Bergen Brunswig Corporation reported the following information (dollars in
thousands) in its 1993 consolidated earnings statement:
a. Comment on any unusual items in this income statement. Has Bergen Brunswig
reported any accounting changes?
b. Bergen Brunswig's statements disclosed an item, earlier in the income
statement, "Restructuring charge, 33,000,000 dollars." This item appeared only
in the 1993 column, with nothing reported in the prior years. How do you
suppose that this item related to operations of 1993 and to its continuing
operations?
c. Note 12, Restructuring and Other Unusual Charges, disclosed the following
new information:
During the fourth quarter of fiscal 1993, the Company approved a restructuring
plan which consists of accelerated consolidation of domestic facilities into
larger, more efficient regional distribution centers, the merging of duplicate
operating systems, the reduction of administrative support in areas not
affecting valued services to customers and the discontinuance of services and
programs that did not meet the Company's strategic and economic return
objective. The estimated pre-tax cost of the restructuring plan is 33.0
million dollars. The restructuring charge represents the costs associated with
restructure, primarily abandonment and severance. For those activities or
assets where the disposal is expected to result in a gain, no gain will be
recognized until realized.
d. Did Bergen Brunswig have a choice on when to recognize the restructuring
charge? Where would these costs have been reported if they were not listed in
this category of costs?
e. How will the restructuring charges in 1993 affect Bergen Brunswig's future
operations? How will these effects be reported in future years?
f. The same note disclosed another unusual charge:
On June 18,1993, the Company announced that a joint bid which the Company had
made in April 1993 with the French Company, Cooperation Pharmaceutique
Francaise, to acquire the largest French pharmaceutical distribution company,
Office Commercial Pharmaceutique, had been withdrawn. Accordingly, expenses of
2.5 million dollars, before income tax benefit of 1.0 million dollars
associated with the transaction, have been recorded in the fourth quarter of
fiscal 1993.
These expenses are not listed anywhere as a separate item in Bergen Brunswig's
income statement. Why? Why must these costs be reported in 1993 and not in
1992 or 1994 ? Would your conclusions about the reporting of these costs
change if you later found that Bergen Brunswig had reported in earlier years a
separate section in its income statement called "Discontinued Operations"?
g. Bergen Brunswig's Earnings from continuing operations in 1992 and 1991
were, respectively, 53,012,000 dollars and 58,061,000 dollars. How has this
trend been affected by the 33,000,000 dollars restructuring charge? If the
company had not taken this charge in 1993, what would its earnings from
continuing operations have been for 1993, and how would this affect the
earlier trend? Why do you suppose that managers might want to take such a
charge in 1993?
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