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Quarterly report [Sections 13 or 15(d)]

BRISTOL-MYERS SQUIBB COMPANY

(Exact name of registrant as specified in its charter)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

At March 31, 2016 , there were 1,669,307,273 shares outstanding of the Registrant’s $0.10 par value common stock.

PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements:
Consolidated Statements of Earnings and Comprehensive Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3.
Quantitative and Qualitative Disclosure About Market Risk 33
Item 4.
Controls and Procedures 33
PART II—OTHER INFORMATION
Item 1.
Legal Proceedings 33
Item 1A.
Risk Factors 33
Item 2.
Issuer Purchases of Equity Securities 34
Item 6.
Exhibits 35
Signatures 36
Three Months Ended March 31,
EARNINGS 2016 2015
Net product sales $ 3,964
$ 3,059
Alliance and other revenues 427
982
Total Revenues 4,391
4,041
Cost of products sold 1,052
847
Marketing, selling and administrative 1,068
1,029
Research and development 1,136
1,016
Other (income)/expense (520 ) (299 )
Total Expenses 2,736
2,593
Earnings Before Income Taxes 1,655
1,448
Provision for Income Taxes 449
249
Net Earnings 1,206
1,199
Net Earnings Attributable to Noncontrolling Interest 11
13
Net Earnings Attributable to BMS $ 1,195
$ 1,186
Earnings per Common Share
Basic $ 0.72
$ 0.71
Diluted $ 0.71
$ 0.71
Cash dividends declared per common share $ 0.38
$ 0.37
Three Months Ended March 31,
COMPREHENSIVE INCOME 2016 2015
Net Earnings $ 1,206
$ 1,199
Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
Derivatives qualifying as cash flow hedges (86 ) 6
Pension and postretirement benefits (161 ) (44 )
Available-for-sale securities 13
16
Foreign currency translation 9
31
Other Comprehensive Income/(Loss) (225 ) 9
Comprehensive Income 981
1,208
Comprehensive Income Attributable to Noncontrolling Interest 11
13
Comprehensive Income Attributable to BMS $ 970
$ 1,195

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

Dollars in Millions, Except Share and Per Share Data(UNAUDITED)

ASSETS March 31,
2016
December 31,
2015
Current Assets:
Cash and cash equivalents $ 2,644
$ 2,385
Marketable securities 1,663
1,885
Receivables 4,957
4,299
Inventories 1,336
1,221
Prepaid expenses and other 615
625
Total Current Assets 11,215
10,415
Property, plant and equipment 4,455
4,412
Goodwill 6,875
6,881
Other intangible assets 1,380
1,419
Deferred income taxes 3,230
2,844
Marketable securities 3,689

4,660
Other assets 1,048
1,117
Total Assets $ 31,892
$ 31,748
LIABILITIES
Current Liabilities:
Short-term borrowings $ 106
$ 139
Accounts payable 1,543
1,565
Accrued liabilities 4,311
4,738
Deferred income 1,165
1,003
Income taxes payable 472
572
Total Current Liabilities 7,597
8,017
Deferred income 606
586
Income taxes payable 852
742
Pension and other liabilities 1,693
1,429
Long-term debt 6,593
6,550
Total Liabilities 17,341
17,324
Commitments and contingencies (Note 18)

EQUITY
Bristol-Myers Squibb Company Shareholders’ Equity:
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; 4,161 issued
and outstanding in both 2016 and 2015, liquidation value of $50 per share

Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.2 billion issued in both 2016
and 2015 221
221
Capital in excess of par value of stock 1,503
1,459
Accumulated other comprehensive loss (2,693 ) (2,468 )
Retained earnings 32,176
31,613
Less cost of treasury stock – 539 million common shares in both 2016 and 2015 (16,821 ) (16,559 )
Total Bristol-Myers Squibb Company Shareholders’ Equity 14,386
14,266
Noncontrolling interest 165
158
Total Equity 14,551
14,424
Total Liabilities and Equity $ 31,892
$ 31,748

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

Three Months Ended March 31,
2016 2015
Cash Flows From Operating Activities:
Net earnings $ 1,206
$ 1,199
Adjustments to reconcile net earnings to net cash (used in)/provided by operating activities:
Depreciation and amortization, net 65
104
Deferred income taxes (246 ) (7 )
Stock-based compensation 47
54
Impairment charges 19
13
Pension settlements and amortization 39
50
Divestiture gains and royalties (507 ) (234 )
Asset acquisition charges 100

Other adjustments (10 ) (21 )
Changes in operating assets and liabilities:
Receivables (424 ) (91 )
Inventories (44 ) 51
Accounts payable (77 ) (83 )
Deferred income 235
334
Income taxes payable 5
81
Other (794 ) (824 )
Net Cash (Used in)/Provided by Operating Activities (386 ) 626
Cash Flows From Investing Activities:
Sale and maturities of marketable securities 1,760
1,508
Purchase of marketable securities (523 ) (821 )
Capital expenditures (242 ) (136 )
Divestiture and other proceeds 439
203
Acquisition and other payments (8 )
Net Cash Provided by Investing Activities 1,426
754
Cash Flows From Financing Activities:
Short-term borrowings, net (33 ) (260 )
Interest rate swap contract terminations 42
27
Issuance of common stock 71
174
Repurchase of common stock (231 )
Dividends (641 ) (623 )
Net Cash Used in Financing Activities (792 ) (682 )
Effect of Exchange Rates on Cash and Cash Equivalents 11
25
Increase in Cash and Cash Equivalents 259
723
Cash and Cash Equivalents at Beginning of Period 2,385
5,571
Cash and Cash Equivalents at End of Period $ 2,644
$ 6,294

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

Note 1 . BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS

Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) and United States (U.S.) generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q, which include all adjustments necessary for a fair presentation of the financial position, and the results of operations and cash flows. All intercompany balances and transactions have been eliminated. These financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 included in the Annual Report on Form 10-K.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results. The preparation of financial statements requires the use of management estimates and assumptions. The most significant assumptions are employed in estimates used in determining the fair value and potential impairment of intangible assets; sales rebate and return accruals; legal contingencies; income taxes; estimated selling prices used in multiple element arrangements; and pension and postretirement benefits. Actual results may differ from estimates.

Certain prior period amounts were reclassified to conform to the current period presentation. The reclassifications provide a more concise financial statement presentation and additional information is disclosed in the notes if material.

Prior Presentation Current Presentation
Consolidated Statements of Earnings Advertising and product promotion Included in Marketing, selling and administrative expenses
Consolidated Balance Sheets Assets held-for-sale Included in Prepaid expenses and other
Accrued expenses Combined as Accrued liabilities
Accrued rebates and returns
Dividends payable
Pension, postretirement and postemployment liabilities Combined as Pension and other liabilities
Other liabilities
Consolidated Statement of Cash Flows Net earnings attributable to noncontrolling interest Included in Other adjustments
Divestiture gains and royalties included in Other adjustments Divestiture gains and royalties

In March 2016, the Financial Accounting Standards Board (FASB) issued amended guidance for share-based payment transactions. Excess tax benefits and deficiencies will be recognized in the consolidated statement of earnings rather than capital in excess of par value of stock on a prospective basis. A policy election will be available to account for forfeitures as they occur, with the cumulative effect of the change recognized as an adjustment to retained earnings at the date of adoption. Excess tax benefits within the consolidated statement of cash flows will be presented as an operating activity (prospective or retrospective application) and cash payments to tax authorities in connection with shares withheld for statutory tax withholding requirements will be presented as a financing activity (retrospective application). The guidance is effective beginning with interim periods in 2017 with early adoption permitted. The Company is assessing the potential impact of the new standard.

In February 2016, the FASB issued amended guidance on lease accounting. The amended guidance requires the recognition of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for leases with a term longer than 12 months. The guidance is effective beginning with interim periods in 2019 with early adoption permitted on a modified retrospective approach. The Company is assessing the potential impact of the new standard.

In January 2016, the FASB issued amended guidance to the recognition, measurement, presentation and disclosures of financial instruments effective January 1, 2018 with early adoption not permitted. The new guidance requires that fair value adjustments for equity securities with readily determinable fair values currently classified as available-for-sale be reported through earnings. The new guidance also requires a qualitative impairment assessment for equity investments without a readily determinable fair value and a charge through earnings if an impairment exists. The Company is assessing the potential impact of the new standard.

In May 2014, the FASB issued a new standard related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2018. Early adoption is permitted no earlier than 2017. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings. The Company is assessing the potential impact of the new standard and has not yet selected a transition method.

BMS operates in a single segment engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and supply chain organization are responsible for the discovery, development, manufacturing and supply of products. Regional commercial organizations market, distribute and sell the products. The business is also supported by global corporate staff functions. Segment information is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting future periods.

Product revenues were as follows:

Three Months Ended March 31,
Dollars in Millions 2016 2015
Oncology
Empliciti (elotuzumab) $ 28
$
Erbitux* (cetuximab)
165
Opdivo (nivolumab) 704
40
Sprycel (dasatinib) 407
375
Yervoy (ipilimumab) 263
325
Cardiovascular
Eliquis (apixaban) 734
355
Immunoscience
Orencia (abatacept) 475
400
Virology
Baraclude (entecavir) 291
340
Hepatitis C Franchise (a) 427
264
Reyataz (atazanavir sulfate) Franchise 221
294
Sustiva (efavirenz) Franchise (b) 273
290
Neuroscience
Abilify* (aripiprazole) (c) 33
554
Mature Products and All Other 535
639
Total Revenues $ 4,391
$ 4,041
* Indicates brand names of products which are trademarks not owned or wholly owned by BMS. Specific trademark ownership information is included at the end of this quarterly report on Form 10-Q.
(a) Includes Daklinza (daclatasvir) revenues of $420 million and $180 million for the three months ended March 31, 2016 and 2015, respectively, and Sunvepra (asunaprevir) revenues of $7 million and $84 million for the three months ended March 31, 2016 and 2015, respectively.
(b) Includes alliance revenue of $241 million and $251 million for the three months ended March 31, 2016 and 2015, respectively.
(c) Includes alliance revenue of $508 million for the three months ended March 31, 2015. BMS's U.S. commercialization rights to Abilify* expired in April 2015.

The composition of total revenues was as follows:

Three Months Ended March 31,
Dollars in Millions 2016 2015
Net product sales $ 3,964
$ 3,059
Alliance revenues 409
955
Other revenues 18
27
Total Revenues $ 4,391
$ 4,041

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. We refer to these collaborations as alliances and our partners as alliance partners. Products sold through alliance arrangements in certain markets include Empliciti , Erbitux* , Opdivo , Sprycel , Yervoy , Eliquis , Orencia , Sustiva ( Atripla* ), Abilify* and certain mature and other brands.

Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.

Three Months Ended March 31,
Dollars in Millions 2016 2015
Revenues from alliances:
Net product sales $ 1,231
$ 994
Alliance revenues 409
955
Total Revenues $ 1,640
$ 1,949
Payments to/(from) alliance partners:
Cost of products sold $ 476
$ 389
Marketing, selling and administrative 1
25
Research and development 33
122
Other (income)/expense (253 ) (301 )
Noncontrolling interest, pre-tax 2
5
Selected Alliance Balance Sheet information:
Dollars in Millions March 31,
2016
December 31,
2015
Receivables - from alliance partners $ 1,113
$ 958
Accounts payable - to alliance partners 535
542
Deferred income from alliances 1,506
1,459

Specific information pertaining to each of our significant alliances is discussed in our 2015 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties and specific accounting policy elections.

Note 4 . ACQUISITIONS AND DIVESTITURES

In April 2016, BMS acquired all of the outstanding shares of Padlock Therapeutics, Inc. (Padlock), a private biotechnology company dedicated to creating new medicines to treat destructive autoimmune diseases. The acquisition provides BMS with full rights to Padlock’s Protein/Peptidyl Arginine Deiminase (PAD) inhibitor discovery program focused on the development of potentially transformational treatment approaches for patients with rheumatoid arthritis. Padlock’s PAD discovery program may have additional utility in treating systemic lupus erythematosus and other autoimmune diseases. The consideration includes an upfront payment of $150 million and contingent development and regulatory milestone payments of up to $450 million . The transaction is expected to be accounted for as an asset acquisition with essentially all value allocated to the PAD discovery program which will be included in research and development expense.

In February 2016, BMS sold its investigational HIV medicines business to ViiV Healthcare which includes a number of programs at different stages of discovery, preclinical and clinical development. The transaction excluded BMS's HIV marketed medicines. BMS will provide certain R&D and other services over a transitional period. In February 2016, BMS received an upfront payment of $350 million , resulting in a gain of $269 million . BMS will also receive from ViiV Healthcare contingent development and regulatory milestone payments of up to $1.1 billion , sales-based milestone payments of up to $4.3 billion and future tiered royalties if the products are approved and commercialized.

Assets held-for-sale were $37 million at March 31, 2016 and $134 million at December 31, 2015 and included in prepaid expenses and other. The amounts consist primarily of allocated goodwill relating to the business comprising an alliance with Reckitt Benckiser Group plc and the investigational HIV medicines business ( December 31, 2015 only). The allocation of goodwill was determined using the relative fair value of the applicable businesses to the Company's reporting unit.

Note 5 . OTHER (INCOME)/EXPENSE

Three Months Ended March 31,
Dollars in Millions 2016 2015
Interest expense $ 43
$ 51
Investment income (24 ) (30 )
Provision for restructuring 4
12
Litigation and other settlements 43
12
Equity in net income of affiliates (26 ) (26 )
Out-licensed intangible asset impairment 15
13
Divestiture gains (270 ) (154 )
Royalties and licensing income (254 ) (98 )
Transition and other service fees (53 ) (27 )
Pension charges 22
27
Written option adjustment
(36 )
Other (20 ) (43 )
Other (income)/expense $ (520 ) $ (299 )
Three Months Ended March 31,
Dollars in Millions 2016 2015
Earnings Before Income Taxes $ 1,655
$ 1,448
Provision for Income Taxes 449
249
Effective tax rate 27.1 % 17.2 %

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

The jurisdictional tax rates and other tax impacts attributed to divestiture transactions, research and development charges and other discrete items increased the effective tax rate by 4.4% in 2016 and reduced the effective tax rate by 3.6% in 2015. The taxes attributed to these items were impacted by higher non-deductible R&D charges and goodwill allocated to business divestitures in 2016, higher valuation allowances attributed to capital loss carryforwards released in 2015 and reversal of a tax benefit for a settlement charge previously recognized in 2015 after determining the applicable tax jurisdiction. The tax impact for discrete items are reflected immediately and are not considered in estimating the annual effective tax rates.

To a lesser extent, unfavorable earnings mix between high and low tax jurisdictions and the R&D tax credit also impacted the effective tax rates. The R&D tax credit legislation was permanently extended in December 2015 and was included in estimating the annual effective tax rate in 2016. The R&D tax credit was not extended as of March 31, 2015, therefore the tax credit was not considered in estimating the annual effective tax rate in 2015.

BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that the total amount of unrecognized tax benefits at March 31, 2016 could decrease in the range of approximately $270 million to $330 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits may result in the payment of additional taxes, adjustment of certain deferred taxes and/or recognition of tax benefits. It is also reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time.

Note 7 . EARNINGS PER SHARE

Three Months Ended March 31,
Amounts in Millions, Except Per Share Data 2016 2015
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation $ 1,195
$ 1,186
Weighted-average common shares outstanding – basic 1,669
1,663
Incremental shares attributable to share-based compensation plans 11
13
Weighted-average common shares outstanding – diluted 1,680
1,676
Earnings per Common Share:
Basic $ 0.72
$ 0.71
Diluted $ 0.71
$ 0.71

Note 8 . FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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

March 31, 2016 December 31, 2015
Dollars in Millions Level 1 Level 2 Total Level 1 Level 2 Total
Cash and cash equivalents - Money market and other securities $
$ 2,139
$ 2,139
$
$ 1,825
$ 1,825
Marketable securities:
Certificates of deposit
661
661

804
804
Corporate debt securities
4,590
4,590

5,638
5,638
Equity funds
94
94

92
92
Fixed income funds
7
7

11
11
Derivative assets:
Interest rate swap contracts
11
11

31
31
Forward starting interest rate swap contracts



15
15
Foreign currency forward contracts
31
31

50
50
Equity investments 42

42
60

60
Derivative liabilities:
Interest rate swap contracts



(1 ) (1 )
Forward starting interest rate swap contracts
(56 ) (56 )
(7 ) (7 )
Foreign currency forward contracts
(55 ) (55 )
(10 ) (10 )

As further described in "Note 10. Financial Instruments and Fair Value Measurements" in our 2015 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs).

There were no level 3 financial assets or liabilities as of March 31, 2016 and December 31, 2015 . The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements during 2015:

2015
Dollars in Millions ARS Written option liabilities Contingent consideration liability
Fair value at January 1 $ 12
$ (198 ) $ (8 )
Settlements and other
69

Changes in fair value
36

Fair value at March 31 $ 12
$ (93 ) $ (8 )

The following table summarizes available-for-sale securities:

Dollars in Millions Amortized
Cost
Gross
Unrealized
Gain in
Accumulated
OCI
Gross
Unrealized
Loss in
Accumulated
OCI
Fair Value
March 31, 2016
Certificates of deposit $ 661
$
$
$ 661
Corporate debt securities 4,552
41
(3 ) 4,590
Equity investments 74
2
(34 ) 42
Total $ 5,287
$ 43
$ (37 ) $ 5,293
December 31, 2015
Certificates of deposit $ 804
$
$
$ 804
Corporate debt securities 5,646
15
(23 ) 5,638
Equity investments 74
10
(24 ) 60
Total $ 6,524
$ 25
$ (47 ) $ 6,502
Dollars in Millions March 31,
2016
December 31,
2015
Current marketable securities (a) $ 1,663
$ 1,885
Non-current marketable securities (b) 3,689
4,660
Other assets 42
60
Available-for-sale securities $ 5,394
$ 6,605

The following table summarizes the fair value of outstanding derivatives:

March 31, 2016 December 31, 2015
Dollars in Millions Balance Sheet Location Notional Fair Value Notional Fair Value
Derivatives designated as hedging instruments:
Interest rate swap contracts Other assets $ 1,250
$ 11
$ 1,100
$ 31
Interest rate swap contracts Pension and other liabilities

650
(1 )
Forward starting interest rate swap contracts Other assets

500
15
Forward starting interest rate swap contracts Pension and other liabilities 750
(56 ) 250
(7 )
Foreign currency forward contracts Prepaid expenses and other 506
31
1,016
50
Foreign currency forward contracts Accrued liabilities 1,354
(54 ) 787
(10 )
Foreign currency forward contracts Pension and other liabilities 16
(1 )

Cash Flow Hedges — The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ( $608 million ) and Japanese yen ( $732 million ) at March 31, 2016 .

Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ( $1,061 million ) are designated to hedge euro currency exposures of the net investment in certain foreign affiliates.

Fair Value Hedges — The notional amount of fixed-to-floating interest rate swap contracts terminated was $500 million in 2016 and $147 million in 2015 generating proceeds of $43 million in 2016 and $28 million in 2015 (including accrued interest).

Dollars in Millions March 31,
2016
December 31,
2015
Principal Value $ 6,362
$ 6,339
Adjustments to Principal Value:
Fair value of interest rate swap contracts 11
30
Unamortized basis adjustment from swap terminations 308
272
Unamortized bond discounts and issuance costs (88 ) (91 )
Total $ 6,593
$ 6,550

The fair value of debt was $7,240 million at March 31, 2016 and $6,909 million at December 31, 2015 valued using Level 2 inputs. Interest payments were $33 million and $34 million for the three months ended March 31, 2016 and 2015 , respectively, net of amounts related to interest rate swap contracts.

Dollars in Millions March 31,
2016
December 31,
2015
Trade receivables $ 3,498
$ 3,070
Less allowances (135 ) (122 )
Net trade receivables 3,363
2,948
Alliance receivables 1,113
958
Prepaid and refundable income taxes 207
182
Other 274
211
Receivables $ 4,957
$ 4,299

Non-U.S. receivables sold on a nonrecourse basis were $159 million and $93 million for the three months ended March 31, 2016 and 2015 , respectively. Receivables from three pharmaceutical wholesalers in the U.S. represented 62% and 53% of total trade receivables at March 31, 2016 and December 31, 2015 , respectively.

Dollars in Millions March 31,
2016
December 31,
2015
Finished goods $ 402
$ 381
Work in process 919
868
Raw and packaging materials 227
199
Total inventories $ 1,548
$ 1,448
Inventories $ 1,336
$ 1,221
Other assets 212
227

Other assets include inventory pending regulatory approval of $94 million at March 31, 2016 and $85 million at December 31, 2015 and other amounts expected to remain on-hand beyond one year.

Dollars in Millions March 31,
2016
December 31,
2015
Land $ 107
$ 107
Buildings 4,611
4,515
Machinery, equipment and fixtures 3,392
3,347
Construction in progress 647
662
Gross property, plant and equipment 8,757
8,631
Less accumulated depreciation (4,302 ) (4,219 )
Property, plant and equipment $ 4,455
$ 4,412

Depreciation expense was $103 million and $133 million for the three months ended March 31, 2016 and 2015 , respectively.

Dollars in Millions March 31,
2016
December 31,
2015
Licenses $ 559
$ 574
Developed technology rights 2,357
2,357
Capitalized software 1,318
1,302
In-process research and development 120
120
Gross other intangible assets 4,354
4,353
Less accumulated amortization (2,974 ) (2,934 )
Other intangible assets $ 1,380
$ 1,419

Amortization expense was $44 million and $52 million for the three months ended March 31, 2016 and 2015 , respectively.

Dollars in Millions March 31,
2016
December 31,
2015
Accrued rebates and returns $ 1,519
$ 1,324
Employee compensation and benefits 385
904
Dividends payable 642
655
Accrued research and development 527
553
Litigation and other settlements 169
189
Royalties 126
161
Restructuring 66
89
Pension and postretirement benefits 47
47
Other 830
816
Accrued liabilities $ 4,311
$ 4,738
Dollars in Millions March 31,
2016
December 31,
2015
Alliances $ 1,506
$ 1,459
Other 265
130
Total deferred income $ 1,771
$ 1,589
Current portion $ 1,165
$ 1,003
Non-current portion 606
586

Alliances include unamortized upfront, milestone and other licensing proceeds, revenue deferrals attributed to Atripla* and undelivered elements of diabetes business divestiture proceeds. Amortization of deferred income was $82 million and $81 million for the three months ended March 31, 2016 and 2015 , respectively.

Common Stock Capital in Excess of Par Value of Stock Retained Earnings Treasury Stock Noncontrolling Interest
Dollars and Shares in Millions Shares Par Value Shares Cost
Balance at January 1, 2015 2,208
$ 221
$ 1,507
$ 32,541
547
$ (16,992 ) $ 131
Net earnings


1,186


15
Cash dividends declared


(617 )


Employee stock compensation plans

(193 )
(6 ) 309

Distributions





(3 )
Balance at March 31, 2015 2,208
$ 221
$ 1,314
$ 33,110
541
$ (16,683 ) $ 143
Balance at January 1, 2016 2,208
$ 221
$ 1,459
$ 31,613
539
$ (16,559 ) $ 158
Net earnings


1,195


11
Cash dividends declared


(632 )


Stock repurchase program



4
(231 )
Employee stock compensation plans

44

(4 ) (31 )
Distributions





(4 )
Balance at March 31, 2016 2,208
$ 221
$ 1,503
$ 32,176
539
$ (16,821 ) $ 165

Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method.

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

2016 2015
Pretax Tax After tax Pretax Tax After tax
Three Months Ended March 31,
Derivatives qualifying as cash flow hedges: (a)
Unrealized gains/(losses) $ (126 ) $ 42
$ (84 ) $ 35
$ (11 ) $ 24
Reclassified to net earnings (4 ) 2
(2 ) (27 ) 9
(18 )
Derivatives qualifying as cash flow hedges (130 ) 44
(86 ) 8
(2 ) 6
Pension and postretirement benefits:
Actuarial losses (292 ) 103
(189 ) (120 ) 42
(78 )
Amortization (b) 17
(3 ) 14
23
(6 ) 17
Curtailments and settlements (c) 22
(8 ) 14
27
(10 ) 17
Pension and postretirement benefits (253 ) 92
(161 ) (70 ) 26
(44 )
Available-for-sale securities:
Unrealized gains 27
(14 ) 13
25
(8 ) 17
Realized gains


(1 )
(1 )
Available-for-sale securities 27
(14 ) 13
24
(8 ) 16
Foreign currency translation 2
7
9
46
(15 ) 31
$ (354 ) $ 129
$ (225 ) $ 8
$ 1
$ 9

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

Dollars in Millions March 31,
2016
December 31, 2015
Derivatives qualifying as cash flow hedges $ (52 ) $ 34
Pension and other postretirement benefits (2,241 ) (2,080 )
Available-for-sale securities (10 ) (23 )
Foreign currency translation (390 ) (399 )
Accumulated other comprehensive loss $ (2,693 ) $ (2,468 )

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

Three Months Ended March 31,
Pension Benefits Other Benefits
Dollars in Millions 2016 2015 2016 2015
Service cost – benefits earned during the year $ 6
$ 6
$ 1
$ 1
Interest cost on projected benefit obligation 51
61
3
3
Expected return on plan assets (104 ) (102 ) (6 ) (7 )
Amortization of prior service credits (1 ) (1 ) (1 ) (1 )
Amortization of net actuarial loss 19
24

1
Curtailments and settlements 22
27


Special termination benefits 1



Net periodic benefit cost/(credit) $ (6 ) $ 15
$ (3 ) $ (3 )

Pension settlement charges were recognized after determining that the annual lump sum payments will likely exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan. The charges included the acceleration of a portion of unrecognized actuarial losses.

Non-current pension liabilities were $1,002 million at March 31, 2016 and $765 million at December 31, 2015 . The increase resulted primarily from the remeasurement of U.S. plan assets and benefit obligations.

Defined contribution plan expense in the U.S. was $42 million and $44 million for the three months ended March 31, 2016 , and 2015 , respectively.

Note 17 . EMPLOYEE STOCK BENEFIT PLANS

Stock-based compensation expense was as follows:

Three Months Ended March 31,
Dollars in Millions 2016 2015
Restricted stock units $ 20
$ 21
Market share units 9
9
Performance share units 18
24
Total stock-based compensation expense $ 47
$ 54
Income tax benefit $ 15
$ 18

The number of units granted and the weighted-average fair value on the grant date were as follows:

Three Months Ended March 31, 2016
Units in Millions Units Weighted-Average Fair Value
Restricted stock units 2.1
$ 61.23
Market share units 0.7
65.26
Performance share units 1.1
64.87

Unrecognized compensation cost related to nonvested awards of $492 million is expected to be recognized over a weighted-average period of 2.9 years .

The Company and certain of its subsidiaries are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. These claims or proceedings can involve various types of parties, including governments, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. The resolution of these matters often develops over a long period of time and expectations can change as a result of new findings, rulings, appeals or settlement arrangements. The Company recognizes accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. Legal proceedings that are material or that the Company believes could become material are described below.

Although the Company believes it has substantial defenses in these matters, there can be no assurance that there will not be an increase in the scope of pending matters or that any future lawsuits, claims, government investigations or other legal proceedings will not be material. Unless otherwise noted, the Company is unable to assess the outcome of the respective litigation nor is it able to provide an estimated range of potential loss. Furthermore, failure to enforce our patent rights would likely result in substantial decreases in the respective product revenues from generic competition.

As previously disclosed, Sanofi was notified that, in August 2007, GenRx Proprietary Limited (GenRx) obtained regulatory approval of an application for clopidogrel bisulfate 75mg tablets in Australia. GenRx, formerly a subsidiary of Apotex Inc. (Apotex), has since changed its name to Apotex. In August 2007, Apotex filed an application in the Federal Court of Australia (the Federal Court) seeking revocation of Sanofi’s Australian Patent No. 597784 (Case No. NSD 1639 of 2007). Sanofi filed counterclaims of infringement and sought an injunction. On September 21, 2007, the Federal Court granted Sanofi’s injunction. A subsidiary of the Company was subsequently added as a party to the proceedings. In February 2008, a second company, Spirit Pharmaceuticals Pty. Ltd., also filed a revocation suit against the same patent. This case was consolidated with the Apotex case, and a trial occurred in April 2008. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts were valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and claim directed to clopidogrel and its pharmaceutically acceptable salts were invalid. The Company and Sanofi filed notices of appeal in the Full Court of the Federal Court of Australia (Full Court) appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims which have stayed the Federal Court’s ruling. Apotex filed a notice of appeal appealing the holding of validity of the clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate claims. A hearing on the appeals occurred in February 2009. On September 29, 2009, the Full Court held all of the claims of Patent No. 597784 invalid. In November 2009, the Company and Sanofi applied to the High Court of Australia (High Court) for special leave to appeal the judgment of the Full Court. In March 2010, the High Court denied the Company and Sanofi’s request to hear the appeal of the Full Court decision. The case has been remanded to the Federal Court for further proceedings related to damages sought by Apotex. The Australian government has intervened in this matter and is also seeking damages for alleged losses experienced during the period when the injunction was in place. The Company and Apotex have settled the Apotex case, and the case has been dismissed. The Australian government's claim is still pending. It is not possible at this time to predict the outcome of the Australian government’s claim or its impact on the Company.

In August 2015, Bristol-Myers Squibb received a Petition for Inter Partes Review of U.S. Patent No. 6,967,208 (“the ‘208 patent”) that was filed at the United States Patent & Trademark Office by the Coalition for Affordable Drugs, which is affiliated with entities and individuals associated with a hedge fund. The ‘208 patent is a composition of matter patent that contains claims directed to apixaban, the active ingredient in Eliquis . The petition requested that the Patent Trial and Appeal Board (PTAB) initiate a proceeding to review the validity of the ‘208 patent, including claims that cover apixaban. The Company responded to and opposed this petition in November 2015. In February 2016, the PTAB issued a decision denying the Coalition for Affordable Drugs' petition for Inter Partes Review. The petitioner did not seek reconsideration, and cannot appeal the PTAB's decision. The ‘208 patent expires in February 2023; the Company has filed a request for patent term restoration with the U.S. Patent & Trademark Office requesting that the patent expiration date be restored to December 2026.

In May 2013, Apotex, Actavis Group PTC ehf, Generics [UK] Limited (Mylan) and an unnamed company filed oppositions in the European Patent Office (EPO) seeking revocation of European Patent No. 1169038 (the ‘038 patent) covering dasatinib, the active ingredient in Sprycel . The ‘038 patent is scheduled to expire in April 2020 (excluding potential term extensions). On January 20, 2016, the Opposition Division of the EPO revoked the ‘038 patent. The Company will appeal the EPO’s decision to the EPO Board of Appeal. The ‘038 patent will remain in force pending the outcome of our appeal of the EPO’s decision, and we intend to pursue legal options to defend our intellectual property rights from any future infringement. Orphan drug exclusivity and data exclusivity for Sprycel in the EU expire in November 2016. The decision does not affect the validity of our other Sprycel patents within and outside Europe, including a different patent that covers the monohydrate form of dasatinib. In the U.S., the Company entered into a settlement agreement with Apotex in 2013 regarding a patent infringement suit whereby Apotex can launch its generic dasatinib monohydrate product in September 2024, or earlier in certain circumstances.