Coloplast A/S – Annual report – 30 September 2020
Provisions are recognised when the Group has a legal or constructive obligation arising from a past event, and it is probable that an outflow of the Group’s financial resources will be required to settle the obligation. Provisions are measured as Management’s best estimate of the amount with which the liability is expected to be settled. The Group recognises a provision for the replacement of products covered by warranties at the balance sheet date.
Key accounting estimates and judgements Provisions for legal obligations consist of provisions for pending litigation. Management makes assessments of provisions and contingent liabilities, including the probable outcome of pending and possible future litigation, which is inherently subject to uncertain future events. Based on information available, Management believes that adequate provisions have been made for pending litigation, but there can be no assurance that the scope of these matters will not be extended, nor that material lawsuits, claims, legal proceedings or investigations will not arise in the future.
The amounts are gross amounts relating to certain legal claims.
Since 2011, Coloplast, along with a number of other major manufacturers, has been named as a defendant in individual lawsuits in various federal and state courts around the United States alleging injury resulting from use of transvaginal surgical mesh products designed to treat pelvic organ prolapse and stress urinary incontinence. A multidistrict litigation (MDL) was formed in 2012 in the Southern District of West Virginia to consolidate federal court cases in which Coloplast is the first named defendant.
Since the first lawsuits were filed, Coloplast has been intent on disputing the current and any future litigation and has continually considered which strategy and other steps may serve the company’s best interests.
Against this background, Coloplast has from the start reached settlements with groups of law firms. In 2017, Judge Joseph Goodwin issued a court order stating that plaintiffs may no longer direct claims against Coloplast in the ongoing MDL and in 2019 the remaining cases were remanded to the relevant Courts.
The total amount recognised since the 2013/14 financial year for expected costs of litigation in the USA amounts to DKK 5.65 billion including legal costs (before insurance cover of DKK 0.5 billion).
The total expense is based on a number of estimates and assumptions and is therefore subject to substantial uncertainty.
The remaining provision made for legal claims amounted to DKK 0.3 billion at 30 September 2020 (DKK 0.5 billion at 30 September 2019) plus DKK 0.1 billion recognised under other debt (DKK 0.1 billion at 30 September 2019). Liabilities are classified as other debt when agreements are reached with the plaintiffs’ legal counsel and amounts and timing become known.
With reference to the prejudicial exemption in IAS 37, Coloplast will not disclose any further information about the assumptions for the provision, including any details about current and the expected number of lawsuits and settled claims.
The disclosure of such information is believed to be detrimental to Coloplast in connection with the ongoing confidential negotiations and could inflict financial losses on Coloplast and its shareholders.
Other liabilities relate to provisions for expenses associated with restructuring, guarantees and other non-legal claims