CASE 1-1
Analysis of Contingent Obligation: Bristol-Myers Squibb
INTRODUCTION
In 1992, Bristol-Myers Squibb [BMY], a major U.S. based drug company, reported substantial
litigation against the company by recipients of breast implants manufactured and sold by a subsidiary
of the company. In 1993, BMY made a provision for losses expected from such litigation.
1 In succeeding years, as the litigation proceeded, the company added to that provision for
loss. Eight years later, as of December 31, 2000, while many of these claims had been settled,
the amount of BMY’s ultimate cash outflows remained uncertain. This case illustrates the difficulty
in assessing the impact of such litigation on reported income and financial position.
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1As an offset to the loss provisions for the company also provided estimates for amounts recoverable from insurance.
EXHIBIT 1C1-1. BRISTOL-MYERS SQUIBB
Breast Implant Litigation Footnotes
Note 17: Contingencies
The company is a defendant in a substantial number of actions filed in various U.S. federal and state
courts and in certain Canadian provincial courts by recipients of two types of breast implants, formerly
manufactured and sold by a subsidiary of the company, alleging damages for personal injuries of various
types. Certain of these cases are class actions, some of which seek to allege claims on behalf of all
breast implant recipients. All federal court actions have been consolidated for pre-trial proceedings in
federal District Court in Birmingham, Alabama. In the case of Pamela Jean Johnson v. Medical Engineering
Corporation, tried in state Court in Harris County, Texas, a jury on December 23, 1992
awarded plaintiff compensatory and punitive damages totaling $25 million. Absent settlement, the
company’s subsidiary will appeal this verdict.
Source: Bristol-Myers Squibb Annual Report, December 31, 1992
Note 17 Litigation
Breast Implant
The Company, together with its subsidiary, Medical Engineering Corporation (MEC), and certain other
companies, has been named as 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. Of the more than 90,000 claims
or potential claims against the Company in direct lawsuits or through registration in the nationwide
class action settlement approved by the Federal District Court in Birmingham, Alabama (the “Revised
Settlement”), most have been dealt with through the Revised Settlement, other settlements, or trial.
In the fourth quarter of 1993, the Company recorded a charge of $500 million before taxes ($310
million after taxes) in respect of breast implant cases. The charge consisted of $1.5 billion for potential
liabilities and expenses, offset by $1.0 billion of expected insurance proceeds. In the fourth quarters of
1994 and 1995, the Company recorded additional special charges of $750 million before taxes ($488
million after taxes) and $950 million before taxes ($590 million after taxes), respectively, related to
breast implant product liability claims. In the fourth quarter of 1998, the Company recorded an additional
special charge to earnings in the amount of $800 million before taxes and increased its insurance
receivable in the amount of $100 million, resulting in a net charge to earnings of $433 million after
taxes in respect to breast implant product liability claims. . . . At December 31, 2000, $186 million was
included in current liabilities for breast implant product liability claims.
Source: Bristol-Myers Squibb Annual Report, December 31, 2000