webcases - CASE 1-1 Analysis of Contingent Obligation:...

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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 sub- sidiary of the company. In 1993, BMY made a provision for losses expected from such litiga- tion. 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 diffi- culty in assessing the impact of such litigation on reported income and financial position. W64 1 As 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 vari- ous 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 Engi- neering 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 per- sonal 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 addi-
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This note was uploaded on 03/09/2011 for the course ACTG 516 taught by Professor Staff during the Spring '08 term at Ill. Chicago.

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webcases - CASE 1-1 Analysis of Contingent Obligation:...

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