Fitch Rates Bristol-Myers Squibb Co. 'A+'; Rating Outlook Negative.

CHICAGO -- Fitch Ratings has assigned ratings of 'A+' to Bristol-Myers Squibb Co.'s (Bristol-Myers) senior unsecured debt and 'F1' to the company's short-term debt. The ratings apply to approximately $9.4 billion of debt. The Rating Outlook is Negative. The ratings were initiated by Fitch as a service to users of its ratings and are based on public information.

Bristol-Myers is facing many operational challenges in the intermediate term, most notably significant pharmaceutical product patent expirations through the end of 2006, and the company's reliance on commercialization of its late-stage R&D pipeline to offset potential revenue and earnings declines from the patent expirations. Fitch also notes the uncertainty of the outcome of the patent infringement litigation pertaining to the Plavix composition-of-matter patent, as well as the final damage awards, fines or penalties associated with a number of governmental investigations into accounting issues, drug pricing, and sales and marketing practices. The Negative Outlook reflects these challenges to the credit profile.

Fitch recognizes Bristol-Myers's improved free cash flow generation and solid liquidity provided by its cash balance and marketable securities, in addition to $1 billion available under its revolving credit facilities supporting its commercial paper program. At the end of the second quarter of 2004, the company had approximately $3.2 billion of cash and $3.7 billion of short term investments. Free cash flow was approximately $1.1 billion for the latest 12-month (LTM) period at June 20, 2004 (net cash from operating activities less capital expenditures of $864 million and dividends of $2.2 billion). Free cash flow generation had improved from a low point at the end of 2002 (negative free cash flow of $2.3 billion), but will be negatively impacted by the company's commitment to a large dividend outflow and by sizable legal settlements. The company's improving cash and marketable securities balance led to an improvement in the net debt level (total debt less cash and short term investments) since 2002. Net debt leverage (net debt-to-EBITDA) for latest 12-month (LTM) period at June 20, 2004 was 0.4 times (x), down from 0.8x at the end of 2002. Additionally, Bristol-Myers has a light long-term debt maturity schedule without a significant maturity until October 2006.

The rating reflects Bristol-Myers diversified product portfolio with offerings in human prescription pharmaceuticals, over-the-counter consumer medications, medical imaging, and infant and children nutritional products. The company is in the midst of a transformation of the pharmaceutical product portfolio, which represents approximately 70% of total company sales and 80% of total EBITDA, to replace lost revenues and earnings due to possible generic competition after drug product patent expirations of three of the company's top-5 products, Taxol (U.S. expired; generics expected in Europe concurrently), Paraplatin (expires in October 2004 in the U.S.), and Pravachol (expires in April 2006 in the U.S.).

Fitch believes that the potential declines in total company revenues and earnings due to patent expirations will be mitigated by productivity from the company's internal R&D program and external strategic alliances. The company was associated with the launches of three products in the past two years (Abilify, Reyataz, and Erbitux), and is planning to submit three new drug applications to the Food and Drug Administration (FDA) in the near term for the internally developed products, Abatacept, entecavir, and muraglitazar. Fitch will monitor the progress of the late-stage pipeline as the company is reliant upon its commercialization to moderate losses from patent expirations. Given successful commercialization of the late-stage projects, Fitch expects an inflection in the decline in revenues from patent losses compared to key pharmaceutical product portfolio gains to occur in the 2006-2007 timeframe. However, the estimation does not account for a successful challenge to the Plavix patent, which may occur as early as May 2005.

Bristol-Myers's restructuring initiatives over the past few years have streamlined costs throughout the organization. Although EBITDA margins had expanded in 2003 aided by the leaner operating structure, Fitch anticipates EBITDA and EBITDA margins to compress in the intermediate term associated with the patent expirations of key pharmaceutical products, increased investment for the late-stage R&D portfolio, and increased spending for SG&A upon commercialization of the R&D pipeline. At the end of the second quarter of 2004, interest coverage as defined by LTM EBITDA-to-interest incurred was 12.6x.