,418		$	4,680		$	2,748		$	2,252		$	5,244
Fixed Charges		369			361			420			233			148
Capitalized interest, net of amortization		(10	)		(35	)		(16	)		(16	)		(12	)
Total Earnings	$	4,777		$	5,006		$	3,152		$	2,469		$	5,380
Fixed Charges
Interest and debt expense	$	310		$	277		$	364		$	182		$	108
Capitalized interest		10			35			16			16			12
One-third of rental expense		49			49			40			35			28
Total Fixed Charges	$	369		$	361		$	420		$	233		$	148
Ratio of Earnings to Fixed Charges		12.95			13.87			7.50			10.60			36.35

E-12-1

EX-21

EXHIBIT 21.

Subsidiaries of the Registrant

2309 Realty Corporation

3130827 CANADA INC.

345 Park Corporation

77 Wilson St., Corp.

A.G. Medical Services, P.A.

Alive & Well, Inc.

Allard Laboratories, Inc.

Allard Labs Acquisition LLC

Allied Medical Services (UK) Ltd.

AMCARE Limited

Apothecon, Inc.

Apothecon, S.L.

B-MS GeneRx

Bioenhance Medicines, Inc.

Blisa Acquisition LLC

Blisa, Inc.

BMS Alpha Bermuda Manufacturing Finance Ltd.

BMS Antilles

BMS Bermuda Holdings Ltd.

BMS Bermuda Nominees L.L.C.

BMS Holdings Spain, S.L.

BMS Holdings(France)

BMS International Insurance Company Limited

BMS Investco SAS

BMS Latin American Nominees L.L.C.

BMS Limited

BMS Luxembourg Partners, L.L.C.

BMS Mexico Holdings L.L.C.

BMS Mexico International Holdings, GmbH

BMS Music Company

BMS Omega Bermuda Holdings Finance Ltd.

BMS Pharmaceutical Korea B.V.

BMS Pharmaceutical Korea Limited

BMS Pharmaceuticals Asia Holdings B.V.

BMS Pharmaceuticals Germany Holdings B.V.

BMS Pharmaceuticals International Holdings Netherlands B.V.

BMS Pharmaceuticals Mexico Holdings B.V.

BMS Pharmaceuticals Netherland Holdings B.V.

BMS Pharmaceuticals Worldwide Holdings Netherlands B.V.

BMS Spain Investments, Inc.

BMS Swiss Holdings L.L.C.

BMS US Holdings Spain Inc.

BMS-Generiques SAS

BMSF SAS

BMSIC Pharma-Handels Verwaltungs GmbH

Boclaro Inc.

Bristol (Iran) S.A.

Bristol Arzneimittel G.m.b.H.

Bristol Caribbean, Inc.

E-21-1

Bristol Foundation

Bristol Iran Private Company Limited

Bristol Laboratories Corporation

Bristol Laboratories Inc.

Bristol Laboratories International, S.A.

Bristol Laboratories Medical Information Systems Inc.

Bristol Pharmaceuticals Y.K.

Bristol-Myers (Andes) L.L.C.

Bristol-Myers (Bangladesh) Inc.

Bristol-Myers (Private) Limited

Bristol-Myers (Zaire) Ltd.

Bristol-Myers Barceloneta, Inc.

Bristol-Myers Company (2001) Limited

Bristol-Myers de Venezuela S.C.A.

Bristol-Myers K.K.

Bristol-Myers Lion Ltd.

Bristol-Myers Middle East S.A.L.

Bristol-Myers Nederland Inc.

Bristol-Myers Oncology Therapeutic Network, Inc.

Bristol-Myers Overseas Corporation

Bristol-Myers Overseas Corporation (Guam Branch)

Bristol-Myers Pakistan (Pvt.) Limited

Bristol-Myers Squibb (France)

Bristol-Myers Squibb & Gilead Sciences, LLC

Bristol-Myers Squibb (China) Investment Co., Ltd.

Bristol-Myers Squibb (Hong Kong) Limited

Bristol-Myers Squibb (Israel) Ltd.

Bristol-Myers Squibb (Malaysia) Sendirian Berhad

Bristol-Myers Squibb (N.Z.) Limited

Bristol-Myers Squibb (Phil.) Inc.

Bristol-Myers Squibb (Proprietary) Limited

Bristol-Myers Squibb (Russia)

Bristol-Myers Squibb (Shanghai) Trading Co. Ltd.

Bristol-Myers Squibb (Singapore) Pte. Limited

Bristol-Myers Squibb (Taiwan) Ltd.

Bristol-Myers Squibb (Thailand) Ltd.

Bristol-Myers Squibb (West Indies) Ltd.

Bristol-Myers Squibb Antilles Holdings N.V.

Bristol-Myers Squibb Argentina S. R. L.

Bristol-Myers Squibb Auslandsbeteiligungs Holding, GmbH

Bristol-Myers Squibb Australia Pty. Ltd.

Bristol-Myers Squibb B.V.

Bristol-Myers Squibb Barceloneta Holdings, L.L.C.

Bristol-Myers Squibb Belgium SPRL

Bristol-Myers Squibb Biologics Company

Bristol-Myers Squibb Bulgaria EOOD

Bristol-Myers Squibb Business Services Limited

Bristol-Myers Squibb Canada Co.

Bristol-Myers Squibb Caribbean Company

Bristol-Myers Squibb Caribbean Holdings, L.L.C.

Bristol-Myers Squibb Cayman Ltd.

Bristol-Myers Squibb Company

Bristol-Myers Squibb de Colombia Ltda.

Bristol-Myers Squibb de Costa Rica Limitada

E-21-1

Bristol-Myers Squibb de Guatemala SRL

Bristol-Myers Squibb de Mexico S. de R. L. de C.V.

Bristol-Myers Squibb Delta Company

Bristol-Myers Squibb Delta Holdings, L.L.C.

Bristol-Myers Squibb Denmark Filial of Bristol-Myers Squibb AB

Bristol-Myers Squibb Dominicana, S.A.

Bristol-Myers Squibb E.P E.

Bristol-Myers Squibb Ecuador S.R.L.

Bristol-Myers Squibb Eesti Aktsiaselts

Bristol-Myers Squibb Employee E-Store, Inc.

Bristol-Myers Squibb Europa PLC

Bristol-Myers Squibb Europe GIE

Bristol-Myers Squibb Europe Strategic Soucing

Bristol-Myers Squibb Export GmbH

Bristol-Myers Squibb Export S.A. (Slovak Republic)

Bristol-Myers Squibb Farmaceutica Ltda.

Bristol-Myers Squibb Farmaceutica Portuguesa Limitada

Bristol-Myers Squibb Finance Company

Bristol-Myers Squibb Finance Limited

Bristol-Myers Squibb Foreign Sales Corporation

Bristol-Myers Squibb G.m.b.H.

Bristol-Myers Squibb Ges. m.b.H.

Bristol-Myers Squibb Global Properties Ltd.

Bristol-Myers Squibb GmbH (Switzerland)

Bristol-Myers Squibb Holding Germany GmbH & Co. KG

Bristol-Myers Squibb Holdings 2002 Limited

Bristol-Myers Squibb Holdings B.V.

Bristol-Myers Squibb Holdings Germany Verwaltungs Gmbh

Bristol-Myers Squibb Holdings Ireland Limited

Bristol-Myers Squibb Holdings Limited

Bristol-Myers Squibb Holdings Limited (Kenya - Branch)

Bristol-Myers Squibb Holdings Pharma Ltd. Liability Company

Bristol-Myers Squibb Hungary Pharmaceutical Trading Kft

Bristol-Myers Squibb Ilaclari, Inc.

Bristol-Myers Squibb Ilaclari, Inc. (Turkey - Branch)

Bristol-Myers Squibb India Pvt. Ltd.

Bristol-Myers Squibb Inlandsbeteiligungs Holding GmbH

Bristol-Myers Squibb International Company

Bristol-Myers Squibb International Corporation

Bristol-Myers Squibb International Corporation (Belgium-Branch)

Bristol-Myers Squibb International Corporation (Egypt-Branch)

Bristol-Myers Squibb International Corporation (Spain-Branch)

Bristol-Myers Squibb International Holdings Ireland Limited

Bristol-Myers Squibb International Limited

Bristol-Myers Squibb International S.r.L.

Bristol-Myers Squibb Investco, L.L.C.

Bristol-Myers Squibb Ireland Finance Company

Bristol-Myers Squibb Italia Finance SRL

Bristol-Myers Squibb Laboratories Company

Bristol-Myers Squibb Luxembourg International S.C.A.

Bristol-Myers Squibb Luxembourg S.a.r.l.

Bristol-Myers Squibb Manufacturing

Bristol-Myers Squibb Manufacturing Company

Bristol-Myers Squibb Manufacturing Holdings, Inc.

E-21-1

Bristol-Myers Squibb MEA GmbH

Bristol-Myers Squibb MEA GmbH (Saudia Arabia-Branch)

Bristol-Myers Squibb MEA GmbH .(Egypt - Branch)

Bristol-Myers Squibb Medical Imaging, Inc.

Bristol-Myers Squibb Norway Ltd.

Bristol-Myers Squibb Pakistan (Pvt.) Ltd.

Bristol-Myers Squibb Peru S.A.

Bristol-Myers Squibb Pharma (UK) Limited

Bristol-Myers Squibb Pharma Belgium SPRL

Bristol-Myers Squibb Pharma Company

Bristol-Myers Squibb Pharma France SAS

Bristol-Myers Squibb Pharma Holding Company, LLC

Bristol-Myers Squibb Pharma Ventures Corporation

Bristol-Myers Squibb Pharmaceuticals Limited (England)

Bristol-Myers Squibb Pharmaceuticals Limited (Ireland)

Bristol-Myers Squibb Polska Sp. z o.o.

Bristol-Myers Squibb Products S.A.

Bristol-Myers Squibb Puerto Rico, Inc.

Bristol-Myers Squibb Radiopharmaceuticals, Inc.

Bristol-Myers Squibb Research Foundation Africa

Bristol-Myers Squibb S.r.l.

Bristol-Myers Squibb Sanofi-Synthelabo Partnership

Bristol-Myers Squibb Securitization L.P.

Bristol-Myers Squibb Service Ltd.

Bristol-Myers Squibb Services Sp. z o.o.

Bristol-Myers Squibb spol. s r.o.

Bristol-Myers Squibb Superannuation Plan Pty. Ltd.

Bristol-Myers Squibb Trustees Ltd.

Bristol-Myers Squibb UPSA

Bristol-Myers Squibb UPSA Tunisie

Bristol-Myers Squibb Verwaltungs GmbH

Bristol-Myers Squibb Y.K.

Bristol-Myers Squibb Zentrum uer Forschung und Fortbildung Im Gesundheitswesen G.m.b.H.

Bristol-Myers Squibb, S.L.

Cancer Research, Inc.

Compania Bristol-Myers Squibb de Centro America (El Salvador Branch)

Compania Bristol-Myers Squibb de Centro America (Honduras Branch)

Compania Bristol-Myers Squibb de Centro America (Nicaragua Branch)

Compania Bristol-Myers Squibb de Centro America (Panama Branch)

Consorzio Industriale Servizi Ecologici - CI.S.ECO SpA

ConvaTec Limited

ConvaTec Praha spol. s r.o.

Convatec S.R.O.

CONVATEC SAS

Convatec Vertriebs G.m.b.H.

Convatec, S.L.

Convatec-Produtos Medicos, Limitada

E. R Squibb & Sons Pharmaceutical Trading Ltd.

E. R. Squibb & Sons (Andes) L.L.C.

E. R. Squibb & Sons de Venezuela SCA

E. R. Squibb & Sons Inter-American (Chile - Branch)

E. R. Squibb & Sons Inter-American Corporation

E. R. Squibb & Sons Inter-American Corporation (PRico - Branch)

E. R. Squibb & Sons Kft.

E-21-1

E. R. Squibb & Sons Limited

E. R. Squibb & Sons, L.L.C.

Elektrochemische Ges.Hirschfelde G.m.b.H.

EWI Corporation

Gilead Holdings, LLC

Grove Insurance Company Ltd.

Grove Products (Far East) Limited

Grove Products (Far East) Limited (India - Branch)

Heyden Farmaceutica Portugesa Limitada

Instituto Upsa del Dolor

Iris Acquisition Corp.

Laboratoires Convatec S.A.

Laboratoires UPSA, SAS

Lawrence Laboratories

Linson Investments Limited

Linson Pharma Co.

Little Sycamore Limited

Mead Johnson & Company

Mead Johnson (Guangzhou) Ltd.

Mead Johnson (Manufacturing) Jamaica Limited

Mead Johnson (Thailand) Ltd.

Mead Johnson AEBE

Mead Johnson B.V.

Mead Johnson de Mexico, S. de R.L. de C.V.

Mead Johnson Farmaceutica Limitada

Mead Johnson International Limited (Argentine - Branch)

Mead Johnson International Limited (Canada)

Mead Johnson Jamaica Ltd.

Mead Johnson K.K.

Mead Johnson Limited

Mead Johnson Nutritional GmbH

MEC Subsidiary Corporation

Medical Engineering Corporation

Monarch Crown Corporation

NOVACARE Limited

O.o.o. Bristol-Myers Squibb

O.o.o. Bristol-Myers Squibb Manufacturing

Oncogen Limited Partnership

Oncology Therapeutics Network Corporation

Oncology Therapeutics Network Joint Venture, L.P.

Onmark, Inc.

OTN Funding Corp.

OTN Parent Corp.

Oy Bristol-Myers Squibb (Finland) AB

P. T. Bristol-Myers Squibb Indonesia Tbk

Pharmavit Praha spol. s r.o.

Princeton Pharmaceutical Products, Inc.

Princeton Pharmaceuticals, S.L.

Princeton-Produtos Farmaceuticos, LDA

PT Mead Johnson Indonesia

RConvatec Speciality Fibres Limited

Recherche et Propriete Industrielle

Route 22 Real Estate Holding Corporation

Salorpharma G.m.b.H.

E-21-1

Sanofi Pharma Bristol-Myers Squibb SNC

Sino-American Shanghai Squibb Pharmaceuticals Limited

Societe Francaise de Complements Alimentaires(S.O.F.C.A.)

SOLER SCI

Sphinx Holdings Company, Inc.

Squibb (Nigeria) Limited

Squibb (Thailand) Limited

Squibb Development Limited

Squibb Farmaceutica Portuguesa, Limitada

Squibb Manufacturing, Inc.

Squibb Middle East S.A. (Egypt - Branch)

Squibb Middle East S.A. (Jordan - Branch)

Squibb Middle East S.A. (Panama)

Squibb Overseas Investments, Inc.

Squibb Pharma G.m.b.H.

Squibb Properties, Inc.

Squibb Surgicare Limited

Squibb-von Heyden G.m.b.H.

Swords Holdings I, L.L.C.

Swords Holdings II, L.L.C.

Swords Laboratories

T S V Corporation

Unterstuetzungskasse Bristol-Myers Squibb G.m.b.H.

UPSA CONSEIL

UPSA Generiques

UPSA S.r.l

UPSAMEDICA GmbH.(SWITZERLAND)

UPSAMEDICA, S.L. (Spain)

Von Heyden Pharma G.m.b.H.

Wallingford Research, Inc.

Westwood-Intrafin, S.A.

Westwood-Squibb Holdings, Inc.

Westwood-Squibb Pharmaceuticals, Inc.

E-21-1

EX-23

EXHIBIT 23.

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-30856, 33-38411, 33-38587, 33-44788, 333-47403, 33-52691, 33-30756-02, 33-58187, 333-02873, 333-65424 and 333-107414), Form S-4 (No. 333-09519) and Form S-3 (Nos. 33-33682, 33-62496, 333-49227 and 333-65444) of Bristol-Myers Squibb Company of our report dated March 3, 2005 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Philadelphia, PA

March 3, 2005

E-23-1

EX-31.(A)

EXHIBIT 31a.

CERTIFICATIONS PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION BY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER

I, Peter R. Dolan, certify that:

1. I have reviewed this annual report on Form 10-K of Bristol-Myers Squibb Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: March 3, 2005

/s/    PETER R. DOLAN        

Peter R. Dolan

Chairman of the Board and

Chief Executive Officer

E-31-1

EX-31.(B)

EXHIBIT 31b.

CERTIFICATION BY THE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

I, Andrew R.J. Bonfield, certify that:

1. I have reviewed this annual report on Form 10-K of Bristol-Myers Squibb Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: March 3, 2005

/s/    ANDREW R.J. BONFIELD        

Andrew R.J. Bonfield

Senior Vice President and

Chief Financial Officer

E-31-2

EX-32.(A)

EXHIBIT 32a.

Certification by the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, Peter R. Dolan, hereby certify that, to the best of my knowledge, Bristol-Myers Squibb Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the Report), as filed with the Securities and Exchange Commission on March 3, 2005, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Bristol-Myers Squibb Company.

/s/    PETER R. DOLAN        

Peter R. Dolan

Chairman of Board and Chief Executive Officer

March 3, 2005

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Bristol-Myers Squibb Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to Bristol-Myers Squibb Company and will be retained by Bristol-Myers Squibb Company and furnished to the Securities and Exchange Commission or its staff upon request.

E-32-1

EX-32.(B)

EXHIBIT 32b.

Certification by the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, Andrew R.J. Bonfield, hereby certify that, to the best of my knowledge, Bristol-Myers Squibb Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the Report)), as filed with the Securities and Exchange Commission on March 3, 2005, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Bristol-Myers Squibb Company.

/s/    ANDREW R.J. BONFIELD        

Andrew R.J. Bonfield

Senior Vice President and Chief Financial Officer

March 3, 2005

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Bristol-Myers Squibb Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to Bristol-Myers Squibb Company and will be retained by Bristol-Myers Squibb Company and furnished to the Securities and Exchange Commission or its staff upon request.

E-32-2