Continue to review the financial statements of Merck and Novartis to learn additional information. The emphasis of this Case is to review the income statement, balance sheet and computation of...

Balance Sheet
What components of stockholders' equity do each of the companies disclose?
The components disclosed in the financial statements for changes in stockholders' equity give the following
Merck:
- Net income attributable to Merck & Co., Inc.
- Other comprehensive loss, net of tax
- Cash dividends declared on common stock
- Treasury stock shares purchased
- Net income attributable to non-controlling interests
- Distributions attributable to non-controlling interests
- Share-based compensation plans and other
Novartis:
- Total equity at December 31, 2011
- Net income
- Other comprehensive income
- Total comprehensive income
- Dividends
- Sale of treasury shares, net
- Reduction of share capital
- Equity-based compensation
- Changes in non-controlling interests
- Total of other equity movements
- Total equity at December 31, 2012
Do the companies have prefe
ed stock shares outstanding? If so, what special features do these shares
contain?
Merck contains prefe
ed stock. As per Merck’s certificate of incorporation, 6,500,000,000 shares of common
stock and 20,000,000 shares of prefe
ed stock are authorized. Of the authorized shares of prefe
ed stock, there
was a series of11,500,000 shares which was designated as 6% mandatory convertible prefe
ed stock.
Novartis does not have any preferential shares. The company annual report says “share capital of Novartis AG is
CHF 1,353,096,500 fully paid-in and divided into 2,706,193,000 registered shares, each with a nominal value of
CHF 0.50. Novartis has neither authorized nor conditional capital. There are no preferential voting shares; all
shares have equal voting rights. No participation certificates, non-voting equity securities (Genussscheine) or
profit-sharing certificates have been issued.”
Do either of the companies report treasury shares? If so, do the companies disclose the reason for reacquiring
the shares?
Yes both companies have been reporting some dealing in treasury shares.
Merck annual report stated that on December 31, 2012, 180 million shares collectively were authorized for future
grants as the share-based compensation plans for the company. These awards are settled primarily with treasury
shares.

For Novartis in the year 2012, 4.6 million of its shares were repurchased for $240 million on the first trading line
on the SIX. The company annual report stated that these shares will be kept as treasury shares principally for
future employee participation program purposes.

Income Statement
What are the basic and diluted earnings per share for each company?
Basic EPS
Merck = 2.03...