Polymedica Cooperation Case 14-3

Case 14-3

PolyMedica Corporation (A)

Prepared by

Tamara Hurst

for Professor C.E. Reese

in partial fulfillment of the requirements for

MAN 560-Finance for Non-Financial Managers

School of Business/Graduate Studies

St. Thomas University

Miami Gardens, Fla.

Term 6/Fall, 2017

September 2, 2017

Table of Contents

Issues………………………………………………………………………………………………1

Facts……………………………………………………………………………………………..1-2

Analysis…………………………………………………………………………………………2-6

Conclusions………………………………………………………………………………………..6

Appendices………………………………………………………………………………………...7

Appendix A “Additional Recommendations”……………………………………………………7

Issues

1. Explain the difference between an asset and an expense.
2. Explain the role of advertising in the company’s customer-acquisition strategy.

3a. What are the arguments in favor of capitalizing the direct-response advertising expenditures?

  b. What are the arguments in favor expensing the direct-response advertising expenditures as incurred?

  c. As a CEO of PolyMedica, would you favor capitalizing or expensing the direct-response advertising costs?

1. What would be the impact of the company’s financial statement if PolyMedica had expensed the cost as incurred in 2003 and 2002? Calculate key balances that highlights any major differences.
2. As a CEO of the PolyMedica, how might you respond to this direct-response advertising accounting issue raised by the SEC and short sellers?

Facts

PolyMedica Cooperation Inc, is a leading provider of direct-to-consumer medical products, conducting business through its Liberty Respiratory and Pharmaceutical segments. PolyMedica principal strategy was to leverage its operating platform and compliance management to expand its business.

Since 1996, the company had invested through the adoption of the direct-response television advertising to reach a larger portion of Medicare elidable for patent market which resulted in a significant increase of the company’s sales. During that year they have seen an astounding increase in their sales and customer base. This was especially true to the Medicare -eligible customers, which grew from 17,000 to 545,000 in 2003. Although this was an outstanding for PolyMedica, these tremendous increases came under scrutiny by investors and then followed by the Security and Exchange Commission (SEC).