NOTE 16 CONTINGENCIES

Various lawsuits, claims and proceedings of a nature considered normal to its businesses are pending against the company and certain of its subsidiaries. The most significant of these are described below.

Breast Implant Litigation 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. It is expected that as of January 1, 1999, the company _s contingent liability in respect of breast implant claims will be limited to residual unpaid Revised Settlement obligations and to roughly 6,000 remaining opt-outs who have pursued or may pursue their claims in court. As of December 31, 1998, approximately 15,000 United States and 1,300 foreign breast implant recipients were plaintiffs in lawsuits pending in federal and state courts in the United States and in certain courts in Canada and Australia. These figures include the claims of plaintiffs that are in the process of being settled and/or dismissed. In these lawsuits, about 10,200 U.S. and 400 foreign plaintiffs opted out of the Revised Settlement. The lawsuits of the 4,800 U.S. plaintiffs who did not opt out are expected to be dismissed since these plaintiffs are among the estimated 74,000 women with MEC implants who chose to participate in the nationwide settlement. Of the remaining opt-out plaintiffs, some have claims based upon products that were not manufactured and sold by MEC; many others have claims that are in the process of being settled. Under the terms of the Revised Settlement, additional opt-outs are expected to be minimal since the deadline for U.S. class members to opt out has passed. In addition, the company _s remaining obligations under the Revised Settlement Program are limited because most payments to _Current Claimants   already have been made, no additional _Current Claims   may be filed without court approval, and because payments of claims to so-called _Other Registrants   and _Late Registrants   are limited by the terms of the Revised Settlement. Separate class action settlements have been approved in the provincial courts of Ontario and Quebec, and an agreement has been reached under which other foreign breast implant recipients may settle their claims. The company believes it will be able to address remaining opt-out claims as well as expected remaining obligations under the Revised Settlement Program within its reserves described below. 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 of breast implant product liability claims. At December 31, 1998, 1997 and 1996, the amount of insurance recoverable was $523 million, $619 million and $853 million, respectively, and included in current and other liabilities for product liability claims was $1,121 million, $1,036 million and $1,831 million, respectively. Prescription Drug Litigation As of December 31, 1998, the company is a defendant in over 100 actions brought against the company and more than 30 other pharmaceutical manufacturers, drug wholesalers and pharmacy benefit managers in various federal district courts by certain chain drugstores, supermarket chains and independent drugstores, which opted out of a nationwide class (previously settled by the company) and are suing individually. These cases have been coordinated for pretrial purposes and all seek treble damages and injunctive relief on account of alleged antitrust violations in the pricing and marketing of brand name prescription drugs. Cases brought by retail pharmacies in state court under state law alleging similar grounds are pending in California, Alabama and Mississippi. Purported class actions, some purportedly multistate in reach, brought by consumers in state court under state law alleging similar grounds have been settled, subject to court approval, in California and remain pending in Alabama and Tennessee. In the fourth quarter of 1998, the company recorded a special charge to earnings in the amount of $100 million before taxes ($62 million after taxes) in respect of this prescription drug litigation. While it is not possible to predict with certainty the outcome of these cases, it is the opinion of management that they will not have a material adverse effect on the company _s operating results, liquidity or consolidated financial position.

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Letter to Stockholders

Charles A. Heimbold, Jr.Chairman and Chief Executive Officer This is my first letter to you as chairman of the board of directors and chief executive officer of Bristol-Myers Squibb. Having joined the company 32 years ago as a staff attorney, and moved from there to acquisitions, strategic planning and subsequently into the management of several of our core businesses, I'm honored to be leading this great company to which I've devoted my working life. So you will see that the theme of this letter and indeed, of this entire annual report, focuses on the great balance and strength of this company and our efforts to renew its reputation among shareholders not only for value and income but for

growth. This report outlines how we must change to build on our strengths and so fulfill the goal I have set for the company: to become the preeminent diversified health and personal care company and thereby, to increase enduring shareholder value. On the opening page of this report you have seen evidence of just how great a company Bristol-Myers Squibb is: pictured there are more than 60 of our product lines, each with annual sales, worldwide, of $50 million or more; four with annual sales over $500 million. Some, such as Enfamil, Nice 'n Easy, Capoten and Excedrin, were established years ago. Others are creations of the '90s, with their best days ahead of them: TAXOL®; (paclitaxel), Pravachol, Glucophage, Natural Instincts, Lactofree and our newer orthopaedic replacements, among others. Defending these products, building and grouping them into global franchises--like anti-cancer drugs, AIDS treatments and dermatologicals--enlarging them, and above all adding to their number, are the central responsibilities of our company's management team, starting with myself. How we addressed those responsibilities in 1995 and intend to address them in the years ahead is the central theme of this annual report: Our Plan for Growth. All four of our company's core businesses--pharmaceuticals, nutritionals, consumer products and medical devices--are represented by that listing of powerful product lines. This solid base for future growth embodies what has long been one of Bristol-Myers Squibb's most distinctive corporate assets: the breadth and competitive positions of our product lines. In my travels these past months--talking with customers, employees, investors and the media about who we are and where we are headed--I've been asked a number of questions. Heading the list: What is your plan for action? How will you achieve your financial and growth objectives?

In the pages that follow, we present a portrait of the balanced strength of Bristol-Myers Squibb and in so doing, a clear view of the mission and strategic objectives of each of our businesses, as well as an indication of how far we have come in 1995 toward meeting them. By presenting these comprehensive pictures of our company's important components, we hope to provide you with a clear understanding of the impressive lineup of products and plans that are the foundation of our company and of our many opportunities for creating higher value for shareholders in 1996 and beyond.

First, some details about the overall performance of Bristol-Myers Squibb in 1995. We had record sales this year, rising 15% to $13.8 billion. Domestic sales grew 10%, and international sales increased 22%. Exchange rate fluctuations had a favorable effect of 1% on worldwide sales and of 3% on international sales. Excluding acquisitions made last year, sales for 1995 increased 10%. Earnings before income taxes, excluding the charges described below and again in our Financial Review, increased 11% for the year. Net earnings increased 12% to $2,600 million, and earnings per share increased 12% to $5.14 in 1995. Including these charges, net earnings were $1,812 million, or $3.58 per share, in 1995.

As to the charges: We previously reported an agreement to settle certain pending and future breast implant product liability claims. We recorded charges in 1994 and 1993 as a result. In the fourth quarter of 1995, we recorded an additional special charge of $950 million, $590 million after taxes, or $1.17 per share, for potential liabilities and claims resulting from a revised settlement program entered into during 1995. In addition, during the fourth quarter, the company recorded a restructuring charge of $310 million before taxes, $198 million after taxes, or $.39 per share. This charge relates primarily to the consolidation of plants and facilities as part of our continuing productivity program, aimed at working more efficiently around the world.

Before leaving the 1995 financial data behind, I'd like to add a brief comment on the breast implant matter. The charges of harmfulness made against breast implants are false. The products marketed by Bristol-Myers Squibb were and are safe. This has been affirmed by an impressive and growing body of scientific evidence. The harmful element in this regrettable episode, rather, is a system of justice that permits and even encourages jury trials leading to huge awards to plaintiffs for unproven damages allegedly caused by products whose harmfulness cannot be proved. When I was elected chief executive officer in January 1994, I set a long-term financial goal: to double sales, earnings and earnings per share of the year just ended by the close of the year 2000. That would result in a compound annual growth rate of a little more than 10% for that seven-year period. I told our senior management that while our performance would certainly vary each year from that track, by a combination of internal growth, acquisitions, licensing and the like, I expected them to join me in leading the company to that result. As our 1995 performance shows, we are moving steadily toward meeting that challenge. After seeing those results and feeling the spirit of the company, I am urging our people to aim even higher.

Just as our company's balanced strength is based on the product franchises within our four core businesses, the outcome of each growth plan is based on four critical initiatives. I have already identified one of these: maintaining and extending our key product lines, which come together to form key product franchises. It is a truism of business that the highest return and lowest cost place for a company to grow is where it's already strong. To cite just some of our areas of particular strength: with Capoten, Pravachol, Monopril, and Glucophage, we have a tremendous cardiovascular and metabolic franchise; with TAXOL, Paraplatin, Platinol, and VePesid, we have the world's number one anti-cancer franchise; VIDEX, Zerit and Megace give us the number two anti-AIDS franchise in the U.S.; Clairol and Matrix Essentials constitute a leading haircoloring and hair care franchise in both retail and salon outlets; with Zimmer's 8,000 products, we have the world's number one orthopaedic franchise; with Mead Johnson, we're number one in infant formulas in the U.S. and have a growing consumer nutritional franchise; with ConvaTec, we're number one in modern wound care and ostomy care; and with UPSA, Excedrin and Bufferin, we have an important worldwide analgesics franchise. It takes a great deal of initiative to transform a single product line into a successful global franchise. We have done so in many areas. A prime example is our cardiovascular and metabolic franchise, which began in the early 1980s primarily with one drug, Capoten. Through licensing efforts, clinical development and internally generated research, we have expanded the use of Capoten and added a number of important and growing compounds to our roster. Today, with our cardiovascular new product pipeline, our cardiovascular portfolio is believed by some to be the most comprehensive and innovative in the pharmaceutical industry.

Our second prime source of future growth is the development of new products, especially new drugs. As you will see in the pages that detail our research pipeline, our drug discovery and development effort is thriving, is productive, is innovative and is rich with promise. The leaders of our research and discovery enterprise have made a commitment to obtain approvals of at least 10 new chemical entities in the five-year period 1996-2000. We expect that our other businesses will supply dozens of new nutritional, consumer and medical device products during the next five years as well. Our third prime source of future growth is the expansion of Bristol-Myers Squibb's historical commitment to licensing, partnerships, collaborations and acquisitions - a commitment that has extended from Clairol in 1959 through Mead Johnson, Zimmer, Westwood, Squibb, Matrix, UPSA and, in 1995, Calgon Vestal, a wound, skin care and infection control company; A/S GEA, a Danish generics company; and in early 1996, Pharmavit, a Hungarian OTC, nutritionals and generics company. Our company has grown and prospered by joining forces with these and other good companies. We aim for high quality businesses with good people and market positions that are sustainable and expandable. The same is true of licensing, to which, for example, we owe much of our position of leadership in anti-cancer drugs. These efforts are being supplemented as never before with investments and joint ventures linking Bristol-Myers Squibb with small or emerging companies, especially in biotechnology. Bristol-Myers Squibb's fourth prime source of future growth is our companywide Productivity for Growth initiative, now two years old. Its achievements so far and our plans for extending it still more widely and deeply into company operations throughout the world are described in the Managing for Value section, beginning on page 26. I'd like to add a few words here.

Increasing pressures by governments and our competition on pricing, together with the growth of managed care, have required us to take a hard look at how we do business. In addition, we have had to prepare for the expiration of our Capoten patent in the U.S. this month. To support earnings performance, to lessen the dilutive impact of potential acquisitions, to reinvest in internal growth and most of all, to prepare for the new world in which we operate, it has been necessary for us to change significantly the way we operate, both as a company and as individuals. We need to accomplish more while, in terms of both ../images and time, utilizing less.

This drive for productivity for growth is complex and many of its benefits will be realized over time. Still, in 1998, we expect to realize annual productivity benefits of approximately $1.1 billion to $1.5 billion on a pre-tax basis. In the final analysis, however, the success of our Productivity for Growth initiative will be measured by how well it produces benefits that can become permanent, changing the way people work, both individually and with one another. It is in this area where our efforts promise to prove most successful of all.

Today Bristol-Myers Squibb people are working not just harder but also smarter. Today we see personal initiative, the drive to do things better and faster and the exercise of foresight and imagination being applied everywhere in our company. We have asked our people for this and they have responded. As a result, we are collectively becoming a more nimble company, closer to our customers, more persistent in seeking out opportunity, swifter to seize it when it appears.

A new spirit is taking hold. It combines realism and commitment. We are realistic in our understanding that in the intensely competitive environments where our businesses operate, the leadership positions we hold in so many categories cannot be assumed but must be earned every day. And we are committed--both personally and as a company--to succeed, to be the best. Along with growing our businesses, we are committed as well to maintaining and building upon the enduring values that provide a foundation for all that we do, values expressed in the Bristol-Myers Squibb Pledge, which you will find on the back cover of this report. I cannot conclude this letter without expressing my thanks to my associates in management and my 49,000 fellow employees for all they have done to make 1995 a year of great accomplishment and equally important, one in which essential groundwork has been laid for still greater accomplishments in the years ahead.

Richard L. Gelb Retires as Chairman:Company Renames Research Center Richard L. Gelb led the company into theoncology field when few companies werepursuing cancer research. In May 1995, the board of directors conferred the title of chairman emeritus on Richard L. Gelb for his long and distinguished career. Mr. Gelb joined the company in 1959, when what was then Bristol-Myers Company acquired Clairol. He became president of Clairol when it merged with Bristol-Myers. In 1967 he became president of Bristol-Myers, in January 1972 was appointed CEO and in 1976 was elected chairman of the board.

On May 25, 1995, a week before his retirement, Mr. Gelb was honored at ceremonies held at the company's nine-year-old pharmaceutical research center, whose construction in Wallingford, Connecticut, had been a major initiative under Mr. Gelb's stewardship. The Wallingford facility was formally designated the Richard L. Gelb Center for Pharmaceutical Research and Development. Speaking on that occasion, Charles A. Heimbold, Jr., chairman and CEO of Bristol-Myers Squibb, said, "Dick Gelb has provided outstanding leadership for this company for more than 25 years. He succeeded in turning what was a good company when he took over into a great one. Central to this achievement was his vision that in our era pharmaceuticals would play an ever-larger and more necessary role in overcoming disease, preserving health and prolonging life. This great center, home to some 800 scientists and researchers dedicated to developing innovative medicines, is the living expression of that vision. It is fitting in the highest degree that it will forever bear his name." Mr. Gelb's strong support of medical research extended beyond the company he headed. In 1977 he initiated what is now the Bristol-Myers Squibb Unrestricted Biomedical Research Grants Program, which to date has committed more than $60 million to support basic research in six therapeutic areas. The program has awarded 151 no-strings-attached grants to medical schools, hospitals and research centers in the U.S. and many other countries. It has been widely hailed by the medical research community for helping to sustain basic scientific research in a period of shrinking government ../images and for enhancing the partnership of academic scientists and the pharmaceutical industry. In addition to turning Bristol-Myers Squibb into one of the strongest, best and most valuable companies in the world, Mr. Gelb also shared with the company his own personal qualities. His leadership, compassion, generosity, wit and warm human spirit were coupled with his strong conviction that Bristol-Myers Squibb not only should perform financially but also should perform responsibly. He made ethical behavior--doing what was right--standard operating procedure in the company. Mr. Gelb's great and good contributions will have a lasting impact on Bristol-Myers Squibb for years to come.