Intermediate Accounting II
Dr. Ahmed Goma
Bristol-Myers Squibb Company
"A Critical Analysis to Disclosure in Financial Reporting"
Bristol-Myers mission is to be the preeminent global diversified health and personal care Company. Bristol-Myers seeks to achieve success in the global marketplace.
Product- Bristol-Myers is a maker of many useful products that people use and may depend on today. There products range from Pharmaceutical ($8,672 million), consumer medicines ($4,278 million), Clairol a well known hair care system ($1,160 million), Matrix ($306 million), Mead Johnson nutritional ($1,789 million), Convatec ($726 million), and Zimmer ($1,134).
Some of Bristol-Myers more well known Pharmaceuticals are Taxol which is a anticancer agent that Bristol-Myers Squibb has made one of its top research and development priorities worldwide and Pravachol received FDA labeling as the world's first lipid lowering drug to prevent first heart attacks. Some of Bristol-Myers well-known worldwide consumer products are Ban (deodorant), Nuprin, Bufferin and Excedrin (headache relief drugs) just celebrated its 30th year. Clairol is known as one of he most widely used hair care products around the world. Matrix a subsidiary of Bristol-Myers makes products such as Vavoom and Biolace hair care products. Mead Johnson Nutritional another one of Bristol-Myers very successful subsidiaries deals with vitamins and baby formulas such as well-known favorites like Enfamil which is said to be as close to breast milk. Convatec which deals with wound, skin care and chronic care products. Finally, Zimmer is a maker of surgical care devices.
Industry- Bristol-Myers Squibb Company is in one of the most competitive industries in the world. In the last ten years pharmaceutical products have become increasingly important. With such diseases such as Aids and Cancer plaguing our society, companies such as Bristol-Myers have to take a lead role in fighting these deadly diseases.
Bristol-Myers is known as one of the leaders against cancer. In January of 1991 Bristol-Myers was chosen by the National Career Institute (NCI) to become a commercial developer of Paclitaxol, now Taxol, which is the breakthrough treatment against Ovarian and breast cancer. Taxol comes from a rare species of yew tree found in the U.S. Pacific Northwest. Manufacturing of the substance isn't easy due to the 50-step process taken to extract it. Bristol-Myers made Taxol its number one Research and Development priority. Bristol-Myers leads worldwide in Cancer research and prides itself on it.
Market- Bristol-Myers Squibb Company's market isn't just the U.S. Its market extends all over the world, from Europe, Asia and South America. One of Bristol-Myers biggest market is Eastern Europe. A Hungarian company named Pharmavit develops one of Eastern Europe's most popular vitamins called Plusssz. Plusssz has achieved ninety-seven percent name recognition in Hungary. Fifty percent of the people have used the product while twenty-four percent use it regularly. The Plusssz line has become so successful that Mead Johnson, Bristol-Myers global nutritional business, is test marketing Plusssz for launch in the Philippines and many other regions of the world. Plusssz has established Bristol-Myers as an instant player in Hungary, a market that is among the most competitive in all of Eastern Europe.
Similarities and Differences- There are many similarities and differences between Bristol-Myers Annual Reports, Form 10K and 10Q Reports. The annual reports for Bristol-Myers are very colorful and detailed. However the Form 10K and 10Q reports are not colorful but just Financial Statements. The annual report is designed for the shareholder and informs any would be buyer. Whereas the Form10K and 10Q reports are in plain black and white and serve the purpose of informing none only the Securities and Exchange Commission (SEC). It is not sent out to shareholders or would be shareholders so it isn't as flashy and glossy as the annual report. The Form 10K report has many reports inside. The 10K first begins with an introduction just as the annual report does with a description of Bristol-Myers. It than goes into detail about its products much like the annual report, however with no pictures or color which the annual report uses to its advantage. However the 10K report doesn't explain in detail about the products. It gives a short description whereas the annual report goes into full detail about all its products. After products the 10K goes into detail about its Domestic and Foreign operations. It starts talking about properties and some of Bristol-Myers legal proceedings. The annual report also talks about its litigation's but it hides it way in the back of the report. Mostly everything from growth to success is talked about in the annual report. After litigation's the 10K goes into more about the Executive Officers, there names and ages to their position on the board.
The Form 10K report is a report that is published by the fiscal year while the Form 10Q report is published quarterly and the annual report is done every year. The Form 10K report uses a five-year financial summary. The Form 10Q reports about the company in quarters, while the annual report summarizes the year.
In 1994, Note 1 of the Accounting principles talks about the Basis of Consolidation. Which just explains that the financial statements have Bristol-Myers and all of its subsidiaries. Cash and Cash Equivalents which is the cash on cash equivalents that mature in three months or less at the time of purchase, recorded at cost, which approximates market. Time Deposits and Marketable Securities are available for sale and are recorded at fair value, which approximates cost. Inventory valuation are generally stated at average cost, not in excess of market. Property and Depreciation- expenditures for additional renewals and betterment's are capitalized at cost, while depreciation is computed using the straight-line method. The excess to cost over the net assets received prior to October 31, 1970is being amortized on a straight-line basis over periods not exceeding 40 years. The earnings per share are computed using the weighted-average number of shares outstanding during the year. Note 1 Accounting Principles is the same foe 1995 and 1996. In 1994 Note 2 they talk about Special Charge, which explains the litigation's of the company for that year. It is the same for 1995. In 1996 Note 2 they talk about all of there acquisitions for the year instead of the litigation's from the previous year cause a settlement was made in 1995. For 1994 and 1995 they talk about acquisitions in Note 3. For Note 4 in 1994 and 1995 they talk about the restructuring plans for the year. In 1994 and 1995 they explain foreign currency transition and in 1996 it is included under note 4. In 1994 and 1995 note 6 explains other income and expenses and in 1996 they talk about there inventories. In 1994 and 1995 note 7 contains information on provision for income taxes, earnings before income taxes, however in 1996 property, plant and equipment in note 7. In 1994 and 1995 inventories is explained for note 8, but in 1996 short-term borrowing and long-term debt is the highlight for note 8. In 1994 and 1995 note 9 contains the property, plant and equipment information, but 1996 stockholders equity is in note 9. Accrued expenses and other liabilities are given in 1994 and 1995 for note 10, but in 1996 they talk about the financial instruments. In 1994 and 1995 note 11 goes on about the short term borrowing and long term debt and in 1996 note 11 talks a little about leases. Financial Instrument is headlined in note 12 for 1994 and 1995, however 1996goes into the segment information. In 1994 and 1996 retirement benefits are explained in note 13, but in 1995 stockholders equity is the choice here. In 1994 and 1996 note 14 contains postretirement benefits plans other than pension, and in 1995 lease is the subject. In 1994 stockholders equity is brought up and 1995 postretirement benefits and plans other than pensions are talked about in detail while in 1996 the contingencies of the litigation's are brought up and there results. In 1994 note 17 contains the segment information foe the companies products are reported. In 1995 contingencies is the subject of the results of their litigation's through the year. And in 1994 contingencies is the final note 18.
Note 9- Stockholders' Equity:
On December 3,1996, Bristol-Myers Squibb board of directors authorized a two-for-one split of it common stock effective February of 1997. The board also recommended an amendment be considered for approval at the annual meeting of stockholders to increase the number of authorized shares of common stock from 1.5 billion to 2.25 billion shares.
Each of the companies preferred shares are convertible to 8.48 shares of common stock and is callable at the companies option. The reduction in 1996, 1995, and 1994 were a result due to the conversion in common stock. The dividends per common stock for 1996 was $1.50, 1995 it was $1.48 and in 1994 it was $1.46.
Stock Compensation Plans: The company allows officers, directors and key employees to purchase company's stock at no less than 100% of the market price on the date the option is granted. Options generally become exercisable at installments of 25% per year and have a maximum of 10 years. The plan also provides granting of stock appreciation rights where the grantee may surrender exercisable options and receive common stock or cash measured by the excess market price of the common stock over the exercise price. This plan also guarantees certain executives granting of performance-based stock options.
Under the TeamShare Stock Option Plan, all full time employees, excluding key executives that meet certain years of service requirements are granted these options to purchase the company's common stock on the date of the market price. The company authorized 30,000,000 for issuance under this plan. As of December 31,1996, 20,250,800 options were granted under the plan with 400 options granted to eligible employers. These options become exercisable on the third anniversary date. The company applies the Accounting Principles Board opinion No.25, Accounting for Stock issued to Employees, in accounting for its plans. If the compensation cost for the companies other stock option plans been determined based on the fair value at the grant date consistent with the metrology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, The companies net income and earnings per share would have been reduced by $55 million or $.05 per share in 1996 and $35 million or $.03 per share in 1995. The fair value of options granted in 1996 and 1995 were $8.51 per share and $6.47 per share using the Black-Scholes option-pricing.
At December 31, 1996, 104,976,640 shares of common stock was reserved for issuance to the stock plans options of the preferred stock. For each outstanding share the company gives one Right. The Right becomes exercisable if the person or group acquires beneficial interest of 15% or more, of the companies common stock. Each Right entitles the person to buy one one-thousandth of a share of a series of preferred stock at the exercise price of $200. The Right expires on December 18,1997. Each Right entitles its holder to acquire shares have a value twice the Right's exercise price. The company than can redeem the Rights at $.01 per Right at any time until the 15th day after the announcement that a 15% position has been acquired.
Note 1 Accounting Policies:
Note 1 Accounting Policies are the same in all three years:
Basis of Consolidation
The consolidated financial statements include the accounts of Bristol-Myers Squibb Company and all of its subsidiaries.
Cash and Cash Equivalents
Cash and cash equivalents primarily include securities with a maturity of three months or less at the time of purchase, recorded at cost, which approximates the market.
Time Deposits and Market Securities
Time deposits and marketable securities are available for sale and are recorded at fair value, which approximates cost.
Inventories are generally stated at average cost, not in excess of market.
Capital Assets and Depreciation
Expenditures for additions, renewals and betterment's are capitalized at cost. Depreciation is generally computed by the straight-line method based on the estimated useful lives of the related assets.
Excess of cost over Net Tangible Assets
The excess of cost over net tangibles assets receives in business acquisitions is being amortized on a straight-line basis over periods not exceeding 40 years.
Earnings Per Share
Earnings per common share are computed using the weighted average number of shares outstanding during the year. The effect of shares issuable under stock plans is not significant.
Bristol-Myers recorded a $310 million restructuring charge, $198 after taxes, in the fourth quarter of 1995. The restructuring had to do with the consolidation of plants, and facilities related to employees terminations. The charge consisted of employee related costs of $190 million, $100 million of assets write-downs and $20 million of other related expenses.
Note 10 Financial Instruments:
Bristol-Myers enter a foreign exchange option and forwards the contracts to manage its exposure to its currency fluctuations.
Bristol-Myers has been exposed to foreign currency assets and liabilities, which totaled $1,640 million, $1,385 million and $1,117 million at December 31, 1996, 1995 and 1994. The main currency it is in is Deutsche marks, French francs, Italian lira and Japanese yen. The company mitigates the currency and its effect through third party borrowers and foreign exchange forward contracts.
Foreign exchange option contract usually expire within the year and are used to hedge intercompany shipments occurring during the year. Gains are recognized in the same period as the hedged transactions. Some foreign exchange forwards are used to minimize exposure to fluctuating exchange rates. Gains or losses are recognized as hedged transactions. The amounts of the companies contracts at December 31, 1996, 1995 and 1994 were $1,331 million, $1,377 and $1,120 million.
The company does not fear for any adverse effect on its financials resulting from its involvement in this. At December 31,1996, 1995, and 1994 the carrying value of all financial instruments, both short-term and long-term, equal the fair value.
I found Bristol-Myers to be a very interesting company. They have a broad range of products and they are known around the world. Whether it is in the United States or as far as Europe and Asia. They lead the world in cancer research, but there research and development goes beyond just fighting cancer. They have managed to dip there hand in every market in the world. Whether it is cancer research to basic nutritional needs to hair product. Everything that we might use and take for granted might have been produced by Bristol-Myers or one of there subsidiaries. Bristol-Myers truly has an edge in what ever they do. Strong competition though given from there competitors like Merck and Johnson & Johnson will help Bristol-Myers get ahead. Only with this type of competition will companies succeed and will the people who need there valuable medicine.
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