Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended September 30, 2009
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
AMERISOURCEBERGEN CORPORATION
(Exact name of
registrant as specified in its charter)
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Commission
File Number
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Registrant, State of Incorporation
Address and Telephone Number
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I.R.S. Employer
Identification No. |
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1-16671 |
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AmerisourceBergen Corporation |
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23-3079390 |
(a Delaware Corporation)
1300 Morris Drive
Chesterbrook, PA 19087-5594
(610) 727-7000
Securities Registered Pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value per share
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in
Rule 405 of the Securities Act). Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). Yes o No þ
The aggregate market value of voting stock held by non-affiliates of the registrant on
March 31, 2009 based upon the closing price of such stock on the New York Stock Exchange on
March 31, 2009 was $4,638,411,086.
The number of shares of common stock of AmerisourceBergen Corporation outstanding as of
October 31, 2009 was 288,084,821.
Documents Incorporated by Reference
Portions of the following document are incorporated by reference in the Part of this report
indicated below:
Part IIIRegistrants Proxy Statement for the 2010 Annual Meeting of Stockholders.
PART I
As used herein, the terms Company, AmerisourceBergen, we, us, or our refer to
AmerisourceBergen Corporation, a Delaware corporation.
AmerisourceBergen Corporation is one of the worlds largest pharmaceutical services companies,
with operations primarily in the United States and Canada. Servicing both healthcare providers and
pharmaceutical manufacturers in the pharmaceutical supply channel, we provide drug distribution and
related services designed to reduce costs and improve patient outcomes. More specifically, we
distribute a comprehensive offering of brand-name and generic pharmaceuticals, over-the-counter
healthcare products, home healthcare supplies and equipment, and related services to a wide variety
of healthcare providers primarily located in the United States and Canada, including acute care
hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies,
medical and dialysis clinics, physicians, long-term care and other alternate site pharmacies, and
other customers. We also provide pharmacy services to certain specialty drug patients.
Additionally, we furnish healthcare providers and pharmaceutical manufacturers with an assortment
of related services, including pharmaceutical packaging, pharmacy automation, inventory management,
reimbursement and pharmaceutical consulting services, logistics services, and pharmacy management.
Industry Overview
Pharmaceutical sales in the United States, as recently estimated by IMS Healthcare, Inc.
(IMS), an independent third party provider of information to the pharmaceutical and healthcare
industry, are expected to grow between 3% and 5% in calendar 2010. IMS expects that certain
sectors of the market, such as biotechnology and other specialty and generic pharmaceuticals, will
grow faster than the overall market. Additionally, IMS expects the U.S. pharmaceutical industry to
grow annually in the low to mid-single digit percentages through 2013.
In addition to general economic conditions, factors that impact the growth of the
pharmaceutical industry in the United States, and other industry trends, include:
Aging Population. The number of individuals age 55 and over in the United States currently
exceeds 70 million and is one of the most rapidly growing segments of the population. This age
group suffers from more chronic illnesses and disabilities than the rest of the population and is
estimated to account for approximately 75% of total healthcare expenditures in the United States.
Introduction of New Pharmaceuticals. Traditional research and development, as well as the
advent of new research, production and delivery methods such as biotechnology and gene therapy,
continue to generate new pharmaceuticals and delivery methods that are more effective in treating
diseases. We believe ongoing research and development expenditures by the leading pharmaceutical
manufacturers will contribute to continued growth of the industry. In particular, we believe
ongoing research and development of biotechnology and other specialty pharmaceutical drugs will
provide opportunities for the continued growth of our specialty pharmaceuticals business.
Increased Use of Generic Pharmaceuticals. A significant number of patents for widely used
brand-name pharmaceutical products will expire during the next several years. In addition,
increased emphasis by managed care and other third-party payors on utilization of generics has
accelerated their growth. We consider the increase in generic usage a favorable trend because
generic pharmaceuticals have historically provided us with a greater gross profit margin
opportunity than brand-name products, although their lower prices reduce revenue growth.
Increased Use of Drug Therapies. In response to rising healthcare costs, governmental and
private payors have adopted cost containment measures that encourage the use of efficient drug
therapies to prevent or treat diseases. While national attention has been focused on the overall
increase in aggregate healthcare costs, we believe drug therapy has had a beneficial impact on
overall healthcare costs by reducing expensive surgeries and prolonged hospital stays.
Pharmaceuticals currently account for approximately 10% of overall healthcare costs.
Pharmaceutical manufacturers continued emphasis on research and development is expected to result
in the continuing introduction of cost-effective drug therapies and new uses for existing drug
therapies.
Legislative Developments. In recent years, regulation of the healthcare industry has changed
significantly in an effort to increase drug utilization and reduce costs. These changes included
expansion of Medicare coverage for outpatient prescription drugs, the enrollment (beginning in
2006) of Medicare beneficiaries in prescription drug plans offered by private entities, and cuts in
Medicare and Medicaid reimbursement rates. In addition, the U.S. Congress may take action in the
future to reduce the number of people in the United States who do not have health insurance
coverage and thereby increase the number of people in the United States who are eligible to be
reimbursed for all or a portion of prescription drug costs. These policies and other legislative
developments may affect our businesses directly and/or indirectly (see Government Regulation on
page 5 for further details).
1
The Company
We currently serve our customers (healthcare providers, pharmaceutical manufacturers, and
certain specialty drug patients) through a geographically diverse network of distribution service
centers and other operations in the United States and Canada, and through packaging facilities in
the United States and the United Kingdom. In our pharmaceutical distribution business, we are
typically the primary source of supply of pharmaceutical and related products to our healthcare
provider customers. We offer a broad range of services to our customers designed to enhance the
efficiency and effectiveness of their operations, which allows them to improve the delivery of
healthcare to patients and to lower overall costs in the pharmaceutical supply channel.
Strategy
Our business strategy is focused solely on the pharmaceutical supply channel where we provide
value-added distribution and service solutions to healthcare providers (primarily pharmacies,
health systems, medical and dialysis clinics, and physicians) and pharmaceutical manufacturers that
increase channel efficiencies and improve patient outcomes. Implementing this disciplined, focused
strategy has allowed us to significantly expand our business, and we believe we are well-positioned
to continue to grow revenue and increase operating income through the execution of the following
key elements of our business strategy:
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Optimize and Grow Our Pharmaceutical Distribution and Service Businesses. We
believe we are well-positioned in size and market breadth to continue to grow our
distribution business as we invest to improve our operating and capital efficiencies.
Distribution anchors our growth and position in the pharmaceutical supply channel, as we
provide superior distribution services and deliver value-added solutions, which improve
the efficiency and competitiveness of both healthcare providers and pharmaceutical
manufacturers, thus allowing the pharmaceutical supply channel to better deliver
healthcare to patients. |
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With the rapid growth of generic pharmaceuticals in the U.S. market, we have introduced
strategies to enhance our position in the generic marketplace. We source generics
globally, offer a value-added generic formulary program to our healthcare provider
customers, and monitor our customers compliance with our generics program. We also sell
data and other valuable services to our generic manufacturing customers. |
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We believe we have one of the lowest cost operating structures among all pharmaceutical
distributors. Our Optimiz® program for AmerisourceBergen Drug
Corporation reduced our distribution facility network in the U.S. to 26 facilities. The
program, which was completed in fiscal 2007, included building six new facilities and
closing 31 facilities. These measures have reduced our operating costs and working
capital. In addition, we believe we will continue to achieve productivity and operating
income gains as we invest in and continue to implement warehouse automation technology,
adopt best practices in warehousing activities, and increase operating leverage by
increasing volume per full-service distribution facility. Furthermore, we believe that
the investments that we will make related to our Business Transformation project over the
next few years will reduce our operating expenses in the future (see Information Systems
on page 4 for further details). |
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We offer value-added services and solutions to assist healthcare providers and
pharmaceutical manufacturers to improve their efficiency and their patient outcomes. Services for
manufacturers include: assistance with rapid new product launches, promotional and
marketing services to accelerate product sales, product data reporting and logistical
support. In addition, we provide packaging services to manufacturers, including contract
packaging. |
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Our provider solutions include: our Good Neighbor Pharmacy® program,
which enables independent community pharmacies to compete more effectively through
pharmaceutical benefit and merchandising programs; Good Neighbor Pharmacy Provider
Network®, our managed care network, which connects our retail pharmacy customers to payor
plans throughout the country and is the third-largest in the U.S.; generic product
purchasing services; hospital pharmacy consulting designed to improve operational
efficiencies; scalable automated pharmacy dispensing equipment; and packaging services
that deliver unit dose, punch card and other compliance packaging for institutional and
retail pharmacy customers. |
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In an effort to supplement our organic growth, we continue to utilize a disciplined
approach to seek acquisitions that will assist us with our strategic growth plans. |
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In October 2007, we acquired Bellco Health (Bellco), a privately held New York
distributor of branded and generic pharmaceuticals, for a purchase price of $162.2
million, net of cash acquired. Bellco primarily services independent retail community
pharmacies in the Metro New York City area. The acquisition of Bellco expanded the
Companys presence in this large community pharmacy market. Nationally, Bellco markets and
sells generic pharmaceuticals to individual retail pharmacies, and provides pharmaceutical
products and services to dialysis clinics. Bellco is now fully integrated into the
operations of AmerisourceBergen Drug Corporation and AmerisourceBergen Specialty Group. |
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Optimize and Grow Our Specialty Distribution and Service Businesses. Representing
$15.6 billion in total revenue in fiscal 2009, our specialty pharmaceuticals business has
a significant presence in this rapidly growing part of the pharmaceutical supply channel.
With distribution and value-added services to physicians and a broad array of
pharmaceutical and specialty services for manufacturers, our specialty pharmaceuticals
business is a well-developed platform for growth. We are the leader in distribution and
services to community oncologists and have leading positions in other
physician-administered products. We also distribute vaccines, other injectables, and
plasma and other blood products, and are well-positioned to service and support many of
the new biotech therapies that will be coming to market in the near future. |
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Our specialty service businesses help pharmaceutical manufacturers, especially in the
biotechnology sector, commercialize their products in the channel. We believe we are the
largest provider of reimbursement services that assist pharmaceutical companies to launch
drugs with targeted populations and support the products in the
supply channel. We also provide
physician education services, third party logistics, nursing services, and specialty
pharmacy services to help speed products to market. |
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We continue to seek to expand our offerings in specialty distribution and services. |
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In fiscal 2009, we acquired Innomar Strategies Inc. (Innomar), a Canadian specialty
pharmaceutical services company, for a purchase price of $13.4 million. Innomar provides
services within Canada to pharmaceutical and biotechnology companies, including strategic
consulting and access solutions, specialty logistics management, patient assistance and
nursing services, and clinical research services. Innomar has increased our specialty
distribution and services presence in Canada. |
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Our acquisition of Bellco in fiscal 2008 allowed us to significantly increase our sales of
pharmaceutical products and services to dialysis clinics. |
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In fiscal 2007, we acquired three specialty service businesses, beginning with I.G.G. of
America, Inc. (IgG), a specialty pharmacy and infusion services business specializing in
the blood derivative intravenous immunoglobulin (IVIG). We also acquired Access M.D.,
Inc. (Access M.D.), a Canadian company that provides reimbursement support and nursing
support services for manufacturers of specialty pharmaceuticals, such as injectable and
biological therapies. Access M.D. expanded our specialty service businesses into Canada
and complemented the distribution services offered by AmerisourceBergen Canada, our
wholesale distribution business in Canada. Lastly, we acquired Xcenda LLC (Xcenda), a
consulting business that provides additional capabilities within pharmaceutical brand
services, applied health outcomes, and biopharma strategies. |
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Divestitures. In order to allow us to concentrate on our strategic focus areas of
pharmaceutical distribution and related services and specialty pharmaceutical
distribution and related services, we have divested certain non-core businesses and may,
from time to time, consider additional divestitures. |
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In October 2008, we sold PMSI, our workers compensation business. |
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On July 31, 2007, the Company and Kindred Healthcare, Inc. (Kindred) completed the
spin-offs and subsequent combination of their institutional pharmacy businesses,
PharMerica Long-Term Care (Long-Term Care) and Kindred Pharmacy Services (KPS), to
form a new, independent, publicly traded company named PharMerica Corporation (PMC). The
Companys and Kindreds stockholders each owned approximately 50 percent of PMC
immediately after the closing of the transaction. |
Operations
Operating Structure. We are organized based upon the products and services we provide to our
customers. Our operations as of September 30, 2009 are comprised of one reportable segment,
Pharmaceutical Distribution.
The Pharmaceutical Distribution reportable segment is comprised of three operating segments,
which include the operations of AmerisourceBergen Drug Corporation (ABDC), AmerisourceBergen
Specialty Group (ABSG or Specialty Group), and AmerisourceBergen Packaging Group (ABPG or
Packaging Group). Servicing both healthcare providers and pharmaceutical manufacturers in the
pharmaceutical supply channel, the Pharmaceutical Distribution segments operations provide drug
distribution and related services designed to reduce healthcare costs and improve patient outcomes.
ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals,
over-the-counter healthcare products, home healthcare supplies and equipment, and related services
to a wide variety of healthcare providers, including acute care hospitals and health systems,
independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and
other alternate site pharmacies, and other customers. ABDC also provides pharmacy management,
staffing and other consulting services; scalable automated pharmacy dispensing equipment;
medication and supply dispensing cabinets; and supply management software to a variety of retail
and institutional healthcare providers.
3
ABSG, through a number of individual operating businesses, provides pharmaceutical
distribution and other services primarily to physicians who specialize in a variety of disease
states, especially oncology, and to other healthcare providers, including dialysis clinics. ABSG
also distributes vaccines, other injectables, and plasma and other blood products. In addition,
through its specialty service businesses, ABSG provides drug commercialization services, third
party logistics, nursing services, and other services for biotech and other pharmaceutical
manufacturers, as well as reimbursement consulting, data analytics, outcomes research, practice
management, group purchasing services for physician practices, and physician education.
ABPG consists of American Health Packaging, Anderson Packaging (Anderson) and Brecon
Pharmaceuticals Limited (Brecon). American Health Packaging delivers unit dose, punch card,
unit-of-use, and other packaging solutions to institutional and retail healthcare providers.
American Health Packagings largest customer is ABDC, and, as a result, its operations are closely
aligned with the operations of ABDC. Anderson is a leading provider of contract packaging services
for pharmaceutical manufacturers. Brecon is a United Kingdom-based provider of contract packaging
and clinical trial materials services for pharmaceutical manufacturers.
Sales and Marketing. The majority of ABDCs sales force is organized regionally and
specialized by healthcare provider type. Customer service representatives are located in
distribution facilities in order to respond to customer needs in a timely and effective manner.
ABDC also has support professionals focused on its various technologies and service offerings.
ABDCs national marketing organization designs and develops business management solutions for
AmerisourceBergen healthcare provider customers. Tailored to specific groups, these programs can be
further customized at the business unit or distribution facility level to adapt to local market
conditions. ABDCs sales and marketing organization also serves national account customers through
close coordination with local distribution centers and ensures that our customers are receiving
service offerings that meet their needs. Our Specialty and Packaging groups each have independent
sales forces and marketing organizations that specialize in their respective product and service
offerings.
Customers. We have a diverse customer base that includes institutional and retail healthcare
providers as well as pharmaceutical manufacturers. Institutional healthcare providers include acute
care hospitals, health systems, mail order pharmacies, long-term care and other alternate care
pharmacies and providers of pharmacy services to such facilities, and physician offices. Retail
healthcare providers include national and regional retail drugstore chains, independent community
pharmacies and pharmacy departments of supermarkets and mass merchandisers. We are typically the
primary source of supply for our healthcare provider customers. Our manufacturing customers include
branded, generic and biotech manufacturers of prescribed
pharmaceuticals, as well as
over-the-counter product and health and beauty aid manufacturers. In addition, we offer a broad
range of value-added solutions designed to enhance the operating efficiencies and competitive
positions of our customers, thereby allowing them to improve the delivery of healthcare to patients
and consumers. In fiscal 2009, total revenue was comprised of 68% institutional customers and 32%
retail customers.
In fiscal 2009, Medco Health Solutions, Inc., our largest customer, accounted for 17% of our
total revenue. No other individual customer accounted for more than 5% of our fiscal 2009 total
revenue. Our top ten customers represented approximately 41% of fiscal 2009 total revenue. In
addition, we have contracts with group purchasing organizations (GPOs), each of which functions
as a purchasing agent on behalf of its members, who are healthcare providers. Approximately 10% of
our total revenue in fiscal 2009 was derived from our three largest GPO relationships. The loss of
any major customer or GPO relationship could adversely affect future revenue and results of
operations.
Suppliers. We obtain pharmaceutical and other products from manufacturers, none of which
accounted for 10% or more of our purchases in fiscal 2009. The loss of a supplier could adversely
affect our business if alternate sources of supply are unavailable since we are committed to be the
primary source of pharmaceutical products for a majority of our customers. We believe that our
relationships with our suppliers are good. The ten largest suppliers in fiscal 2009 accounted for
approximately 48% of our purchases.
Information Systems. ABDC operates its full-service wholesale pharmaceutical distribution
facilities in the U.S. on a centralized system. ABDCs operating system provides for, among other
things, electronic order entry by customers, invoice preparation and purchasing, and inventory
tracking. As a result of electronic order entry, the cost of receiving and processing orders has
not increased as rapidly as sales volume. ABDCs systems are intended to strengthen customer
relationships by allowing the customer to lower its operating costs and by providing a platform for
a number of the basic and value-added services offered to our customers, including marketing,
product demand data, inventory replenishment, single-source billing, third-party claims processing,
computer price updates and price labels.
ABDC continues to expand its electronic interface with its suppliers and currently
processes a substantial portion of its purchase orders, invoices and payments electronically. Over
the last several years, ABDC has successfully implemented a new warehouse operating system, which
is used to account for primarily all of ABDCs transactional volume. The new warehouse operating
system has improved ABDCs productivity and operating leverage. ABDC will continue to invest in
advanced information systems and automated warehouse technology.
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In an effort to maintain and improve our existing information technology infrastructure
efficiently and cost-effectively, in 2005 we outsourced a significant portion of our information
technology activities relating to ABDC and corporate functions to IBM Global Services.
In an effort to continue to make system investments to further improve our information
capabilities and meet our future customer and operational needs, we began to make significant
investments in fiscal 2008 relating to our Business Transformation project that will include a new
enterprise resource planning (ERP) platform. The ERP platform will be implemented throughout
ABDC and our corporate functions and will include the development and implementation of integrated
processes to enhance our business practices and lower costs. We expect to continue to make
significant investments in our Business Transformation project through fiscal 2011.
ABSG operates the majority of its business on its own common, centralized platform resulting
in operating efficiencies as well as the ability to rapidly deploy new capabilities. The
convenience of ordering via the Internet is very important to ABSGs customers. Over the past few
years, ABSG has enhanced its web capabilities such that a significant amount of orders are
initiated via the Internet.
Competition
We face a highly competitive environment in the distribution of pharmaceuticals and related
healthcare services. Our largest national competitors are Cardinal Health, Inc. (Cardinal) and
McKesson Corporation (McKesson). ABDC competes with both Cardinal and McKesson, as well as
national generic distributors and regional distributors within pharmaceutical distribution. In
addition, we compete with manufacturers who sell directly to customers, chain drugstores who manage
their own warehousing, specialty distributors, and packaging and healthcare technology companies.
The distribution and related service businesses in which ABSG engages are also highly competitive.
ABSGs operating businesses face competition from a variety of competitors, including McKesson, FFF
Enterprises, Henry Schein, Inc., Express Scripts, Inc., US Oncology, Inc., Covance Inc., and UPS
Logistics, among others. In all areas, competitive factors include price, product offerings,
value-added service programs, service and delivery, credit terms, and customer support.
Intellectual Property
We use a number of trademarks and service marks. All of the principal trademarks and service
marks used in the course of our business have been registered in the United States and, in some
cases, in foreign jurisdictions or are the subject of pending applications for registration.
We have developed or acquired various proprietary products, processes, software and other
intellectual property that are used either to facilitate the conduct of our business or that are
made available as products or services to customers. We generally seek to protect such
intellectual property through a combination of trade secret, patent and copyright laws and through
confidentiality and other contractually imposed protections.
We hold patents and have patent applications pending that relate to certain of our products,
particularly our automated pharmacy dispensing equipment, our medication and supply dispensing
equipment, certain warehousing equipment and some of our proprietary packaging solutions. We seek
patent protection for our proprietary intellectual property from time to time as appropriate.
Although we believe that our patents or other proprietary products and processes do not
infringe upon the intellectual property rights of any third parties, third parties may assert
infringement claims against us from time to time.
Employees
As of September 30, 2009, we had approximately 10,300 employees, of which approximately 9,100
were full-time employees. Approximately 4% of our employees are covered by collective bargaining
agreements. We believe that our relationship with our employees is good. If any of our employees
in locations that are unionized should engage in strikes or other such bargaining tactics in
connection with the negotiation of new collective bargaining agreements upon the expiration of any
existing collective bargaining agreements, such tactics could be disruptive to our operations and
adversely affect our results of operations, but we believe we have adequate contingency plans in
place to assure delivery of pharmaceuticals to our customers in the event of any such disruptions.
Government Regulation
We are subject to oversight by various federal and state governmental entities and we are
subject to, and affected by, a variety of federal and state laws, regulations and policies.
Federal and State Statutes and Regulation
The U.S. Drug Enforcement Administration (DEA), the U.S. Food and Drug Administration
(FDA) and various state regulatory authorities regulate the purchase, storage, and/or
distribution of pharmaceutical products, including controlled substances. Wholesale distributors of
controlled substances are required to hold valid DEA licenses, meet various security and operating
standards, and comply with regulations governing their sale, marketing, packaging, holding and
distribution. The DEA, FDA and state regulatory authorities have broad enforcement powers,
including the ability to suspend our distribution centers from distributing controlled substances,
seize or recall products and impose significant criminal, civil and administrative sanctions for
violations of applicable laws and regulations. As a wholesale distributor of pharmaceuticals and certain
related products, we are subject to these laws and regulations. We have all necessary licenses or
other regulatory approvals and believe that we are in compliance with all applicable pharmaceutical
wholesale distribution requirements needed to conduct our operations.
5
We and our customers are subject to fraud and abuse laws, including the federal anti-kickback
statute and the Stark law. The anti-kickback statute, and the related regulations, prohibit persons
from soliciting, offering, receiving or paying any remuneration in order to induce the purchasing,
leasing or ordering, induce a referral to purchase, lease or order, or arrange for or recommend
purchasing, leasing or ordering items or services that are in any way paid for by Medicare,
Medicaid, or other federal healthcare programs. The Stark law prohibits physicians from making
referrals for designated health services reimbursable under Medicare or Medicaid to certain
entities with which they have a financial relationship. The fraud and abuse laws and regulations
are broad in scope and are subject to frequent modification and varied interpretation. ABSGs
operations are particularly subject to these laws and regulations, as are certain aspects of ABDCs
operations.
In recent years, some states have passed or have proposed laws and regulations that are
intended to protect the safety of the pharmaceutical supply channel. These laws and regulations are
designed to prevent the introduction of counterfeit, diverted, adulterated or mislabeled
pharmaceuticals into the distribution system. For example, Florida has implemented and other states
are implementing pedigree requirements that require drugs to be accompanied by information tracking
drugs back to the manufacturers. California has enacted a law requiring chain of custody technology
using electronic pedigrees, although the effective date has been postponed until January 1, 2015
for pharmaceutical manufacturers and July 1, 2016 for pharmaceutical wholesalers and repackagers.
These and other requirements are expected to increase our cost of operations. At the federal level,
the FDA issued final regulations pursuant to the Prescription Drug Marketing Act that became
effective in December 2006. The FDA regulations impose pedigree and other chain of custody
requirements that increase our costs and/or burden of selling to other pharmaceutical distributors
and handling product returns. In early December 2006, the federal District Court for the Eastern
District of New York issued a preliminary injunction temporarily enjoining the implementation of
the regulations in response to a case initiated by secondary distributors. The federal Court of
Appeals for the Second Circuit affirmed this injunction on July 10, 2008. On December 18, 2008, the
parties filed a joint motion to stay discovery based upon a bill pending in Congress that, if passed,
would render the issues in the case moot. The parties also agreed to an administrative closing of
the file until at least December 31, 2009. Either party may re-open the file prior to that date.
We cannot predict the ultimate outcome of this legal proceeding or related legislation pending in
Congress. These laws and regulations could increase the overall regulatory burden and costs
associated with our distribution business and could adversely affect our results of operations and
financial condition.
In addition, the FDA Amendments Act of 2007 requires the FDA to establish standards and
identify and validate effective technologies for the purpose of securing the pharmaceutical supply
chain against counterfeit drugs. These standards may include track-and-trace or authentication
technologies, such as radio frequency identification devices and
other technologies. The 2007 Act requires the FDA to
develop a standardized numerical identifier by April 1, 2010.
As a result of political, economic and regulatory influences, the healthcare delivery industry
in the United States is under intense scrutiny and subject to fundamental changes. We expect that
the current administration, Congress and certain state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methods in order to reform the
healthcare system. This process may result in legislation and/or additional regulation governing
the delivery or pricing of pharmaceutical products, as well as potential changes to the structure
of the present healthcare delivery system. We cannot predict what reform proposals, if any, will
be adopted, when they may be adopted, or what impact they may have on us.
The costs associated with complying with federal and state regulations could be significant
and the failure to comply with any such legal requirements could have a significant impact on our
results of operations and financial condition.
Medicare and Medicaid
The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) significantly
expanded Medicare coverage for outpatient prescription drugs through the new Medicare Part D
program. Beginning in 2006, Medicare beneficiaries became eligible to enroll in outpatient
prescription drug plans that are offered by private entities and became eligible for varying levels
of coverage for outpatient prescription drugs. Beneficiaries who participate select from a range of
stand-alone prescription drug plans or Medicare Advantage managed care plans that include
prescription drug coverage along with other Medicare services (Part D Plans). The Part D Plans
are required to make available certain drugs on their formularies. Each Part D Plan negotiates
reimbursement for Part D drugs with pharmaceutical manufacturers. The Part D Plan program has
increased the use of pharmaceuticals in the supply channel, which has a positive impact on our
revenues and profitability.
The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)
established timeframes for Part D Plan payments to pharmacies and long-term care pharmacy
submission of claims; required more frequent updating by Part D Plan sponsors of the drug pricing
data they use to pay pharmacies; modified statutory provisions regarding coverage of certain
protected classes of drugs; limited certain Part D sales and marketing activities; and made other
Part D reforms.
6
Effective January 1, 2007, the Deficit Reduction Act of 2005 (DRA) changed the federal upper
payment limit for Medicaid reimbursement from 150% of the lowest published price for generic
pharmaceuticals to 250% of the lowest average
manufacturer price or AMP. On July 17, 2007, Centers for Medicare and Medicaid Services (CMS)
published a final rule implementing these provisions and clarifying, among other things, the AMP
calculation methodology and the DRA provision requiring manufacturers to publicly report AMP for
branded and generic pharmaceuticals. In December 2007, the United States District Court for the
District of Columbia issued a preliminary injunction that enjoins CMS from implementing certain
provisions of the AMP rule to the extent that it affects Medicaid reimbursement rates for retail
pharmacies under the Medicaid program. The order also enjoined CMS from disclosing AMP data to
states and other entities. In October 2008, CMS issued a separate final rule in which it stated
that the federal upper limits will govern in all states unless a state finds that a particular
generic drug is not available within that state. These payment limits remain unenforced as a result of
the 2007 preliminary injunction. In addition, MIPPA delayed the
adoption of CMSs July 17, 2007
rule and prevented CMS from publishing AMP data before October 1, 2009. Although CMS has yet to
take action, the use of an AMP benchmark may result in a reduction in the Medicaid reimbursement
rates to our customers for certain generic pharmaceuticals, which may indirectly impact the prices
that we can charge our customers for generic pharmaceuticals and cause corresponding declines in
our profitability. There can be no assurance that the changes under the DRA will not have an
adverse impact on our business. Unless we are able to develop plans to mitigate the potential
impact of these legislative and regulatory changes, these changes in reimbursement formula and
related reporting requirements and other provisions of the DRA could adversely affect our results
of operations. The federal government may also take other actions in the future to increase the
Medicaid drug rebate amount for branded pharmaceuticals, amend the
Medicare average selling price (ASP) calculation
methodology, or otherwise modify Medicare/Medicaid drug payment policy.
Several Medicare and Medicaid policy reforms were included in President Obamas proposed
fiscal year 2010 budget. Among other things, the budget includes a 10-year, $634 billion reserve
fund to finance comprehensive health reform, financed by health system savings and tax increases,
provides for payment cuts to Medicare Advantage plans and plans to reduce Medicare reimbursement
for many types of providers, including hospitals and certain post-acute care providers. The budget
also calls for increasing the Medicaid drug rebate level paid by pharmaceutical manufacturers to
Medicaid for brand-name drugs, applying the rebate levels paid by pharmaceutical manufacturers to
Medicaid on existing drugs to new formulations of those drugs, and allowing states to collect
rebates from pharmaceutical manufacturers on drugs provided through Medicaid managed care
organizations. It further seeks to increase Medicare Part D drug premiums for certain
higher-income beneficiaries, expand Part D oversight activities, promote the development of
follow-on biologicals and generic drugs, and allow drug reimportation. Many of the proposed policy
changes would require Congressional approval to implement. There can be no assurances that future
revisions to Medicare or Medicaid payments, if enacted, will not have an adverse impact on our
business.
Congressional leaders also have expressed their intent to enact a comprehensive health reform
plan, including provisions to control health care costs, improve health care quality, and expand
access to affordable health insurance, potentially including the establishment of a government
health insurance plan that would compete with private health plans. Health reform legislation
could include changes in Medicare and Medicaid prescription drug payment policies and other health
care delivery reforms that would potentially impact our business. The United States House of
Representatives has passed its version of a health reform bill, but the United States Senate has
not yet taken action on pending health reform proposals. As a result, the exact provisions to be
included in a final bill are unknown at this time, nor can we be certain when or if any such
legislation will be enacted. Given the potentially sweeping nature of the changes under
consideration, there can be no assurances that health reform legislation, if adopted, would not
adversely impact our business.
See
Risk Factors on page 8 for a discussion of additional regulatory developments that may affect our
results of operations and financial condition.
Health Information Practices
The Health Information Portability and Accountability Act of 1996 (HIPAA) and its
accompanying federal regulations set forth health information standards in order to protect
security and privacy in the exchange of individually identifiable health information. In addition,
our operations, depending on their location, may be subject to additional state or foreign
regulations affecting personal data protection and the manner in which information services or
products are provided. Significant criminal and civil penalties may be imposed for violation of
HIPAA standards and other such laws. We have a HIPAA compliance program to facilitate our ongoing
effort to comply with the HIPAA regulations.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act (ARRA). Among other things, the law further strengthens federal privacy and security
provisions to protect personally-identifiable health information, including new notification
requirements related to health data security breaches. We currently are assessing the new law, but
there can be no assurances that compliance with the new privacy requirements will not impose new
costs on our business.
7
Available Information
For more information about us, visit our website at www.amerisourcebergen.com. The contents of
the website are not part of this Form 10-K. Our electronic filings with the Securities and Exchange
Commission (including all Forms 10-K, 10-Q and 8-K, and any amendments to these reports) are
available free of charge through the Investors section of our website immediately after we
electronically file with or furnish them to the Securities and Exchange Commission and may also be
viewed using their website at www.sec.gov.
The following discussion describes certain risk factors that we believe could affect our
business and prospects. These risks factors are in addition to those set forth elsewhere in this
report.
Intense competition as well as industry consolidations may erode our profit margins.
The distribution of pharmaceuticals and related healthcare solutions is highly competitive. We
compete with two national wholesale distributors of pharmaceuticals, Cardinal and McKesson;
national generic distributors; regional and local distributors of pharmaceuticals; chain drugstores
that warehouse their own pharmaceuticals; manufacturers that distribute their products directly to
customers; specialty distributors; and packaging and healthcare technology companies (see
Competition). If we were forced by competition to reduce our prices or offer more favorable
payment or other terms, our results of operations or liquidity could be adversely affected. In
addition, in recent years, the healthcare industry has been subject to increasing consolidation. If
this trend continues among our customers and suppliers, it could give the resulting enterprises
greater bargaining power, which may lead to greater pressure to reduce prices for our products and
services.
Our results of operations continue to be subject to the risks and uncertainties of inflation
in branded pharmaceutical prices and deflation in generic pharmaceutical prices.
Certain distribution service agreements that we have entered into with branded pharmaceutical
manufacturers continue to have an inflation-based compensation component to them. Arrangements with
a small number of branded manufacturers continue to be solely inflation-based. As a result,
approximately 10% to 15% of our gross profit from brand-name manufacturers continues to be subject
to fluctuation based upon the timing and extent of price appreciation. If the frequency or rate of
branded pharmaceutical price inflation slows, our results of operations could be adversely
affected. In addition, we distribute generic pharmaceuticals, which are subject to price deflation.
If the frequency or rate of generic pharmaceutical price deflation accelerates, our results of
operations could be adversely affected.
Declining economic conditions could adversely affect our results of operations and financial
condition.
Our operations and performance depend on economic conditions in the United States and other
countries where we do business. Deterioration in general economic conditions could adversely affect
the amount of prescriptions that are filled and the amount of pharmaceutical products purchased by
consumers and, therefore, reduce purchases by our customers, which would negatively affect our
revenue growth and cause a decrease in our profitability. Interest rate fluctuations, financial
market volatility or credit market disruptions may also negatively affect our customers ability to
obtain credit to finance their businesses on acceptable terms. Reduced purchases by our customers
or changes in payment terms could adversely affect our revenue growth and cause a decrease in our
cash flow from operations. Bankruptcies or similar events affecting our customers may cause us to
incur bad debt expense at levels higher than historically experienced. Declining economic
conditions may also increase our costs. If the economic conditions in the United States or in the
regions outside the United States where we do business do not improve or deteriorate, our results
of operations or financial condition could be adversely affected.
Our stock price and our ability to access credit markets may be adversely affected by
financial market volatility and disruption.
The capital and credit markets have experienced significant volatility and disruption,
particularly in the latter half of 2008 and in the first quarter of 2009. In some cases, the
markets have produced downward pressure on stock prices and credit availability for certain issuers
without regard to those issuers underlying financial strength. If the markets return to the
levels of disruption and volatility experienced in the latter half of 2008 and the first quarter of
2009, there can be no assurance that we will not experience downward movement in our stock price
without regard to our financial condition or results of operations or an adverse effect, which may
be material, on our ability to access credit generally, and on our business, liquidity, financial
condition and results of operations.
Our receivables securitization facility expires in 2010. While we did not have any borrowings
outstanding under this facility as of September 30, 2009, we have historically utilized amounts
available to us under this facility, from time to time, to meet our business needs. In fiscal 2010,
we will seek to renew this facility at available market rates, which may be higher than the
interest rates currently available to us. While we believe we will be able to renew this facility,
there can be no assurance that we will be able to do so.
8
Our total revenue and results of operations may suffer upon the loss of a significant
customer.
Our largest customer, Medco Health Solutions, Inc., accounted for 17% of our total revenue in
fiscal 2009. Our top ten customers represented approximately 41% of fiscal 2009 total revenue. We
also have contracts with group purchasing organizations (GPOs), each of which functions as a
purchasing agent on behalf of its members, who are hospitals, pharmacies or other healthcare
providers. Approximately 10% of our total revenue in fiscal 2009 was derived from our three largest
GPO relationships. We may lose a significant customer or GPO relationship if any existing contract
with such customer or GPO expires without being extended, renewed, renegotiated or replaced or is
terminated by the customer or GPO prior to expiration, to the extent such early termination is
permitted by the contract. A number of our contracts with significant customers or GPOs are
typically subject to expiration each year and we may lose any of these customers or GPO
relationships if we are unable to extend, renew, renegotiate or replace the contracts. The loss of
any significant customer or GPO relationship could adversely affect our total revenue and results
of operations.
Our total revenue and results of operations may suffer upon the bankruptcy, insolvency or
other credit failure of a significant customer.
Most of our customers buy pharmaceuticals and other products and services from us on credit.
Credit is made available to customers based on our assessment and analysis of creditworthiness.
Although we often try to obtain a security interest in assets and other arrangements intended to
protect our credit exposure, we generally are either subordinated to the position of the primary
lenders to our customers or substantially unsecured. Volatility of the capital and credit markets
and general economic conditions may adversely affect the solvency or creditworthiness of our
customers. The bankruptcy, insolvency or other credit failure of any customer that has a
substantial amount owed to us could have a material adverse affect on our operating revenue and
results of operations. At September 30, 2009, the largest trade receivable balance due from a
single customer, which was our largest customer, represented approximately 9% of accounts
receivable, net.
Our results of operations may suffer upon the bankruptcy, insolvency or other credit
failure of a significant supplier.
Our relationships with pharmaceutical suppliers give rise to substantial amounts that are due
to us from the suppliers, including amounts owed to us for returned goods or defective goods,
chargebacks, and amounts due to us for services provided to the suppliers. Volatility of the
capital and credit markets and general economic conditions may adversely affect the solvency or
creditworthiness of our suppliers. The bankruptcy, insolvency or other credit failure of any
supplier at a time when the supplier has a substantial account payable balance due to us could have
a material adverse affect on our results of operations.
Increasing governmental efforts to regulate the pharmaceutical supply channel may increase our
costs and reduce our profitability.
The healthcare industry is highly regulated at the federal and state level. Consequently, we
are subject to the risk of changes in various federal and state laws, which include operating and
security standards of the DEA, the FDA, various state boards of pharmacy and comparable agencies.
In recent years, some states have passed or have proposed laws and regulations, including laws and
regulations obligating pharmaceutical distributors to provide prescription drug pedigrees, that are
intended to protect the safety of the supply channel but that also may substantially increase the
costs and burden of pharmaceutical distribution. For example, the Florida Prescription Drug
Pedigree laws and regulations that became effective in July 2006 imposed obligations upon us to
deliver prescription drug pedigrees to various categories of customers. In order to comply with the
Florida requirements, we implemented an e-pedigree system at our distribution center in Florida
that required significant capital outlays. Other states have adopted laws and regulations that
would require us to implement pedigree capabilities in those other states similar to the pedigree
capabilities implemented for Florida. For example, California has enacted a law requiring the
implementation of costly track and trace chain of custody technologies, such as radio frequency
identification device (RFID) technologies, although the effective date of the law has been
postponed until January 1, 2015 for pharmaceutical manufacturers and until July 1, 2016 for
pharmaceutical wholesalers and repackagers. At the federal level, the FDA issued final regulations
pursuant to the Prescription Drug Marketing Act that became effective in December 2006. The
regulations impose pedigree and other chain of custody requirements that increase the costs and/or
burden to us of selling to other pharmaceutical distributors and handling product returns. In
December 2006, the federal District Court for the Eastern District of New York issued a preliminary
injunction temporarily enjoining the implementation of certain provisions of the regulations in
response to a case initiated by secondary distributors. The federal Court of Appeals for the Second
Circuit affirmed this injunction on July 10, 2008. On December 18, 2008, the parties filed a joint
motion to stay discovery based upon a bill pending in Congress that, if passed, would render the issues
in the case moot. The parties also agreed to an administrative closing of the file until at least
December 31, 2009. Either party may re-open the file prior to that date. We cannot predict the
ultimate outcome of this legal proceeding or related legislation pending in Congress.
In addition, the FDA Amendments Act of 2007 requires the FDA to establish standards and
identify and validate effective technologies for the purpose of securing the pharmaceutical supply
chain against counterfeit drugs. These standards may include track-and-trace or authentication
technologies, such as RFID devices and other technologies. The 2007
Act requires the FDA to develop a standardized
numerical identifier by April 1, 2010. The increased costs of complying with these pedigree and
other supply chain custody requirements could increase our costs or otherwise significantly affect
our results of operations.
9
The suspension or revocation by the DEA of any of the registrations that must be in effect for
our distribution facilities to purchase, store and distribute controlled substances or the refusal
by DEA to issue a registration to any such facility that requires such registration may adversely
affect our reputation, our business and our results of operations.
The DEA, FDA and various state regulatory authorities regulate the distribution of
pharmaceuticals and controlled substances. We are required to hold valid DEA and state-level
licenses, meet various security and operating standards and comply with the Controlled Substance
Act and its accompanying regulations governing the sale, marketing, packaging, holding and
distribution of controlled substances. The DEA, FDA and state regulatory authorities have broad
enforcement powers, including the ability to suspend our distribution centers licenses to
distribute pharmaceutical products (including controlled substances), seize or recall products and
impose significant criminal, civil and administrative sanctions for violations of these laws and
regulations.
In 2007, our Orlando, Florida distribution centers license to distribute controlled
substances and listed chemicals was suspended for an alleged lack of maintaining effective controls
against diversion of controlled substances. Under an agreement with the DEA, our distribution
center had its license reinstated when we implemented an enhanced and more sophisticated
order-monitoring program in all of our ABDC distribution centers. In addition, in June 2007, one of
our subsidiaries, Bellco Drug Corp., entered into a consent judgment with the DEA following the
suspension of Bellco Drugs DEA license in May 2007 prior to our acquisition of the business. The
DEA had alleged that Bellco Drug had failed to maintain effective controls against the diversion of
controlled substances as required by federal law. In the consent judgment, Bellco Drug voluntarily
surrendered its DEA registration with leave to apply for a new registration. Bellco Drug received
its new DEA registration on February 12, 2008 and resumed distribution of controlled substances.
While we expect to continue to comply with all of the DEAs requirements, there can be no assurance
that the DEA will not require further controls against the diversion of controlled substances in
the future or will not take similar action against any other of our distribution centers in the
future.
Legal, regulatory and legislative changes reducing reimbursement rates for pharmaceuticals
and/or medical treatments or services may adversely affect our
business and results of operations.
Both
our business and the businesses of our customers may be adversely affected
by laws and regulations reducing reimbursement rates for pharmaceuticals and/or medical treatments
or services or changing the methodology by which reimbursement levels are determined.
Effective January 1, 2007, the Deficit Reduction Act of 2005 (DRA) changed the federal upper
payment limit for Medicaid reimbursement from 150% of the lowest published price for generic
pharmaceuticals to 250% of the lowest average manufacturer price (AMP). On July 17, 2007, CMS
published a final rule implementing these provisions and clarifying, among other things, the AMP
calculation methodology and the DRA provision requiring manufacturers to publicly report AMP for
branded and generic pharmaceuticals. In December 2007, the United States District Court for the
District of Columbia issued a preliminary injunction that enjoins CMS from implementing certain
provisions of the AMP rule to the extent that it affects Medicaid reimbursement rates for retail
pharmacies under the Medicaid program. The order also enjoins CMS from disclosing AMP data to
states and other entities. In October 2008, CMS issued a separate final rule stating that the
federal upper limits will govern in all states unless a state finds that a particular generic drug
is not available within that state. These payment limits remain unenforced as a result of the 2007
preliminary injunction. The outcome of the ongoing litigation in the District of Columbia is
unknown. The Medicaid Improvements for Patients and Providers Act of 2008 (MIPPA) delayed the
adoption of CMSs July 17, 2007 rule and prevented CMS from publishing AMP data before October 1,
2009. Although CMS has yet to take action, the use of an
AMP benchmark may result in a reduction in the Medicaid reimbursement rates to our customers for
certain generic pharmaceuticals, which may indirectly impact the prices that we can charge our
customers for generic pharmaceuticals and cause corresponding declines in our profitability. There can be no assurance that the changes under the DRA will not have an
adverse impact on our business. Unless we are able to develop plans to mitigate the potential
impact of these legislative and regulatory changes, these changes in reimbursement formula and
related reporting requirements and other provisions of the DRA could significantly reduce our
profitability.
10
The Medicare, Medicaid, and SCHIP Extension Act of 2007, among other things, requires CMS to
adjust Medicare Part B drug average sales price (ASP) calculations to use volume-weighed ASPs
based on actual sales volume. This law, which became effective April 1, 2008, could reduce
Medicare reimbursement rates for some Part B drugs, which may indirectly impact the prices we can
charge our customers for pharmaceuticals and result in reductions in our profitability.
First DataBank, Inc. and Medi-Span publish drug databases that contain drug information and
pricing data. The pricing data includes average wholesale price, or AWP, which is a pricing
benchmark widely used to calculate a portion of the Medicaid and Medicare Part D reimbursements
payable to pharmacy providers. AWP is also used to establish the pricing of pharmaceuticals to
certain of our pharmaceutical distribution customers in Puerto Rico. On September 3, 2009, the
Court of Appeals for the First Circuit upheld settlements in class action litigation concerning the
calculations of AWP pricing data. Under the settlements, First DataBank, Inc. and Medi-Span reduced
to 20% the markup on about 1,400 drugs included in the litigation. The companies also reduced to
20% the markup on all drugs with a mark-up higher than 20% and will stop publishing AWP in two
years. We continue to evaluate the impact that these actions could have on the business of our
customers and our business. There can be no assurances that these settlements and related actions
will not have an adverse impact on the business of our customers and/or our business.
ABSGs business may be adversely affected in the future by changes in Medicare reimbursement
rates for certain pharmaceuticals, including oncology drugs administered by physicians. Since ABSG
provides a number of services to or through physicians, this could result in slower growth or lower
revenues for ABSG.
Our revenue growth rate has been negatively impacted by a reduction in sales of certain anemia
drugs, primarily those used in oncology, and may, in the future, be adversely affected by any
further reductions in sales or restrictions on the use of anemia drugs or a decrease in Medicare
reimbursement for these drugs. Several developments contributed to the decline in sales of anemia
drugs, including expanded warning and other product safety labeling requirements, more restrictive
federal policies governing Medicare reimbursement for the use of these drugs to treat oncology
patients with kidney failure and dialysis, and changes in regulatory and clinical medical
guidelines for recommended dosage and use. In addition, the FDA has announced that it is reviewing
new clinical study data concerning the possible risks associated with erythropoiesis stimulating
agents (anemia drugs) and may take additional action with regard to these drugs. CMS has indicated
that it may impose additional restrictions on Medicare coverage in the future. Also, on July 30,
2008, CMS announced it is considering a review of national Medicare coverage policy for these drugs
for patients who have cancer or pre-dialysis chronic kidney disease. Any further changes in the
recommended dosage or use of anemia drugs or reductions in reimbursement for such drugs could
result in slower growth or lower revenues.
The federal government may adopt measures in the future that would further reduce Medicare
and/or Medicaid spending or impose additional requirements on health care entities. At this time,
we can provide no assurances that such changes, if adopted, would not have an adverse effect on our
business.
Changes to the United States healthcare environment may negatively impact our business and our
profitability.
Our products and services are intended to function within the structure of the healthcare
financing and reimbursement system currently existing in the United States. In recent years, the
healthcare industry has undergone significant changes in an effort to reduce costs and government
spending. These changes include an increased reliance on managed care; cuts in certain Medicare
funding affecting our healthcare provider customer base; consolidation of competitors, suppliers
and customers; and the development of large, sophisticated purchasing groups. We expect the
healthcare industry to continue to change significantly in the future. Some of these potential
changes, such as a reduction in governmental funding for certain healthcare services or adverse
changes in legislation or regulations governing prescription drug pricing, healthcare services or
mandated benefits, may cause healthcare industry participants to reduce the amount of our products
and services they purchase or the price they are willing to pay for our products and services. We
expect continued government and private payor pressure to reduce pharmaceutical pricing. Changes
in pharmaceutical manufacturers pricing or distribution policies could also significantly reduce
our profitability.
Congressional leaders also have expressed their intention to enact a comprehensive health
reform plan, including provisions to control health care costs, improve health care quality, and
expand access to affordable health insurance, potentially including the establishment of a
government health insurance plan that would compete with private health plans. Health reform
legislation could include changes in Medicare and Medicaid prescription drug payment policies and
other health care delivery reforms that would potentially impact our business. The United States
House of Representatives has passed its version of a health reform bill, but the United States
Senate has not yet taken action on pending health reform proposals. As a result, the exact
provisions to be included in a final bill are unknown at this time, nor can we be certain when or
if any such legislation will be enacted. Given the potentially sweeping nature of the changes
under consideration, there can be no assurances that health reform legislation, if adopted, will
not adversely impact our business.
If we fail to comply with laws and regulations in respect of healthcare fraud and abuse, we
could suffer penalties or be required to make significant changes to our operations.
We are subject to extensive and frequently changing federal and state laws and regulations
relating to healthcare fraud and abuse. The federal government continues to strengthen its position
and scrutiny over practices involving healthcare fraud affecting Medicare, Medicaid and other
government healthcare programs. Our relationships with healthcare providers and pharmaceutical
manufacturers subject our business to laws and regulations on fraud and abuse which, among other
things, (i) prohibit persons from soliciting, offering, receiving or paying any remuneration in
order to induce the referral of a patient for treatment or the ordering or purchasing of items or
services that are in any way paid for by Medicare, Medicaid or other government-sponsored
healthcare programs and (ii) impose a number of restrictions upon referring physicians and
providers of designated health services under Medicare and Medicaid programs. Legislative
provisions relating to healthcare fraud and abuse give federal enforcement personnel substantially
increased funding, powers and remedies to pursue suspected fraud and abuse. While we believe that
we are in compliance with all applicable laws and regulations, many of the regulations applicable
to us, including those relating to marketing incentives offered in connection with pharmaceutical
sales, are vague or indefinite and have not been interpreted by the courts. They may be interpreted
or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us
to make changes in our operations. If we fail to comply with applicable laws and regulations, we could suffer
civil and criminal penalties, including the loss of licenses or our ability to participate in
Medicare, Medicaid and other federal and state healthcare programs.
11
Our business and results of operations could be adversely affected by qui tam litigation.
Violations of various federal and state laws governing the marketing, sale and purchase of
pharmaceutical products can result in criminal, civil, and administrative liability for which there
can be significant financial damages, criminal and civil penalties, and possible exclusion from
participation in federal and state health programs. Among other things, such violations can form
the basis for qui tam complaints to be filed. The qui tam provisions of both the federal civil
False Claims Act and various state civil False Claims Acts authorize a private person, known as a
relator (i.e. whistleblower), to file civil actions under these federal and state statutes on
behalf of the federal and state governments. Under the federal civil False Claims Act and the
applicable state civil False Claims Acts, the filing of a qui tam complaint by a relator imposes
obligations on federal and state government authorities to investigate the allegations and to
determine whether or not to intervene in the action. Such cases typically revolve around the
marketing, sale and/or purchase of branded pharmaceutical products and allege wrongdoing in the
marketing, sale and/or purchase of such products. Such complaints are filed under seal and remain
sealed until the applicable court orders otherwise. Our business and results of operations could
be adversely affected if qui tam complaints are filed against us for alleged violations of any
health laws and regulations and for damages arising from resultant false claims and if government
authorities decide to intervene in any such matters and/or we are found liable for all or any
portion of violations alleged in any such matters.
A qui tam matter is pending in the United States District Court for the District of
Massachusetts (the Federal District Court) naming Amgen Inc. as well as two business units of
AmerisourceBergen Specialty Group, AmerisourceBergen Specialty Group, and AmerisourceBergen
Corporation as defendants. On October 30, 2009, the relator, a former Amgen employee, filed a
second amended complaint and fourteen states and the District of Columbia filed a complaint (the
Intervention Complaint) to intervene in the pending civil case. The complaints allege that from
2002 through 2009, Amgen offered remuneration to medical providers in violation of federal and
state health laws to increase purchases and prescriptions of Amgens anemia drug, Aranesp.
Specifically with regard to the Companys business units, the complaints allege that ASD Specialty
Healthcare, Inc., which is a distributor of pharmaceuticals to physician practices (ASD), and
International Nephrology Network, which was a business name for one of the Companys subsidiaries
and a group purchasing organization for nephrologists and nephrology practices (INN), conspired
with Amgen to promote Aranesp in violation of federal and state health laws. The complaints
further allege that the defendants caused medical providers to submit to state Medicaid programs
false certifications and false claims for payment for Aranesp. According to the complaints, the
latter conduct allegedly violated state civil False Claims Acts and constituted fraud and unjust enrichment.
The qui tam complaint, as amended on October 30, 2009, also alleges that the defendants caused
medical providers to submit to other federal health programs, including Medicare, false
certifications and false claims for payment for Aranesp.
Under the federal civil False Claims Act and the applicable state civil False Claims Acts, the
filing of the original qui tam complaint by the former Amgen employee triggered obligations of
federal and certain state government authorities to investigate the allegations and to determine
whether or not to intervene in the action. In connection with this investigative process, the
Company has received subpoenas for records issued by the United States Attorneys Office for the
Eastern District of New York (the Department of Justice). The allegations in the Intervention
Complaint and the qui tam complaint, as amended, are within the scope of the Department of
Justices subpoenas. The Company has been cooperating with the Department of Justice in the
inquiry and is producing records in response to the subpoenas. Such subpoenas may be issued in
conjunction with investigations arising from the filing of one or more qui tam complaints. Because
such lawsuits are filed under seal, and remain under seal until the applicable court orders
otherwise, their existence cannot be disclosed absent court order. Therefore, given the pendency
of the Department of Justice investigation, the possibility exists that one or more qui tam suits
have been filed.
Our business and results of operations could be adversely affected if we are found liable for
the violations alleged in the pending qui tam case and/or if the Department of Justice or other
state authorities should elect to intervene in the pending case and/or if there should be any
companion qui tam cases that arise against us and the other defendants or are pending but yet
unsealed.
Our results of operations and financial condition may be adversely affected if we undertake
acquisitions of businesses that do not perform as we expect or that are difficult for us to
integrate.
We expect to continue to implement our growth strategy, in part, by acquiring companies. At
any particular time, we may be in various stages of assessment, discussion and negotiation with
regard to one or more potential acquisitions, not all of which will be consummated. We make public
disclosure of pending and completed acquisitions when appropriate and required by applicable
securities laws and regulations.
Acquisitions involve numerous risks and uncertainties. If we complete one or more
acquisitions, our results of operations and financial condition may be adversely affected by a
number of factors, including: the failure of the acquired businesses to achieve the results we have
projected in either the near or long term; the assumption of unknown liabilities; the fair value of
assets acquired and liabilities assumed; the difficulties of imposing adequate financial and
operating controls on the acquired companies and their management and the potential liabilities
that might arise pending the imposition of adequate controls; the difficulties in the integration
of the operations, technologies, services and products of the acquired companies; and the failure
to achieve the strategic objectives of these acquisitions.
12
Our results of operations and our financial condition may be adversely affected by
foreign operations.
We have pharmaceutical distribution operations based in Canada and provide contract packaging
and clinical trials materials services in the United Kingdom. We may consider additional foreign
acquisitions in the future. Our existing foreign operations and any operations we may acquire in
the future carry risks in addition to the risks of acquisition, as described above. At any
particular time, foreign operations may encounter risks and uncertainties regarding the
governmental, political, economic, business and competitive environment within the countries in
which those operations are based. Additionally, foreign operations expose us to foreign currency
fluctuations that could impact our results of operations and financial condition based on the
movements of the applicable foreign currency exchange rates in relation to the U.S. dollar.
Risks generally associated with our sophisticated information systems may adversely affect our
business and results of operations.
Our businesses rely on sophisticated information systems to obtain, rapidly process, analyze,
and manage data to facilitate the purchase and distribution of thousands of inventory items from
numerous distribution centers; to receive, process, and ship orders on a timely basis; to account
for other product and service transactions with customers; to manage the accurate billing and
collections for thousands of customers; and to process payments to suppliers. Our business and
results of operations may be adversely affected if these systems are interrupted or damaged by
unforeseen events or if they fail for any extended period of time, including due to the actions of
third parties. A third party service provider (IBM) is responsible for managing a significant
portion of ABDCs information systems. Our business and results of operations may be adversely
affected if the third party service provider does not perform satisfactorily.
Certain of our businesses continue to make substantial investments in information systems. To
the extent the implementation of these systems fail, our business and results of operations may be
adversely affected.
Risks generally associated with implementation of an enterprise resource planning (ERP) system
may adversely affect our business and results of operations or the effectiveness of internal
control over financial reporting.
We are preparing to implement an ERP system to handle the business and financial processes
within ABDCs operations and our corporate functions. ERP implementations are complex and
time-consuming projects that involve substantial expenditures on system software and implementation
activities that can continue for several years. ERP implementations also require transformation of
business and financial processes in order to reap the benefits of the ERP system. Our business and
results of operations may be adversely affected if we experience operating problems and/or cost
overruns during the ERP implementation process or if the ERP system, and the associated process
changes, do not give rise to the benefits that we expect.
Additionally, if we do not effectively implement the ERP system as planned or if the system
does not operate as intended, it could adversely affect the effectiveness of our internal controls
over financial reporting.
Tax legislation initiatives or challenges to our tax positions could adversely affect our
results of operations and financial condition.
We are a large corporation with operations in the United States, Puerto Rico, Canada and the
United Kingdom. As such, we are subject to tax laws and regulations of the United States federal,
state and local governments and of certain foreign jurisdictions. From time to time, various
legislative initiatives may be proposed that could adversely affect our tax positions and/or our
tax liabilities. There can be no assurance that our effective tax rate or tax payments will not be
adversely affected by these initiatives. In addition, United States federal, state and local, as
well as foreign, tax laws and regulations, are extremely complex and subject to varying
interpretations. There can be no assurance that our tax positions will not be challenged by
relevant tax authorities or that we would be successful in any such challenge.
The enactment of provincial legislation or regulations in Canada to lower pharmaceutical
product pricing and service fees may adversely affect our pharmaceutical distribution business in
Canada, including the profitability of that business.
As in the United States, our products and services function within the existing regulatory
structure of the healthcare system in Canada. The purchase of pharmaceutical products in Canada is
funded in part by the provincial governments, which each regulate the financing and reimbursement
of drugs independently. In recent years, like the United States, the Canadian healthcare industry
has undergone significant changes in an effort to reduce costs and government spending. For
example, in 2006, the Ontario government enacted the Transparent Drug System for Patients Act,
which significantly revised the drug distribution system in Ontario. Then in July 2009, the Ontario
government announced that it was undertaking a review of that legislation with a view to, among
other things, lower costs for taxpayers. Some of these potential changes, such as adverse changes
in legislation or regulations governing the drug distribution supply chain, prescription drug
pricing, healthcare services or mandated benefits or a reduction in government funding for certain
healthcare services may result in lower service fees, cause healthcare industry participants to
reduce the amount of our products and services they purchase or the price they are willing to pay
for our products and services. Legislation and/or regulations
that may lower pharmaceutical product pricing and service fees are reportedly under
consideration by some other provinces as well. We expect continued government and private payor
pressure to reduce pharmaceutical pricing. Changes in pharmaceutical manufacturers pricing or
distribution policies could also significantly reduce our profitability in Canada.
13
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None.
As of September 30, 2009, we conducted our business from office and operating facilities at
owned and leased locations throughout the United States (including Puerto Rico), Canada, and the
United Kingdom. In the aggregate, our facilities occupy approximately 8.5 million square feet of
office and warehouse space, which is either owned or leased under agreements that expire from time
to time through 2020.
We lease approximately 154,000 square feet in Chesterbrook, Pennsylvania for our corporate and
ABDC headquarters.
We have 26 full-service ABDC wholesale pharmaceutical distribution facilities in the United
States, ranging in size from approximately 53,000 square feet to 310,000 square feet, with an
aggregate of approximately 4.7 million square feet. Leased facilities are located in Puerto Rico
plus the following states: Arizona, California, Colorado, Florida,
Hawaii, Minnesota, New Jersey, New
York, North Carolina, Utah, and Washington. Owned facilities are located in the following states:
Alabama, California, Georgia, Illinois, Kentucky, Massachusetts, Michigan, Missouri, Ohio,
Pennsylvania, Texas and Virginia. As of September 30, 2009, ABDC had 8 wholesale pharmaceutical
distribution facilities in Canada. Two of these facilities are owned and are located in the
provinces of Newfoundland and Ontario. Six of these locations are leased and located in the
provinces of Alberta, British Columbia, Nova Scotia, Ontario, and Quebec.
As of September 30, 2009, the Specialty Groups operations were conducted in 23 locations, two
of which are owned, comprising of approximately 1.4 million square feet. The Specialty Groups
largest leased facility consisted of approximately 276,000 square feet. Its headquarters are
located in Texas and it has significant operations in the states of Alabama, Kentucky, Nevada,
North Carolina, and Ohio.
As of September 30, 2009, the Packaging Groups operations in the U.S. consisted of 3 owned
facilities and 5 leased facilities totaling approximately 1.3 million square feet. The Packaging
Groups operations in the U.S. are primarily located in the states of Illinois and Ohio. The
Packaging Groups operations in the United Kingdom are located in 8 owned building units comprising
a total of 103,000 square feet.
We consider all of our operating and office properties to be in satisfactory condition.
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
Legal proceedings in which we are involved are discussed in Note 13 (Legal Matters and
Contingencies) of the Notes to the Consolidated Financial Statements appearing in this Annual
Report on Form 10-K.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There were no matters submitted to a vote of security holders for the quarter ended
September 30, 2009.
14
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of our principal executive officers and their ages and positions as of
November 1, 2009. Each executive officer serves at the pleasure of our board of directors.
|
|
|
|
|
|
|
Name |
|
Age |
|
Current Position with the Company |
R. David Yost
|
|
|
62 |
|
|
President, Chief Executive Officer and Director |
Michael D. DiCandilo
|
|
|
48 |
|
|
Executive Vice President and Chief Financial Officer |
Steven H. Collis
|
|
|
48 |
|
|
Executive Vice President and President, AmerisourceBergen Drug Corporation |
John G. Chou
|
|
|
53 |
|
|
Senior Vice President, General Counsel and Secretary |
Jeanne B. Fisher
|
|
|
68 |
|
|
Senior Vice President, Human Resources |
Unless indicated to the contrary, the business experience summaries provided below for our
executive officers describe positions held by the named individuals during the last five years.
Mr. Yost has been Chief Executive Officer and a Director of the Company since August 2001 and
was President of the Company until October 2002. He again assumed the position of President of the
Company in September 2007. He was Chief Executive Officer of AmeriSource Health Corporation from
May 1997 until August 2001 and Chairman of the Board of AmeriSource from December 2000 until August
2001. Mr. Yost has been employed by the Company or one of its predecessors for 35 years.
Mr. DiCandilo has been Chief Financial Officer of the Company since March 2002 and an
Executive Vice President of the Company since May 2005. From May 2008 to September 2009, he was
also Chief Operating Officer of AmerisourceBergen Drug Corporation. From March 2002 to May 2005,
Mr. DiCandilo was a Senior Vice President. Mr. DiCandilo has been employed by the Company or one of
its predecessors for 19 years.
Mr. Collis was named Executive Vice President and President of AmerisourceBergen Drug
Corporation in September 2009. He was Executive Vice President and President of AmerisourceBergen
Specialty Group from September 2007 to September 2009 and was Senior Vice President of the Company
and President of AmerisourceBergen Specialty Group from August 2001 to September 2007. Mr. Collis
has been employed by the Company or one of its predecessors for 15 years.
Mr. Chou was named Senior Vice President and General Counsel of the Company in January 2007.
He has served as Secretary of the Company since February 2006. He was Vice President and Deputy
General Counsel from November 2004 to January 2007 and Associate General Counsel from July 2002 to
November 2004. Mr. Chou has been employed by the Company for 7 years.
Ms. Fisher has been Senior Vice President, Human Resources since January 2003. Ms. Fisher has
been employed by the Company for 6 years.
15
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES |
The Companys common stock is traded on the New York Stock Exchange (NYSE) under the trading
symbol ABC. As of October 31, 2009, there were 3,872 record holders of the Companys common
stock. The following table sets forth the high and low closing sale prices of the Companys common
stock for the periods indicated.
PRICE RANGE OF COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
Fiscal Year Ended September 30, 2009 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
18.50 |
|
|
$ |
13.74 |
|
Second Quarter |
|
$ |
19.38 |
|
|
$ |
14.10 |
|
Third Quarter |
|
$ |
18.93 |
|
|
$ |
16.26 |
|
Fourth Quarter |
|
$ |
22.38 |
|
|
$ |
17.72 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2008 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
23.56 |
|
|
$ |
21.42 |
|
Second Quarter |
|
$ |
23.86 |
|
|
$ |
19.55 |
|
Third Quarter |
|
$ |
21.20 |
|
|
$ |
19.50 |
|
Fourth Quarter |
|
$ |
21.58 |
|
|
$ |
18.83 |
|
On June 15, 2009, the Company effected a two-for-one stock split of the Companys outstanding
shares of common stock. The stock split occurred in the form of a stock dividend, where each
stockholder received one additional share for each share owned. The stock dividend was payable to
stockholders of record at the close of business on May 29, 2009.
During the fiscal year ended September 30, 2008, the Company paid quarterly cash dividends of
$0.0375. On November 13, 2008, the Companys board of directors increased the quarterly dividend
by 33% and declared a cash dividend of $0.05 per share. During the first three quarters of the
fiscal year ended September 30, 2009, the Company paid quarterly cash dividends of $0.05 per share.
During the fourth quarter of the fiscal year ended September 30, 2009, the Company increased the
quarterly cash dividend by 20% and paid a quarterly cash dividend of $0.06 per share. On November
12, 2009, our board of directors increased the quarterly dividend again by 33% from $0.06 per share
to $0.08 per share. The Company anticipates that it will continue to pay quarterly cash dividends
in the future. However, the payment and amount of future dividends remain within the discretion of
the Companys board of directors and will depend upon the Companys future earnings, financial
condition, capital requirements and other factors.
On
November 12, 2009, the Company amended its rights agreement to
accelerate the expiration date of
all outstanding rights issued under the rights agreement. As a result, any and all rights issued under the rights
agreement expired and were no longer outstanding as of the close of business on November 20, 2009.
BNY Mellon is the Companys transfer agent. BNY Mellon can be reached at (mail)
AmerisourceBergen Corporation c/o BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA
15252-8015; (telephone): Domestic 1-877-296-3711, Domestic TDD 1-800-231-5469, International
1-201-680-6578 or International TDD 1-201-680-6610; (internet) www.bnymellon.com/shareowner/isd;
and (e-mail) Shrrelations@bnymellon.com.
16
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth the total number of shares purchased, the average price paid
per share, the total number of shares purchased as part of publicly announced programs, and the
approximate dollar value of shares that may yet be purchased under the programs during each month
in the fiscal year ended September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Shares that May |
|
|
|
Total |
|
|
Average Price |
|
|
as Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Number of |
|
|
Paid per |
|
|
Announced |
|
|
Under the |
|
Period |
|
Shares Purchased |
|
|
Share |
|
|
Programs |
|
|
Programs |
|
October 1 to October 31 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
18,079,594 |
|
November 1 to November 30 |
|
|
3,454,952 |
|
|
$ |
14.56 |
|
|
|
3,454,952 |
|
|
$ |
467,760,715 |
|
December 1 to December 31 |
|
|
2,457,400 |
|
|
$ |
15.44 |
|
|
|
2,457,400 |
|
|
$ |
429,807,858 |
|
January 1 to January 31 |
|
|
2,149,600 |
|
|
$ |
18.60 |
|
|
|
2,149,600 |
|
|
$ |
389,834,257 |
|
February 1 to February 28 |
|
|
2,407,848 |
|
|
$ |
18.37 |
|
|
|
2,282,600 |
|
|
$ |
348,037,057 |
|
March 1 to March 31 |
|
|
646,760 |
|
|
$ |
15.06 |
|
|
|
644,600 |
|
|
$ |
338,331,537 |
|
April 1 to April 30 |
|
|
1,216 |
|
|
$ |
16.33 |
|
|
|
|
|
|
$ |
338,331,537 |
|
May 1 to May 31 |
|
|
3,688,974 |
|
|
$ |
18.27 |
|
|
|
3,688,602 |
|
|
$ |
270,930,912 |
|
June 1 to June 30 |
|
|
1,453,100 |
|
|
$ |
18.23 |
|
|
|
1,453,100 |
|
|
$ |
244,440,955 |
|
July 1 to July 31 |
|
|
1,225 |
|
|
$ |
17.72 |
|
|
|
|
|
|
$ |
244,440,955 |
|
August 1 to August 31 |
|
|
3,952,919 |
|
|
$ |
20.27 |
|
|
|
3,952,919 |
|
|
$ |
164,311,879 |
|
September 1 to September 30 |
|
|
4,474,591 |
|
|
$ |
21.51 |
|
|
|
4,474,591 |
|
|
$ |
68,083,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
24,688,585 |
|
|
$ |
18.33 |
|
|
|
24,558,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In May 2007, the Company announced a program to purchase up to $850 million of its
outstanding shares of common stock, subject to market conditions. In November 2007, the
Companys board of directors authorized an increase to the $850 million repurchase program by
$500 million, subject to market conditions. During the fiscal year ended September 30, 2009,
the Company purchased 1.2 million shares to complete this program. |
|
(b) |
|
In November 2008, the Company announced a new program to purchase up to $500 million
of its outstanding shares of common stock, subject to market conditions. During the fiscal
year ended September 30, 2009, the Company purchased 23.3 million shares under this program
for $431.9 million. There is no expiration date related to this new program. |
|
(c) |
|
Employees surrendered 130,221 shares during the fiscal year ended September 30, 2009 to meet
tax-withholding obligations upon vesting of restricted stock. |
17
STOCK PERFORMANCE GRAPH
This graph depicts the Companys five year cumulative total stockholder returns relative to
the performance of an index of peer companies selected by the Company and of the Standard and
Poors 500 Composite Stock Index from the market close on September 30, 2004 to September 30, 2009.
The graph assumes $100 invested at the closing price of the common stock of the Company and of each
of the other indices on the New York Stock Exchange on September 30, 2004. The points on the graph
represent fiscal year-end index levels based on the last trading day in each fiscal quarter. The
historical prices of the Companys common stock reflect the downward adjustment of approximately 3%
that was made by the NYSE in all of the historical prices to reflect the divestiture of Long-Term
Care. The Peer Group index (which is weighted on the basis of market capitalization) consists of
the following companies engaged primarily in wholesale pharmaceutical distribution and related
services: Cardinal Health, Inc. and McKesson Corporation.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG AMERISOURCEBERGEN CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
18
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following table should be read in conjunction with the consolidated financial statements,
including the notes thereto, and Managements Discussion and Analysis of Financial Condition and
Results of Operations beginning on page 21. On June 15, 2009 and December 28, 2005, the Company
effected two-for-one stock splits of its outstanding shares of common stock in the form of a 100%
stock dividend. All applicable share and per-share amounts were retroactively adjusted to reflect
these stock splits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the fiscal year ended September 30, |
|
|
|
2009 (a) |
|
|
2008 (b) |
|
|
2007 (c) |
|
|
2006 (d) |
|
|
2005 (e) |
|
|
|
(amounts in thousands, except per share amounts) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
70,052,006 |
|
|
$ |
67,518,933 |
|
|
$ |
61,266,792 |
|
|
$ |
56,282,216 |
|
|
$ |
49,640,785 |
|
Bulk deliveries to customer warehouses |
|
|
1,707,984 |
|
|
|
2,670,800 |
|
|
|
4,405,280 |
|
|
|
4,530,205 |
|
|
|
4,564,723 |
|
Total revenue |
|
|
71,759,990 |
|
|
|
70,189,733 |
|
|
|
65,672,072 |
|
|
|
60,812,421 |
|
|
|
54,205,508 |
|
Gross profit |
|
|
2,100,075 |
|
|
|
2,047,002 |
|
|
|
2,219,059 |
|
|
|
2,121,616 |
|
|
|
1,864,822 |
|
Operating expenses |
|
|
1,216,326 |
|
|
|
1,219,141 |
|
|
|
1,430,322 |
|
|
|
1,428,732 |
|
|
|
1,290,944 |
|
Operating income |
|
|
883,749 |
|
|
|
827,861 |
|
|
|
788,737 |
|
|
|
692,884 |
|
|
|
573,878 |
|
Interest expense, net |
|
|
58,307 |
|
|
|
64,496 |
|
|
|
32,244 |
|
|
|
12,464 |
|
|
|
57,223 |
|
Income from continuing operations |
|
|
511,852 |
|
|
|
469,064 |
|
|
|
474,803 |
|
|
|
434,463 |
|
|
|
253,760 |
|
Net income |
|
|
503,397 |
|
|
|
250,559 |
|
|
|
469,167 |
|
|
|
467,714 |
|
|
|
264,645 |
|
Earnings per share from continuing
operationsdiluted (f)(g) |
|
$ |
1.69 |
|
|
$ |
1.44 |
|
|
$ |
1.26 |
|
|
$ |
1.05 |
|
|
$ |
0.59 |
|
Earnings per sharediluted (b)(f)(g) |
|
$ |
1.66 |
|
|
$ |
0.77 |
|
|
$ |
1.25 |
|
|
$ |
1.13 |
|
|
$ |
0.62 |
|
Cash dividends declared per common share (a) |
|
$ |
0.21 |
|
|
$ |
0.15 |
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.025 |
|
Weighted average common shares outstandingdiluted |
|
|
302,754 |
|
|
|
324,920 |
|
|
|
375,772 |
|
|
|
414,892 |
|
|
|
431,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,009,368 |
|
|
$ |
878,114 |
|
|
$ |
640,204 |
|
|
$ |
1,261,268 |
|
|
$ |
966,553 |
|
Short-term investment securities available for sale |
|
|
|
|
|
|
|
|
|
|
467,419 |
|
|
|
67,840 |
|
|
|
349,130 |
|
Accounts receivable, net |
|
|
3,916,509 |
|
|
|
3,480,267 |
|
|
|
3,415,772 |
|
|
|
3,364,806 |
|
|
|
2,586,253 |
|
Merchandise inventories |
|
|
4,972,820 |
|
|
|
4,211,775 |
|
|
|
4,097,811 |
|
|
|
4,418,717 |
|
|
|
4,000,611 |
|
Property and equipment, net |
|
|
619,238 |
|
|
|
552,159 |
|
|
|
493,647 |
|
|
|
497,959 |
|
|
|
500,532 |
|
Total assets |
|
|
13,572,740 |
|
|
|
12,217,786 |
|
|
|
12,310,064 |
|
|
|
12,783,920 |
|
|
|
11,381,174 |
|
Accounts payable |
|
|
8,517,162 |
|
|
|
7,326,580 |
|
|
|
6,964,594 |
|
|
|
6,474,210 |
|
|
|
5,274,591 |
|
Long-term debt, including current portion |
|
|
1,178,001 |
|
|
|
1,189,131 |
|
|
|
1,227,553 |
|
|
|
1,095,491 |
|
|
|
952,711 |
|
Stockholders equity |
|
|
2,716,469 |
|
|
|
2,710,045 |
|
|
|
3,099,720 |
|
|
|
4,141,157 |
|
|
|
4,280,357 |
|
Total liabilities and stockholders equity |
|
$ |
13,572,740 |
|
|
$ |
12,217,786 |
|
|
$ |
12,310,064 |
|
|
$ |
12,783,920 |
|
|
$ |
11,381,174 |
|
|
|
|
(a) |
|
Includes $3.4 million of facility consolidations, employee severance and other costs, net
of income tax benefit of $2.0 million, intangible asset impairment charges of $7.3 million,
net of income tax benefit of $4.5 million, and an influenza vaccine inventory write-down of
$9.6 million, net of income tax benefit of $5.9 million. |
|
(b) |
|
Includes $7.6 million of facility consolidations, employee severance and other costs, net of
income tax benefit of $4.8 million, a $2.1 million gain from antitrust litigation settlements,
net of income tax expense of $1.4 million, and an intangible asset impairment charge of $3.3
million, net of income tax benefit of $2.0 million. In fiscal 2008, the Company recorded a
non-cash charge to reduce the carrying value of PMSI by $224.9 million, net of income tax
benefit of $0.9 million. This non-cash charge, which is reflected in discontinued operations,
reduced diluted earnings per share by $0.69. |
|
(c) |
|
Includes $5.0 million of facility consolidations, employee severance and other costs, net of
income tax expense of $2.9 million and a $22.1 million gain from antitrust litigation
settlements, net of income tax expense of $13.7 million and also includes a $17.5 million
charge relating to the write-down of tetanus-diphtheria vaccine inventory to its estimated net
realizable value, net of income tax benefit of $10.3 million. |
|
|
|
As a result of the July 31, 2007 divestiture of Long-Term Care, the statement of
operations data includes the operations of Long-Term Care for the ten months ended July 31,
2007 and the September 30, 2007 balance sheet data excludes Long-Term Care. |
|
(d) |
|
Includes $14.2 million of facility consolidations, employee severance and other costs, net of
income tax benefit of $5.9 million, a $25.8 million gain from antitrust litigation
settlements, net of income tax expense of $15.1 million, and a $4.1 million gain on the sale
of an equity investment and an eminent domain settlement, net of income tax expense of $2.4
million. |
19
|
|
|
(e) |
|
Includes $14.0 million of facility consolidations, employee severance and other costs, net of
income tax benefit of $8.7 million, a $71.4 million loss on early retirement of debt, net of
income tax benefit of $40.5 million, a $24.7 million gain from antitrust litigation
settlements, net of income tax expense of $15.4 million and an impairment charge of $3.2
million, net of income tax benefit of $2.1 million. |
|
(f) |
|
Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standard
123R, using the modified-prospective transition method, and therefore, began to expense the
fair value of all outstanding stock options over their remaining vesting periods to the extent
the options were not fully vested as of the adoption date and began to expense the fair value
of all share-based compensation awards granted subsequent to September 30, 2005 over their
requisite service periods. Had the Company expensed share-based compensation for the fiscal
year ended September 30, 2005, diluted earnings per share would
have been lower by $0.01. |
|
(g) |
|
Effective October 1, 2004, the Company changed its accounting method of recognizing cash
discounts and other related manufacturer incentives. The Company recorded a $10.2 million
charge for the cumulative effect of change in accounting (net of income tax benefit of $6.3
million) in the consolidated statement of operations for the fiscal year ended September 30,
2005. The $10.2 million charge reduced diluted earnings per share by $0.02 for the fiscal year
ended September 30, 2005. |
20
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
Overview
The following discussion should be read in conjunction with the consolidated financial
statements and notes thereto contained herein.
We are a pharmaceutical services company providing drug distribution and related healthcare
services and solutions to our pharmacy, physician, and manufacturer customers, which are based
primarily in the United States and Canada. We are organized based upon the products and services we
provide to our customers. Substantially all of our operations are located in the United States and
Canada. We also have a pharmaceutical packaging operation in the United Kingdom.
In May 2009, we declared a two-for-one stock split of our outstanding shares of common stock.
The stock split occurred in the form of a 100% stock dividend, whereby each stockholder received
one additional share for each share owned. The shares were distributed on June 15, 2009 to
stockholders of record at the close of business on May 29, 2009. All applicable share and per share
data in this Managements Discussion and Analysis of Financial Condition and Results of Operations
have been retroactively adjusted to give effect to this stock split.
Acquisition
In May 2009, we acquired Innomar Strategies Inc. (Innomar), a Canadian specialty
pharmaceutical services company, for a purchase price of $13.4 million, net of a working capital
adjustment. Innomar provides services within Canada to pharmaceutical biotechnology companies,
including strategic consulting and access solutions, specialty logistics management, patient
assistance and nursing services, and clinical research services. The acquisition of Innomar
expanded our specialty business in Canada.
Divestitures
In October 2008, we completed the divestiture of our former workers compensation business,
PMSI. We classified PMSIs assets and liabilities as held for sale in the consolidated balance
sheet as of September 30, 2008 and classified PMSIs operating results and cash flows as
discontinued in the consolidated financial statements for all periods presented.
We sold PMSI for approximately $31 million, net of a final working capital adjustment, which
includes a $19 million subordinated note due from PMSI on the fifth anniversary of the closing date
(the maturity date), of which $4 million may be payable in October 2010 if PMSI achieves certain
revenue targets with respect to its largest customer. Interest, which accrues at an annual rate of
LIBOR plus 4% (not to exceed 8%), will be payable in cash on a quarterly basis if PMSI achieves a
defined minimum fixed charge coverage ratio, or will be compounded quarterly and paid at maturity.
Additionally, if PMSIs annual net revenue exceeds certain thresholds through December 2011, we may
be entitled to additional payments of up to $10 million under the subordinated note due from PMSI
on the maturity date of the note.
On July 31, 2007, we completed the spin-off of our former institutional pharmacy business,
PharMerica Long-Term Care (Long-Term Care). In connection with the spin-off, we continue to
distribute pharmaceuticals to and generate cash flows from the disposed institutional pharmacy
business. The historical operating results of Long-Term Care are not reported as a discontinued
operation because of the significance of the continuing cash flows resulting from the
pharmaceutical distribution agreement entered into between the disposed component and us. For
periods prior to August 1, 2007, our operating results include Long-Term Care.
21
Reportable Segments
Our operations are currently comprised of one reportable segment, Pharmaceutical Distribution.
The Other reportable segment included the operating results of Long-Term Care, through the July 31,
2007 spin-off date. The operating results of PMSI, which was sold in October 2008, were
reclassified to discontinued operations.
Pharmaceutical Distribution
The Pharmaceutical Distribution reportable segment is comprised of three operating segments,
which include the operations of AmerisourceBergen Drug Corporation (ABDC), AmerisourceBergen
Specialty Group (ABSG), and AmerisourceBergen Packaging Group (ABPG). Servicing both
healthcare providers and pharmaceutical manufacturers in the pharmaceutical supply channel, the
Pharmaceutical Distribution segments operations provide drug distribution and related services
designed to reduce healthcare costs and improve patient outcomes.
ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals,
over-the-counter healthcare products, home healthcare supplies and equipment, and related services
to a wide variety of healthcare providers, including acute care hospitals and health systems,
independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and
other alternate site pharmacies, and other customers. ABDC also provides pharmacy management,
staffing and other consulting services; scalable automated pharmacy dispensing equipment;
medication and supply dispensing cabinets; and supply management software to a variety of retail
and institutional healthcare providers.
ABSG, through a number of individual operating businesses, provides pharmaceutical
distribution and other services primarily to physicians who specialize in a variety of disease
states, especially oncology, and to other healthcare providers, including dialysis clinics. ABSG
also distributes vaccines, other injectables, and plasma and other blood products. In addition,
through its specialty service businesses, ABSG provides drug commercialization services, third
party logistics, and other services for biotech and other pharmaceutical manufacturers, as well as
reimbursement consulting, data analytics, outcomes research, practice management, group purchasing
services for physician practices, and physician education.
ABPG consists of American Health Packaging, Anderson Packaging (Anderson), and Brecon
Pharmaceuticals Limited (Brecon). American Health Packaging delivers unit dose, punch card,
unit-of-use, and other packaging solutions to institutional and retail healthcare providers.
American Health Packagings largest customer is ABDC, and, as a result, its operations are closely
aligned with the operations of ABDC. Anderson is a leading provider of contracted packaging
services for pharmaceutical manufacturers. Brecon is a United Kingdom-based provider of contract
packaging and clinical trials materials services for pharmaceutical manufacturers.
Other
Prior to its divestiture, Long-Term Care was a leading national dispenser of pharmaceutical
products and services to patients in long-term care and alternate site settings, including skilled
nursing facilities, assisted living facilities and residential living communities. Long-Term Cares
institutional pharmacy business involved the purchase of prescription and nonprescription
pharmaceuticals, principally from our Pharmaceutical Distribution segment, and the dispensing of
those products to residents in long-term care and alternate site facilities.
22
AmerisourceBergen Corporation
Summary Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Total Revenue |
|
|
vs. |
|
|
vs. |
|
|
|
Fiscal year ended September 30, |
|
|
2008 |
|
|
2007 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
Pharmaceutical Distribution |
|
$ |
71,759,990 |
|
|
$ |
70,189,733 |
|
|
$ |
65,340,623 |
|
|
|
2 |
% |
|
|
7 |
% |
Other (a) |
|
|
|
|
|
|
|
|
|
|
1,045,663 |
|
|
|
N/M |
|
|
|
N/M |
|
Intersegment eliminations |
|
|
|
|
|
|
|
|
|
|
(714,214 |
) |
|
|
N/M |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
71,759,990 |
|
|
$ |
70,189,733 |
|
|
$ |
65,672,072 |
|
|
|
2 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Operating Income |
|
|
vs. |
|
|
vs. |
|
|
|
Fiscal year ended September 30, |
|
|
2008 |
|
|
2007 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
Pharmaceutical Distribution |
|
$ |
889,155 |
|
|
$ |
836,747 |
|
|
$ |
729,978 |
|
|
|
6 |
% |
|
|
15 |
% |
Other (a) |
|
|
|
|
|
|
|
|
|
|
24,994 |
|
|
|
N/M |
|
|
|
N/M |
|
Facility consolidations, employee severance and other |
|
|
(5,406 |
) |
|
|
(12,377 |
) |
|
|
(2,072 |
) |
|
|
(56 |
) |
|
|
497 |
|
Gain on antitrust litigation settlements |
|
|
|
|
|
|
3,491 |
|
|
|
35,837 |
|
|
|
(100 |
) |
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
883,749 |
|
|
$ |
827,861 |
|
|
$ |
788,737 |
|
|
|
7 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of total revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2.93 |
% |
|
|
2.91 |
% |
|
|
2.87 |
% |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
1.69 |
% |
|
|
1.72 |
% |
|
|
1.75 |
% |
|
|
|
|
|
|
|
|
Operating income |
|
|
1.24 |
% |
|
|
1.19 |
% |
|
|
1.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
N/M |
|
|
|
N/M |
|
|
|
29.37 |
% |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
N/M |
|
|
|
N/M |
|
|
|
26.98 |
% |
|
|
|
|
|
|
|
|
Operating income |
|
|
N/M |
|
|
|
N/M |
|
|
|
2.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AmerisourceBergen Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2.93 |
% |
|
|
2.92 |
% |
|
|
3.38 |
% |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
1.69 |
% |
|
|
1.74 |
% |
|
|
2.18 |
% |
|
|
|
|
|
|
|
|
Operating income |
|
|
1.23 |
% |
|
|
1.18 |
% |
|
|
1.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other represents Long-Term Cares operating results for the ten-month period ended
July 31, 2007. |
Year ended September 30, 2009 compared with Year ended September 30, 2008
Operating Results
Total revenue of $71.8 billion in fiscal 2009, which includes bulk deliveries to customer
warehouses, increased 2% from the prior fiscal year. This increase was due to the 7% growth of ABSG
and the 1.8% growth of ABDC, which was impacted by the July 1, 2008 loss of certain business
(approximately $3 billion on an annualized basis) with a national retail drug chain customer.
Excluding the loss of the above-mentioned business, total revenue in fiscal 2009 would have
increased by 5% from the prior fiscal year. During fiscal 2009 and 2008, 68% of total revenue was
from sales to institutional customers and 32% was from sales to retail customers. Sales to
institutional customers increased 5% in the current fiscal year primarily due to the growth of ABSG
and the addition of a new large hospital buying group customer. Sales to retail customers
decreased 4% in the current fiscal year as the loss of the above mentioned national chain business
was offset, in part, by market growth and the addition of a new large independent retail buying
group customer.
We report as revenue bulk deliveries to customer warehouses, whereby we act as an intermediary
in the ordering and delivery of pharmaceutical products. Bulk delivery transactions are arranged by
us at the express direction of the customer, and involve either shipments from the supplier
directly to customers warehouse sites (i.e., drop shipment) or shipments from the supplier to us
for immediate shipment to the customers warehouse sites (i.e., cross-dock shipment). Bulk
deliveries of $1.7 billion in fiscal 2009 decreased 36% from the prior fiscal year. This decline
was due to the prior year transition of a significant amount of business previously conducted on a
bulk delivery basis with our largest customer to an operating revenue basis. We are a principal to
bulk delivery transactions because we are the primary obligor and have the ultimate responsibility
for fulfillment and acceptability of the products purchased, and bear full risk of delivery and
loss for products, whether the products are drop-shipped or shipped cross-dock. We also bear full
credit risk associated with the creditworthiness of any bulk delivery customer. As a result, we
record bulk deliveries to customer warehouses as gross revenues. Due to the insignificant service fees generated from
bulk deliveries, fluctuations in volume have no significant impact on our operating margins.
However, revenue from bulk deliveries has a positive impact on our cash flows due to favorable
timing between customer payments to us and payments by us to our suppliers.
23
ABDCs total revenue in fiscal 2009 increased by 1.8% from the prior fiscal year, primarily
due to revenue from two new large customers, and was partially offset by the loss of certain
business with a large retail drug chain customer, as mentioned above.
ABSGs total revenue in fiscal 2009 of $15.6 billion increased 7% from the prior fiscal year
due to good growth broadly across its distribution and service businesses, offset in part, by
declining anemia drug sales (see paragraph below). The majority of ABSGs revenue is generated from
the distribution of pharmaceuticals to physicians who specialize in a variety of disease states,
especially oncology. ABSG also distributes vaccines, plasma and other blood products. ABSGs
business may be adversely impacted in the future by changes in medical guidelines and the Medicare
reimbursement rates for certain pharmaceuticals, including oncology drugs administered by
physicians and anemia drugs. Since ABSG provides a number of services to or through physicians, any
changes affecting this service channel could result in slower or reduced growth in revenues.
Revenue related to the distribution of anemia-related products, which represented 5% of total
revenue in fiscal 2009, decreased approximately 7% from the prior fiscal year. The decline in sales
of anemia-related products has been most pronounced in the use of these products for cancer
treatment. Sales of oncology-related anemia products represented approximately 1.8% of total
revenue in fiscal 2009, and decreased approximately 25% from the prior fiscal year. Several
developments have contributed to the decline in sales of anemia drugs, including expanded warning
and other product safety labeling requirements, more restrictive federal policies governing
Medicare reimbursement for the use of these drugs to treat oncology patients undergoing dialysis or
experiencing kidney failure, and changes in regulatory and clinical medical guidelines for
recommended dosage and use. As a result, oncology-related anemia drug sales have declined further
in fiscal 2009 from our fiscal 2008 total. In addition, the U.S. Food and Drug Administration
(FDA) is continuing to review clinical study data concerning the possible risks associated with
certain anemia products and the Centers for Medicare and Medicaid Services (CMS) announced last
year that it is considering a review of national Medicare policy for these drugs for patients who
have cancer or pre-dialysis kidney disease. The FDA or CMS may take additional action regarding the
use, safety labeling and/or Medicare coverage of these drugs in the future. Further changes in
medical guidelines for anemia drugs may impact the availability and extent of reimbursement for
these drugs from third party payors, including federal and state governments and private insurance
plans. Our future revenue growth rate and/or profitability may continue to be impacted by any
future reductions in reimbursement for anemia drugs or changes that limit the dosage and/or use of
anemia drugs.
We expect that our total revenue growth in fiscal 2010 for ABDC and ABSG will be between 5%
and 7%. Due to the addition of two significant new customers in March
and April 2009, we
expect revenue growth will be higher in the first half of fiscal 2010
than in the second half. Our expected growth
reflects U.S. pharmaceutical industry conditions, including increases in prescription drug
utilization, the introduction of new products, and higher branded pharmaceutical prices, offset, in
part, by the increased use of lower-priced generics. Our growth has also been impacted by industry
competition and changes in customer mix. Industry sales in the United States, as recently estimated
by industry data firm IMS Healthcare, Inc. (IMS), are expected to grow between 3% and 5% in
calendar 2010. IMS expects that certain sectors of the market, such as biotechnology and other
specialty and generic pharmaceuticals, will grow faster than the overall market. Additionally, IMS
expects the U.S. pharmaceutical industry to grow annually in the low to mid-single digit
percentages through 2013. Our future revenue growth will continue to be affected by various
factors such as industry growth trends, including the likely increase in the number of generic
drugs that will be available over the next few years as a result of the expiration of certain drug
patents held by brand manufacturers, general economic conditions in the United States, competition
within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and
distribution policies and practices, increased downward pressure on reimbursement rates, and
changes in federal government rules and regulations.
Gross profit of $2.1 billion in fiscal 2009 increased by $53.1 million or 3% from the prior
fiscal year. This increase was primarily due to the strong growth and increased profitability of
our generic programs, including specialty generics (with generic revenue increasing by15% in
comparison to the prior fiscal year), increased contributions from our fee-for-service agreements
(including $10.2 million of fees relating to prior period sales resulting from the execution of new
agreements in the quarter ended December 31, 2008), and good growth from ABSGs businesses, all of
which was offset, in part, by ABSGs $15.5 million write-down of influenza vaccine inventory in the
December 2008 quarter, and normal competitive pressures on customer margins in the current fiscal
year. Gross profit in fiscal 2009 benefited from a settlement of $1.8 million with a former
customer. Gross profit in the prior fiscal year benefited from a gain of $13.2 million relating to
favorable litigation settlements with a former customer and a major competitor, and an $8.6 million
settlement of disputed fees with a supplier, and was partially offset by an $8.4 million inventory
write-down of certain pharmacy equipment. Additionally, in the prior fiscal year, we recognized a
gain of $3.5 million from antitrust litigation settlements with pharmaceutical manufacturers. This
gain, which was excluded from the determination of Pharmaceutical Distribution segments gross
profit, was recorded as a reduction to cost of goods sold. The Company is unable to estimate
future gains, if any, it will recognize as a result of antitrust
settlements (see Note 14 of the Notes to the Consolidated Financial Statements). As a percentage of total revenue, gross profit in fiscal 2009
was 2.93%, an increase of 1 basis point from the prior fiscal year.
24
Our cost of goods sold includes a last-in, first-out (LIFO) provision that is affected by
changes in inventory quantities, product mix, and manufacturer pricing practices, which may be
impacted by market and other external influences. We recorded a LIFO
charge of $15.1 million and
$21.1 million in fiscal 2009 and 2008, respectively. The fiscal 2009 and 2008 LIFO charges reflect
brand-name supplier price inflation, which more than offset price deflation of generic drugs.
Operating expenses of $1.2 billion in fiscal 2009 declined by nearly $3.0 million when
compared to the prior fiscal year as a decrease in facility consolidations, employee severance and
other charges of $7.0 million, a decrease in depreciation and amortization expenses of
$3.2 million, and a decrease in asset impairment charges of $1.5 million were offset, in part, by
an increase in bad debt expense of $4.2 million. Asset impairment charges in the current fiscal
year included trade name impairment charges of $11.8 million and the write-off of certain
capitalized software totaling $2.8 million. Asset impairment charges in the prior fiscal year
included trade name impairment charges of $5.3 million related to certain of our smaller business
units and impairment charges related to capitalized equipment and software development costs
totaling $10.8 million, primarily due to ABDCs decision to abandon the use of certain software,
which will be replaced in connection with our Business Transformation project. Additionally,
expenses incurred in fiscal 2009 in connection with our Business Transformation project, which
includes a new enterprise resource planning (ERP) platform, increased by $13.8 million from the
prior fiscal year. As a result of our cE2 initiative described below, we have been able to
substantially offset these incremental costs by reducing our warehouse operating costs through
continuing productivity improvements and by streamlining our organizational structures within ABDC
and ABSG. As a percentage of total revenue, operating expenses were 1.69% and 1.74% in fiscal 2009
and 2008, respectively.
The following table illustrates the charges incurred relating to facility consolidations,
employee severance and other (which are excluded from the operating expenses of the Pharmaceutical
Distribution segment) for the fiscal years ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Facility consolidations and employee severance |
|
$ |
5,406 |
|
|
$ |
9,741 |
|
Costs relating to business divestitures |
|
|
|
|
|
|
2,636 |
|
|
|
|
|
|
|
|
Total facility consolidations, employee severance and other |
|
$ |
5,406 |
|
|
$ |
12,377 |
|
|
|
|
|
|
|
|
In fiscal 2008, we announced a more streamlined organizational structure and introduced
an initiative (cE2) designed to drive increased customer efficiency and cost effectiveness. In
connection with these efforts, we reduced various operating costs and terminated certain positions.
During fiscal 2009 and 2008, we terminated 197 and 130 employees and incurred $3.1 million and
$10.0 million of employee severance costs, respectively, relating to our cE2 initiative.
Additionally, in fiscal 2009, we recorded $2.2 million of additional expense relating to the Bergen
Brunswig Matter as described in Note 13 (Legal Matters and Contingencies) of the Notes to the
Consolidated Financial Statements. In fiscal 2008, we reversed $1.0 million of employee severance
charges previously estimated and recorded relating to a prior integration plan. Costs related to
business divestitures in fiscal 2008 related to the sale of our former workers compensation
business, PMSI.
We paid a total of $15.4 million and $6.8 million for employee severance, lease cancellation
and other costs in fiscal 2009 and 2008, respectively. Remaining unpaid amounts of $11.4 million
for employee severance, lease cancellation and other costs are included in accrued expenses and
other in the accompanying balance sheet at September 30, 2009. Employees receive their severance
benefits over a period of time, generally not in excess of 12 months, or in the form of a lump-sum
payment.
Operating income of $883.7 million in fiscal 2009 increased 7% from the prior fiscal year
primarily due to the increase in gross profit. As a percentage of total revenue, operating income
of 1.23% in fiscal 2009 increased 5 basis points from the prior fiscal year due to the 2% increase
in revenue while operating expense dollars remained relatively flat.
The costs of facility consolidations, employee severance and other, and the charges relating
to intangible asset impairments, less the gain on antitrust litigation settlements had the effect
of decreasing operating income as a percentage of total revenue by 2 basis points in each of fiscal
2009 and 2008.
25
Interest expense, interest income, and their respective weighted average interest rates in
fiscal 2009 and 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Interest expense |
|
$ |
63,502 |
|
|
|
4.88 |
% |
|
$ |
75,099 |
|
|
|
5.48 |
% |
Interest income |
|
|
(5,195 |
) |
|
|
0.85 |
% |
|
|
(10,603 |
) |
|
|
3.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
58,307 |
|
|
|
|
|
|
$ |
64,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense decreased from the prior fiscal year due to a decrease of $90.4 million
in average borrowings and a decrease in the weighted-average interest rate on borrowings under our
revolving credit facilities to 2.08% from 4.77% in the prior fiscal year. Interest income
decreased from the prior fiscal year primarily due to a decline in the weighted-average interest
rate, offset in part, by an increase in average invested cash of $218.5 million.
Our net interest expense in future periods may vary significantly depending upon changes in
net borrowings, interest rates, and strategic decisions to deploy our invested cash.
Income taxes in fiscal 2009 reflect an effective income tax rate of 37.9%, compared to 38.4%
in the prior fiscal year. Due to the impact of discrete tax events, we were able to recognize
certain federal and state tax benefits in fiscal 2009, thereby reducing our effective tax rate from
the prior fiscal year.
Income from continuing operations of $511.9 million in fiscal 2009 increased 9% from $469.1
million in the prior fiscal year due to the increase in operating income, the decrease in interest
expense and the reduction in the effective income tax rate. Diluted earnings per share from
continuing operations of $1.69 in fiscal 2009 increased 17% from $1.44 per share in the prior
fiscal year. The difference between diluted earnings per share growth and the increase in income
from continuing operations was due to the 7% reduction in weighted average common shares
outstanding resulting from purchases of our common stock in connection with our stock repurchase
program (see Liquidity and Capital Resources), net of the impact of stock option exercises.
Loss from discontinued operations, net of income taxes, in fiscal 2009 included a final PMSI
working capital adjustment of $2.8 million and costs in connection with a prior period business
disposition. Loss from discontinued operations, net of income taxes, in fiscal 2008 primarily
related to the PMSI business, and included a $224.8 million charge, net of income taxes, to reduce
its carrying value.
Year ended September 30, 2008 compared with Year ended September 30, 2007
Operating Results
Total revenue of $70.2 billion in fiscal 2008, which includes bulk deliveries to customer
warehouses, increased 7% from the prior fiscal year. This increase was driven by the
Pharmaceutical Distribution segment, which received a 3% contribution from the Bellco acquisition.
During fiscal 2008, 68% of total revenue was from sales to institutional customers and 32% was from
sales to retail customers; this compared to a customer mix in the prior fiscal year of 64%
institutional and 36% retail. In comparison to the prior fiscal year results, sales to
institutional customers increased 15% primarily due to the acquisition of Bellco (the revenue of
which is heavily weighted towards institutional customers) and the strong growth of certain large
customers. Sales to retail customers decreased 5% primarily due to our decision not to renew a
contract, effective January 2007, with a large retail customer and the July 1, 2008 loss of certain
business totaling approximately $3.0 billion of annual revenue from a large retail drug chain
customer.
Bulk deliveries of $2.7 billion in fiscal 2008 decreased 39% from the prior fiscal year. This
decline was due to the fiscal 2008 transition of a significant amount of business previously
conducted on a bulk delivery basis with our largest customer to an operating revenue basis.
Revenue relating to bulk deliveries fluctuates primarily due to changes in demand from our largest
bulk customer. Due to the insignificant service fees generated from bulk deliveries, fluctuations
in volume have no significant impact on operating margins. However, revenue from bulk deliveries
has a positive impact on our cash flows due to favorable timing between the customer payments to us
and payments by us to our suppliers.
ABDCs total revenue (excluding Bellco) increased by 5% in fiscal 2008 in comparison to the
prior fiscal year. This revenue growth was primarily due to the increase in sales to certain of
our large institutional customers, offset, in part, by the decline in retail customer revenue, as
discussed above.
ABSGs total revenue (excluding Bellco) of $13.0 billion in fiscal 2008 increased 3% compared
to the prior fiscal year primarily due to strong double-digit growth of its non-oncology
distribution businesses. Oncology distributions revenue, which
represented approximately 60% of
ABSGs total revenue, was flat compared to the prior fiscal year. ABSGs revenue growth was
affected primarily by declining anemia drug sales and by one of its large customers for oncology
drugs being acquired by a competitor in October 2007. The former customer contributed
approximately $800 million to ABSGs revenue in fiscal 2007. The majority of ABSGs revenue is generated from the distribution of pharmaceuticals, primarily injectibles,
to physicians who specialize in a variety of disease states, especially oncology. ABSG also
distributes vaccines, plasma, and other blood products.
26
Revenue related to the distribution of anemia-related products, which represented
approximately 5.8% of Pharmaceutical Distributions total revenue in fiscal 2008, decreased
approximately 23% from the prior fiscal year. The decline in sales of anemia-related products
since the second half of fiscal 2007 was most pronounced in the use of these products for
cancer treatment. Sales of oncology anemia-related products represented approximately 2.2% of
total revenue in fiscal 2008 and decreased approximately 32% from the prior fiscal year. Several
developments contributed to the decline in sales of anemia drugs, including expanded warning and
other product safety labeling requirements, more restrictive federal policies governing Medicare
reimbursement for the use of these drugs to treat oncology patients with kidney failure and
dialysis, and changes in regulatory and clinical medical guidelines for recommended dosage and use.
Gross profit of $2.0 billion in fiscal 2008 decreased 8% from the prior fiscal year. As a
percentage of total revenue, gross profit in fiscal 2008 was 2.92%, a decrease of 46 basis points
from the prior fiscal year. These declines were related to the Other segment, as the prior years
consolidated results included $307.1 million of gross profit from the operating results of
Long-Term Care through the July 31, 2007 spin-off date. The Other segment gross profit decrease
was offset, in part, by the 9% increase in the Pharmaceutical Distribution segments gross profit
in fiscal 2008, primarily due to revenue growth, growth of our generic programs, the acquisition of
Bellco, and strong brand-name manufacturer price appreciation. Fiscal 2008 gross profit benefited
from gains of $13.2 million relating to favorable litigation settlements with a former customer (an
independent retail group purchasing organization) and a major competitor and an $8.6 million
settlement of disputed fees with a supplier, and was offset, in part, by an $8.4 million inventory
write-down of certain pharmacy dispensing equipment. Fiscal 2007 gross profit was impacted by
ABSGs $27.8 million charge relating to the write-down of tetanus-diptheria vaccine inventory to
its estimated net realizable value. In fiscal 2008 and 2007, we recognized gains of $3.5 million
and $35.8 million, respectively, from antitrust litigation settlements with pharmaceutical
manufacturers. These gains, which are net of attorney fees and estimated payments due to other
parties, were recorded as reductions to cost of goods sold and contributed 0.2% and 1.6% of gross
profit in fiscal 2008 and 2007, respectively.
Our cost of goods sold includes a last-in, first out (LIFO) provision that is affected by
changes in inventory quantities, product mix, and manufacturer pricing practices, which may be
impacted by market and other external influences. We recorded a LIFO charge of $21.1 million and
$2.2 million in fiscal 2008 and 2007, respectively. The fiscal 2008 LIFO charge reflects greater
brand-name supplier price inflation, which more than offset the impact of price deflation of
generic drugs. During fiscal 2007, inventory declines resulted in liquidation of LIFO layers
carried at lower costs prevailing in the prior fiscal year. The effect of the liquidation in
fiscal 2007 was to decrease cost of goods sold by $7.2 million.
Consolidated
operating expenses of $1.2 billion in fiscal 2008 decreased by 15% from the prior
fiscal year. This decline was related to the Other segment, as the prior years consolidated
results included $282.1 million of operating expenses from the operating results of Long-Term Care
and was partially offset by operating expenses of our recent acquisitions, primarily those of
Bellco. Pharmaceutical Distribution operating expenses in fiscal 2008 increased by 5% from the
prior fiscal year. This increase was primarily related to the operating expenses of our recent
acquisitions, primarily those of Bellco. Additionally, Pharmaceutical Distribution operating
expenses in fiscal 2008 were impacted by ABDC impairment charges related to capitalized equipment
and software development costs totaling $10.8 million, primarily due to ABDCs decision to abandon
the use of certain software which will be replaced in connection with our Business Transformation
project. Pharmaceutical Distribution operating expenses in fiscal 2008 were also impacted by a
$5.3 million write-down of intangible assets related to certain smaller business units. As a
percentage of total revenue, Pharmaceutical Distribution operating expenses in fiscal 2008
decreased 3 basis points from the prior fiscal year due to improvements in operating leverage,
primarily in ABDC, where operating expenses declined despite an increase in total revenue, due to a
more streamlined organizational structure within ABDC and ABSG and the cost savings achieved
resulting from our cE2 initiative.
The following table illustrates the charges incurred relating to facility consolidations,
employee severance and other (which are excluded from the operating expenses of the Pharmaceutical
Distribution segment) for the fiscal years ended September 30, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Facility consolidations and employee severance |
|
$ |
9,741 |
|
|
$ |
(5,863 |
) |
Information technology transition costs |
|
|
|
|
|
|
1,679 |
|
Costs relating to business divestitures |
|
|
2,636 |
|
|
|
9,335 |
|
Gain on sale of assets |
|
|
|
|
|
|
(3,079 |
) |
|
|
|
|
|
|
|
Total facility consolidations, employee severance and other |
|
$ |
12,377 |
|
|
$ |
2,072 |
|
|
|
|
|
|
|
|
In fiscal 2008, we announced a more streamlined organizational structure and introduced
an initiative (cE2) designed to drive increased customer efficiency and cost effectiveness. In
connection with these efforts, we reduced various operating costs and terminated certain positions.
In fiscal 2008, we terminated approximately 130 employees and incurred $10.0 million of employee
severance costs, relating to the aforementioned efforts.
27
In fiscal 2007, we completed our integration plan to consolidate our distribution network and
eliminate duplicative administrative functions. The plan included building six new facilities,
closing 31 facilities and outsourcing a significant amount of our information technology
activities. In fiscal 2008, we reversed $1.0 million of employee severance charges previously
estimated and recorded related to this integration plan.
In fiscal 2006, we incurred a charge of $13.9 million for an increase in a compensation
accrual due to an adverse decision in an employment-related dispute with a former Bergen Brunswig
chief executive officer whose employment was terminated in 1999. In October 2007, we received a
favorable ruling from a California appellate court reversing certain portions of the prior adverse
decision. As a result, we reduced our liability in fiscal 2007 to the Bergen Brunswig chief
executive officer by $10.4 million (see Bergen Brunswig Matter
under Note 13 of Notes to the Consolidated
Financial Statements). The fiscal 2007 compensation expense reduction was recorded as a component
of facility consolidations and employee severance.
Costs related to business divestitures in fiscal 2008 and 2007 related to PMSI and the
Long-Term Care spin-off, respectively.
In fiscal 2007, we recognized a $3.1 million gain relating to the sale of certain retail
pharmacy assets of our former Long-Term Care business.
We paid a total of $6.8 million and $20.7 million for employee severance, lease cancellation
and other costs in fiscal year 2008 and 2007, respectively. Employees receive their severance
benefits over a period of time, generally not in excess of 12 months, or in the form of a lump-sum
payment.
Operating income of $827.9 million in fiscal 2008 increased 5% from the prior fiscal year due
to the 15% or $106.8 million increase in the Pharmaceutical Distribution segments operating
income, which was offset, in part, by a decrease of $32.3 million in gains from antitrust
litigation settlements, and an increase of $10.3 million in facility consolidation, employee
severance and other costs. Additionally, the prior fiscal year benefited from a $25.0 million
contribution from Long-Term Care, prior to its July 2007 spin-off. As a percentage of total
revenue, operating income in fiscal 2008 decreased 2 basis points from the prior fiscal year
despite Pharmaceutical Distributions operating income as a percentage of total revenue increasing
by 7 basis points. This increase was due to the improvements in the gross profit and operating
expense margins of the Pharmaceutical Distribution segment. The costs of facility consolidations,
employee severance and other, less the gain on antitrust litigation settlements, decreased
operating income by $8.9 million in fiscal 2008 and reduced operating income as a percentage of
total revenue by 1 basis point. The gain on antitrust litigation settlements, less the costs of
facility consolidations, employee severance and other, contributed $33.8 million to operating
income in fiscal 2007 and increased operating income as a percentage of total revenue by 5 basis
points. Long-Term Cares operating income in fiscal 2007 increased operating income as a
percentage of total revenue by 4 basis points.
Other loss of $2.0 million and $3.0 million in fiscal 2008 and 2007, respectively, primarily
related to other-than-temporary impairment losses incurred with respect to equity investments.
Interest expense, interest income and their respective weighted average interest rates in
fiscal 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Amount |
|
|
Interest Rate |
|
Interest expense |
|
$ |
75,099 |
|
|
|
5.48 |
% |
|
$ |
75,661 |
|
|
|
5.65 |
% |
Interest income |
|
|
(10,603 |
) |
|
|
3.33 |
% |
|
|
(43,417 |
) |
|
|
4.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
64,496 |
|
|
|
|
|
|
$ |
32,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense was relatively consistent when compared to the prior fiscal year as an
increase of $85.2 million in average borrowings was offset by the decline in the weighted average
interest rate. Interest income decreased substantially from the prior fiscal year primarily due to
a decline in average invested cash and short-term investments from $976.2 million during the prior
fiscal year to $309.5 million during fiscal 2008.
The decrease in invested cash and short-term investments from the prior fiscal year was
primarily due to our use of cash for share repurchases, acquisitions, and capital expenditures, all
of which, in the aggregate, exceeded our net cash provided by operating activities since the prior
fiscal year.
Income tax expense reflects an effective income tax rate of 38.4%, versus 37.0% in the prior
fiscal year. The increase in the effective tax rate from the prior fiscal year was primarily due
to the company having benefited less in the current year from tax-free investment income.
28
Income from continuing operations of $469.1 million in fiscal 2008 decreased 1% from $474.8
million in the prior fiscal year. The 5% increase in 2008 operating income was offset by the
increase in net interest expense and the increase in the effective income tax rate. Diluted
earnings per share from continuing operations of $1.44 increased 14% from $1.26 per share in the
prior fiscal year. The difference between diluted earnings per share growth and the decline in
income from continuing operations was due to the 14% reduction in weighted average common shares
outstanding from purchases of our common stock in connection with our stock repurchase program (see
Liquidity and Capital Resources), net of the impact of stock option exercises. The costs of
facility consolidations, employee severance and other, less the gain on antitrust litigation
settlements decreased income from continuing operations by $5.5 million and decreased diluted
earnings per share by $0.02 in fiscal 2008. The gain on antitrust litigation settlements less the
costs of facility consolidations, employee severance and other contributed $17.0 million to income
from continuing operations and $0.05 to diluted earnings per share in fiscal 2007. Additionally,
the inclusion of Long-Term Cares operating results in fiscal 2007 increased diluted earnings per
share from continuing operations by $0.04.
The loss from discontinued operations of $218.5 million, net of income taxes, relates to the
PMSI business, which was sold in October 2008. The loss from discontinued operations in fiscal
2008 includes a $224.9 million charge, net of income taxes, recorded to reduce the carrying value
of PMSI. Loss from discontinued operations of $5.6 million, net of income taxes, in fiscal 2007
included a $24.6 million charge, net of income taxes, incurred by us related to an adverse court
ruling with respect to a contingent purchase price adjustment in connection with the 2003
acquisition of Bridge Medical, Inc. (Bridge). Substantially all of the assets of the Bridge
business were sold in July 2005. The aforementioned charge in fiscal 2007 was substantially offset
by income from discontinued operations relating to the PMSI business.
Other
The Other reportable segment includes the operating results of Long-Term Care, through the
July 31, 2007 spin-off date. The operating results of PMSI, which was sold in October 2008, have
been reclassified to discontinued operations.
Intersegment Eliminations
These amounts represent the elimination of the Pharmaceutical Distribution segments sales to
the Other segment. ABDC was the principal supplier of pharmaceuticals to the Other segment.
Critical Accounting Policies and Estimates
Critical accounting policies are those policies which involve accounting estimates and
assumptions that can have a material impact on our financial position and results of operations and
require the use of complex and subjective estimates based upon past experience and managements
judgment. Because of the uncertainty inherent in such estimates, actual results may differ from
these estimates. Below are those policies applied in preparing our financial statements that
management believes are the most dependent on the application of estimates and assumptions. For a
complete list of significant accounting policies, see Note 1 of Notes
to the Consolidated Financial
Statements.
Allowance for Doubtful Accounts
Trade receivables are primarily comprised of amounts owed to us for our pharmaceutical
distribution and services activities and are presented net of an allowance for doubtful accounts
and a reserve for customer sales returns. In determining the appropriate allowance for doubtful
accounts, we consider a combination of factors, such as the aging of trade receivables, industry
trends, and our customers financial strength, credit standing, and payment and default history.
Changes in the aforementioned factors, among others, may lead to adjustments in our allowance for
doubtful accounts. The calculation of the required allowance requires judgment by our management
as to the impact of these and other factors on the ultimate realization of our trade receivables.
Each of our business units performs ongoing credit evaluations of its customers financial
condition and maintains reserves for probable bad debt losses based on historical experience and
for specific credit problems when they arise. We write off balances against the reserves when
collectability is deemed remote. Each business unit performs formal documented reviews of the
allowance at least quarterly and our largest business units perform such reviews monthly. There
were no significant changes to this process during the fiscal years ended September 30, 2009, 2008
and 2007 and bad debt expense was computed in a consistent manner during these periods. The bad
debt expense for any period presented is equal to the changes in the period end allowance for
doubtful accounts, net of write-offs, recoveries and other adjustments. Schedule II of this Form
10-K sets forth a rollforward of the allowance for doubtful accounts.
Bad debt expense for the fiscal years ended September 30, 2009 and 2008 was $31.8 million and
$27.6 million, respectively. Bad debt expense for the fiscal year ended September 30, 2007 was
$48.5 million, which included Long-Term Cares bad debt expense of $17.6 million. An increase or
decrease of 0.1% in the 2009 allowance as a percentage of trade receivables would result in an
increase or decrease in the provision on accounts receivable of approximately $4.0 million.
29
Supplier Reserves
We establish reserves against amounts due from our suppliers relating to various price and
rebate incentives, including deductions or billings taken against payments otherwise due to them.
These reserve estimates are established based on the judgment of management after carefully
considering the status of current outstanding claims, historical experience with the suppliers, the
specific incentive programs and any other pertinent information available to us. We evaluate the
amounts due from our suppliers on a continual basis and adjust the reserve estimates when
appropriate based on changes in factual circumstances. An increase or
decrease of 0.1% in the 2009 supplier reserve balances as a
percentage of trade payables would result in an increase or decrease
in cost of goods sold by approximately $8.5 million. The ultimate outcome of any outstanding
claim may be different from our estimate.
Loss Contingencies
An estimated loss contingency is accrued in our consolidated financial statements if it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Assessing contingencies is highly subjective and requires judgments about future events. We
regularly review loss contingencies to determine the adequacy of the accruals and related
disclosures. The amount of the actual loss may differ significantly from these estimates.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 75% and 78% of
our inventories at September 30, 2009 and 2008, respectively, has been determined using the
last-in, first-out (LIFO) method. If we had used the first-in, first-out (FIFO) method of
inventory valuation, which approximates current replacement cost, inventories would have been
approximately $191.1 million and $176.0 higher than the amounts reported at September 30, 2009 and
2008, respectively. We recorded a LIFO charge of $15.1 million, $21.1 million, and $2.2 million in
fiscal 2009, 2008, and 2007 respectively. During the fiscal year ended September 30, 2007,
inventory declines resulted in liquidation of LIFO layers carried at lower costs prevailing in
prior years. The effect of the liquidation in fiscal 2007 was to decrease cost of goods sold by
$7.2 million and increase diluted earnings per share by $0.01.
Business Combinations
The purchase price of an acquired company is allocated between tangible and intangible assets
acquired and liabilities assumed from the acquired business based on their estimated fair values,
with the residual of the purchase price recorded as goodwill. We engage third-party appraisal firms
to assist management in determining the fair values of certain assets acquired and liabilities
assumed. Such valuations require management to make significant judgments, estimates and
assumptions, especially with respect to intangible assets. Management makes estimates of fair value
based upon assumptions it believes to be reasonable. These estimates are based on historical
experience and information obtained from the management of the acquired companies, and are
inherently uncertain. Critical estimates in valuing certain of the intangible assets include but
are not limited to: future expected cash flows from and economic lives of customer relationships,
trade names, existing technology, and other intangible assets; and discount rates. Unanticipated
events and circumstances may occur which may affect the accuracy or validity of such assumptions,
estimates or actual events.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized; rather, they are
tested for impairment on at least an annual basis. Intangible assets with finite lives, primarily
customer relationships, non-compete agreements, patents and software technology, are amortized over
their useful lives.
In order to test goodwill and intangible assets with indefinite lives, a determination of the
fair value of our reporting units and intangible assets with indefinite lives is required and is
based, among other things, on estimates of future operating performance of the reporting unit
and/or the component of the entity being valued. We are required to complete an impairment test for
goodwill and intangible assets with indefinite lives and record any resulting impairment losses at
least on an annual basis or more often if warranted by events or changes in circumstances
indicating that the carrying value may exceed fair value (impairment indicators). This impairment
test includes the projection and discounting of cash flows, analysis of our market capitalization
and estimating the fair values of tangible and intangible assets and liabilities. Estimating future
cash flows and determining their present values are based upon, among other things, certain
assumptions about expected future operating performance and appropriate discount rates determined
by management. In fiscal 2009, due to the existence of impairment indicators at U.S. Bioservices,
a specialty pharmacy company within the Companys Specialty
Group, we performed an
impairment test on the pharmacys trade name as of June 30, 2009, which resulted in an impairment charge
of $8.9 million. In fiscal 2008, PMSI experienced certain customer losses and learned that it
would lose its largest customer at the end of calendar 2008. As a result, and after considering
other factors, we committed to a plan to divest PMSI. We performed an interim impairment test of
our PMSI reporting unit and determined that its goodwill was impaired. Therefore, PMSI wrote-off
the carrying value of its goodwill of $199.1 million. In addition, we also recognized charges of
$26.7 million to record the estimated loss on the sale of PMSI
(see Note 4 of the Notes to the Consolidated
Financial Statements). We completed our required annual impairment tests relating to goodwill and
other intangible assets with indefinite lives in the fourth quarter of fiscal 2009 and 2008 and, as
a result, recorded $1.6 million and $5.3 million of impairment charges, respectively. Our estimates
of cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business
model, or changes in operating performance. Significant differences between these estimates and
actual cash flows could materially affect our future financial results.
30
Share-Based Compensation
We utilize a binomial option pricing model to determine the fair value of share-based
compensation expense, which involves the use of several assumptions, including expected term of the
option, future volatility, dividend yield and forfeiture rate. The expected term of options
represents the period of time that the options granted are expected to be outstanding and is based
on historical experience. Expected volatility is based on historical volatility of our common stock
as well as other factors, such as implied volatility.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and uncertain tax positions
reflect managements assessment of estimated future taxes to be paid on items in the financial
statements. Deferred income taxes arise from temporary differences between financial reporting and
tax reporting bases of assets and liabilities, as well as net operating loss and tax credit
carryforwards for tax purposes.
We have established a net valuation allowance against certain deferred tax assets for which
the ultimate realization of future benefits is uncertain. Expiring carryforwards and the required
valuation allowances are adjusted annually. After application of the valuation allowances described
above, we anticipate that no limitations will apply with respect to utilization of any of the other
net deferred income tax assets described above.
During fiscal 2008, we adopted Accounting Standards Codification (ASC) 740, Income Taxes
(formerly referenced as FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109), which changed the framework for accounting
for uncertainty in income taxes. We recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, including resolutions of any related appeals or litigation processes, based on the
technical merits of the position.
We have established an estimated liability for federal, state and non-U.S. income tax
exposures that arise and meet the criteria for accrual. We prepare and file tax returns based on
our interpretation of tax laws and regulations and record estimates based on these judgments and
interpretations. In the normal course of business, our tax returns are subject to examination by
various taxing authorities. Such examinations may result in future tax and interest assessments by
these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to
changes in tax law resulting from legislation, regulation and/or as concluded through the various
jurisdictions tax court systems.
We believe that our estimates for the valuation allowances against deferred tax assets and tax
contingency reserves are appropriate based on current facts and circumstances. However, others
applying reasonable judgment to the same facts and circumstances could develop a different estimate
and the amount ultimately paid upon resolution of issues raised may differ from the amounts
accrued.
The significant assumptions and estimates described in the preceding paragraphs are important
contributors to the ultimate effective tax rate in each year. If any of our assumptions or
estimates were to change, an increase or decrease in our effective tax rate by 1% on income from
continuing operations before income taxes would have caused income tax expense to change by $8.2
million in fiscal 2009.
31
Liquidity and Capital Resources
The following table illustrates our debt structure at September 30, 2009, including
availability under revolving credit facilities and the receivables securitization facility (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Additional |
|
|
|
Balance |
|
|
Availability |
|
Fixed-Rate Debt: |
|
|
|
|
|
|
|
|
$400,000, 5 5/8% senior notes due 2012 |
|
$ |
399,058 |
|
|
$ |
|
|
$500,000, 5 7/8% senior notes due 2015 |
|
|
498,339 |
|
|
|
|
|
Other |
|
|
1,113 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate debt |
|
|
898,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-Rate Debt: |
|
|
|
|
|
|
|
|
Blanco revolving credit facility due 2010 |
|
|
55,000 |
|
|
|
|
|
Multi-currency revolving credit facility due 2011 |
|
|
224,026 |
|
|
|
456,990 |
|
Receivables securitization facility due 2010 |
|
|
|
|
|
|
700,000 |
|
Other |
|
|
465 |
|
|
|
1,161 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
279,491 |
|
|
|
1,158,151 |
|
|
|
|
|
|
|
|
Total debt, including current portion |
|
$ |
1,178,001 |
|
|
$ |
1,158,151 |
|
|
|
|
|
|
|
|
Along with our cash balances, our aggregate availability under our revolving credit
facilities and our receivables securitization facility provides us sufficient sources of capital to
fund our working capital requirements.
In
November 2009, we issued $400 million of 4 7/8% senior notes due November 15, 2019 (the
2019 Notes). The 2019 Notes were sold at 99.174% of the principal amount and have an effective
yield of 4.98%. Interest on the 2019 Notes is payable semiannually, in arrears, commencing May 15,
2010. The 2019 Notes rank pari passu to the Multi-Currency Revolving Credit Facility and the 2012
Notes and the 2015 Notes (all defined below). We used the net proceeds of the 2019 Notes to repay
substantially all amounts outstanding under our Multi-Currency Revolving Credit Facility and the
remaining net proceeds will be used for general corporate purposes. Costs incurred in connection
with the issuance of the 2019 Notes will be deferred and amortized over the 10-year term of the
notes.
We
have a $695 million multi-currency senior unsecured revolving
credit facility, which expires in November 2011, (the Multi-Currency Revolving Credit Facility) with a syndicate of lenders. (This amount reflects
the reduction of $55 million in availability under the facility as a result of the September 2008
bankruptcy of Lehman Commercial Paper, Inc.). Interest on borrowings under the Multi-Currency
Revolving Credit Facility accrues at specified rates based on our debt rating and ranges from 19
basis points to 60 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable
(40 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at September 30, 2009).
Additionally, interest on borrowings denominated in Canadian dollars may accrue at the greater of
the Canadian prime rate or the CDOR rate. We pay quarterly facility fees to maintain the
availability under the Multi-Currency Revolving Credit Facility at specified rates based on our
debt rating, ranging from 6 basis points to 15 basis points of the total commitment (10 basis
points at September 30, 2009). We may choose to repay or reduce our commitments under the
Multi-Currency Revolving Credit Facility at any time. The Multi-Currency Revolving Credit Facility
contains covenants, including compliance with a financial leverage ratio test, as well as others
that impose limitations on, among other things, indebtedness of excluded subsidiaries and asset
sales.
In April 2009, we amended our receivables securitization facility (Receivables Securitization
Facility), electing to reduce the amount available under the facility from $975 million to $700
million and extend the expiration date to April 2010. We continue to have an accordion feature
available to us whereby the commitment on the Receivables Securitization Facility may be increased
by up to $250 million, subject to lender approval, for seasonal needs during the December and March
quarters. Interest rates are based on prevailing market rates for short-term commercial paper plus
a program fee. We pay a commitment fee to maintain the availability under the Receivables
Securitization Facility. The program fee and the commitment fee were 150 basis points and 75 basis
points, respectively, at September 30, 2009. At September 30, 2009, there were no borrowings
outstanding under the Receivables Securitization Facility. In connection with the Receivables
Securitization Facility, ABDC sells on a revolving basis certain accounts receivable to Amerisource
Receivables Financial Corporation, a wholly owned special purpose entity, which in turn sells a
percentage ownership interest in the receivables to commercial paper conduits sponsored by
financial institutions. ABDC is the servicer of the accounts receivable under the Receivables
Securitization Facility. After the maximum limit of receivables sold has been reached and as sold
receivables are collected, additional receivables may be sold up to the maximum amount available
under the facility. We use the facility as a financing vehicle because it generally offers an
attractive interest rate relative to other financing sources. We securitize our trade accounts,
which are generally non-interest bearing. The agreement governing the Receivables Securitization
Facility contains restrictions and covenants which include limitations on the incurrence of additional
indebtedness, making of certain restricted payments, issuance of preferred stock, creation of
certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially
all assets.
32
In April 2009, we amended the $55 million Blanco revolving credit facility, (the Blanco
Credit Facility) to, among other things, extend the maturity date of the Blanco Credit Facility to
April 2010. Borrowings under the Blanco Credit Facility are guaranteed by us. In connection with
the April 2009 amendment, interest on borrowings under this facility increased from 55 basis points
over LIBOR to 200 basis points over LIBOR. Additionally, we are required to pay quarterly facility
fees of 50 basis points on any unused portion of the facility. The Blanco Credit Facility is not
classified in the current portion of long-term debt on the consolidated balance sheet at
September 30, 2009 because we have the ability and intent to refinance it on a long-term basis.
We have outstanding $400 million of 5 5/8% senior notes due
September 15, 2012 (the 2012 Notes) and $500 million of 5 7/8%
senior notes due September 15, 2015 (the 2015 Notes). The 2012 Notes and 2015 Notes each were
sold at 99.5% of principal amount and have an effective yield of 5.71% and 5.94%, respectively.
Interest on the 2012 Notes and the 2015 Notes is payable semiannually in arrears.
Our operating results have generated cash flow, which, together with availability under our
debt agreements and credit terms from suppliers, has provided sufficient capital resources to
finance working capital and cash operating requirements, and to fund capital expenditures,
acquisitions, repayment of debt, the payment of interest on outstanding debt, dividends, and
repurchases of shares of our common stock.
Deterioration in general economic conditions could adversely affect the amount of
prescriptions that are filled and the amount of pharmaceutical products purchased by consumers and,
therefore, reduce purchases by our customers. In addition, volatility in financial markets may also
negatively impact our customers ability to obtain credit to finance their businesses on acceptable
terms. Reduced purchases by our customers or changes in the ability of our customers to remit
payments to us could adversely affect our revenue growth, our profitability, and our cash flow from
operations.
In September 2008, one of our lenders under the Multi-Currency Revolving Credit Facility filed
for bankruptcy, and as a result, our availability under this facility was reduced by $55 million to
$695 million. We continue to monitor the creditworthiness of our lenders and while we do not
currently anticipate the failure of any additional lenders under our revolving credit facilities
and/or under the liquidity facilities of our receivables securitization facility, the failure of
any further lenders could have an adverse effect on our ability to finance our business operations.
Our primary ongoing cash requirements will be to finance working capital, fund the
payment of interest on debt, fund repurchases of our common stock, finance acquisitions and fund
capital expenditures (including our Business Transformation Project) and routine growth and
expansion through new business opportunities. In November 2008, our board of directors approved a
program allowing us to purchase up to $500 million of our outstanding shares of common stock,
subject to market conditions. We purchased $450.0 million of our common stock in fiscal 2009, of
which $431.9 million was purchased under the above-mentioned program and $18.1 million was
purchased to close out the May 2007 share repurchase program. As of September 30, 2009, we had
$68.1 million of availability remaining on our $500 million share repurchase program. In November
2009, our board of directors approved a new program authorizing us to purchase up to $500 million
of our outstanding shares of common stock, subject to market conditions. We expect to purchase
approximately $350 million of our common stock in fiscal 2010, subject to market conditions.
Future cash flows from operations and borrowings are expected to be sufficient to fund our ongoing
cash requirements.
Following is a summary of our contractual obligations for future principal and interest
payments on our debt, minimum rental payments on our noncancelable operating leases and minimum
payments on our other commitments at September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Within 1 |
|
|
|
|
|
|
|
|
|
|
After 5 |
|
|
|
Total |
|
|
year |
|
|
1-3 years |
|
|
4-5 years |
|
|
years |
|
Debt, including interest payments |
|
$ |
1,425,724 |
|
|
$ |
108,958 |
|
|
$ |
728,641 |
|
|
$ |
58,750 |
|
|
$ |
529,375 |
|
Operating leases |
|
|
238,912 |
|
|
|
52,344 |
|
|
|
75,125 |
|
|
|
36,405 |
|
|
|
75,038 |
|
Other commitments |
|
|
859,489 |
|
|
|
275,432 |
|
|
|
389,052 |
|
|
|
165,654 |
|
|
|
29,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,524,125 |
|
|
$ |
436,734 |
|
|
$ |
1,192,818 |
|
|
$ |
260,809 |
|
|
$ |
633,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $55 million Blanco Credit Facility, which expires in April 2010, is included in the
Within 1 year column in the above table. However, this borrowing is not classified in the
current portion of long-term debt on the consolidated balance sheet at September 30, 2009 because
we have the ability and intent to refinance it on a long-term basis.
We have commitments to purchase product from influenza vaccine manufacturers through June 30,
2015. We are required to purchase annual doses at prices that we believe will represent market
prices. We currently estimate our remaining purchase commitment under these agreements, as amended, will be approximately $270.2 million as of
September 30, 2009. These influenza vaccine commitments are included in Other commitments in the
above table.
33
We have commitments to purchase blood products from suppliers through December 31, 2012. We
are required to purchase quantities at prices that we believe will represent market prices. We
currently estimate our remaining purchase commitment under these agreements will be approximately
$421.6 million as of September 30, 2009. These blood product commitments are included in Other
commitments in the above table.
We have outsourced to IBM Global Services (IBM) a significant portion of our corporate and
ABDC information technology activities and, in fiscal 2009, expanded and amended our relationship
by engaging IBM to provide assistance with the implementation of our new enterprise resource
planning (ERP) platform. The remaining commitment under our ten-year arrangement, as amended,
which expires in June 2015, is approximately $134.8 million and is included in Other commitments
in the above table.
Our
liability for uncertain tax positions was $54.4 million as of
September 30, 2009. This liability represents an estimate of tax
positions that we have taken in our tax returns which may ultimately
not be sustained upon examination by taxing authorities. Since the
amount and timing of any future cash settlements cannot be predicted
with reasonable certainty, the estimated liability has been excluded
from the contractual obligations table on page 33.
During fiscal 2009, our operating activities provided $783.8 million of cash as compared to
cash provided of $737.1 million in the prior fiscal year. Net cash provided by operating activities
during fiscal 2009 was principally the result of income from continuing operations of $511.9
million, non-cash items of $254.0 million, and an increase in accounts payable, accrued expenses
and income taxes of $1,259.6 million, offset, in part, by an increase in merchandise inventories of
$765.0 million and an increase in accounts receivable of $457.8 million. Non-cash items included
the provision for deferred income taxes of $84.3 million, which primarily related to income tax
deductions associated with merchandise inventories. The increase in accounts receivable,
merchandise inventories and accounts payable, accrued expenses and income taxes all principally
related to our 12% revenue growth in the month of September 2009 in comparison to the prior year
month. Additionally, our merchandise inventory and related accounts payable balances were also
impacted by inventory purchases of approximately $400 million in the month of September 2009,
primarily relating to the purchase of generic products due to a recent product launch and purchases
made in advance of a manufacturers temporary plant shut-down in connection with its facility
consolidation efforts. The average number of days sales outstanding in fiscal 2009 decreased to
18.1 days from 18.7 days in fiscal 2008 primarily due to favorable customer mix within ABDC. The
number of average inventory days on hand in fiscal 2009 and 2008 was consistent at 25 days.
Additionally, the number of average days payable outstanding in fiscal 2009 and 2008 was relatively
consistent at 32.8 days and 32.6 days, respectively. Operating cash uses during fiscal 2009
included $56.9 million in interest payments and $192.9 million of income tax payments, net of
refunds.
During fiscal 2008, our operating activities provided $737.1 million of cash as compared to
cash provided of $1,207.9 million in the prior fiscal year. Net cash provided by operating
activities during fiscal 2008 was principally the result of income from continuing operations of
$469.1 million, non-cash items of $218.1 million, and an increase in accounts payable, accrued
expenses and income taxes of $53.7 million. Non-cash items included the provision for deferred
income taxes of $62.1 million, which was significantly higher than the prior fiscal year due to the
increase in income tax deductions associated with merchandise inventories. Merchandise inventories
increased slightly despite the 7% increase in total revenue, as the number of average inventory
days on hand decreased by 2 days compared to the prior fiscal year primarily due to the continued
benefits achieved from the consolidation of our distribution network and strong inventory
management. Accounts receivable declined by $8.7 million from the prior fiscal year compared to the
increase in sales as average days sales outstanding declined from 19.4 days in fiscal 2007 to 18.7
days in fiscal 2008 due to changes in customer mix including the July 1, 2008 sales reduction with
a large chain customer. Additionally ABDC, which has lower average days sales outstanding than
ABSG, grew faster than ABSG in fiscal 2008. Accounts payable, accrued expenses and income taxes
grew less than revenues due to the reversal of favorable timing at the end of fiscal 2007. Average
days payable outstanding in fiscal 2008 declined by 1/2 of one
day from the prior fiscal year. Operating cash uses during fiscal 2008 included $68.5 million in
interest payments and $262.9 million of income tax payments, net of refunds.
During fiscal 2007, our operating activities provided $1,207.9 million of cash as compared to
cash provided of $807.3 million in the prior fiscal year. Net cash provided by operating activities
during fiscal 2007 was principally the result of income from continuing operations of $474.8
million, non-cash items of $186.9 million, an increase in accounts payable, accrued expenses and
income taxes of $507.6 million, and a decrease in merchandise inventories of $286.1 million,
partially offset by an increase in accounts receivable of $236.0 million. The increase in accounts
payable, accrued expenses and income taxes was primarily driven by the increase in sales and days
payable outstanding. Days payable outstanding in fiscal 2007 increased by 2 days from the prior
fiscal year due to favorable timing of payments to our suppliers and the strong growth of ABSG,
which has a higher days payable outstanding ratio than ABDC because certain of ABSGs businesses
have more favorable payment terms with their suppliers. The inventory turnover rate for the
Pharmaceutical Distribution segment improved to 13.6 times in fiscal 2007 from 12.2 times in the
prior fiscal year. The number of inventory days on hand decreased compared to the prior fiscal year
primarily due to the benefits resulting from having completed our integration plan to consolidate
the ABDC distribution network and the strong growth of ABSGs business, which has lower inventory
days on hand requirements. After several years of consolidation activity, the 26 U.S. ABDC
distribution facilities in fiscal 2007 provided a stable distribution network environment, which
combined with strong inventory management, resulted in a significant reduction in safety stock
inventory. The increase in accounts receivable was due to the increase in operating revenue and an
increase in average days sales outstanding for the Pharmaceutical Distribution segment. Average
days sales outstanding for the Pharmaceutical Distribution segment increased to 18.8 days in fiscal
2007 from 16.7 days in the prior fiscal year. This increase was largely driven by the above-market
rate growth of the Specialty Group, which generally has a higher receivable investment than the
ABDC distribution business. Operating cash uses during fiscal 2007 included $65.9 million in interest payments
and $253.2 million of income tax payments, net of refunds.
34
Capital expenditures in fiscal 2009, 2008 and 2007 were $145.8 million, $137.3 million, and
$111.3 million, respectively. We currently estimate that we will spend approximately $140 million
for capital expenditures during fiscal 2010. Capital expenditures in fiscal 2009 related
principally to our Business Transformation project, which includes a new ERP platform that will be
implemented in ABDC and our corporate office, and improvements made to our operating facilities.
Capital expenditures in fiscal 2008 related principally to improving our information technology
infrastructure, which included a significant purchase of software relating to our Business
Transformation project, the expansion of our ABPG production facility in Rockford, Illinois, and
investments in warehouse expansions and improvements. Capital expenditures in fiscal 2007 related
principally to improving our information technology infrastructure, investments in ABDC warehouse
expansions, equipment investments at ABSG and ABPG, equipment and furniture related to ABSGs new
corporate facility, and ABPGs Illinois facility expansion.
In May 2009, we acquired Innomar, a Canadian specialty pharmaceutical services company, for a
purchase price of $13.4 million, net of a working capital adjustment.
In October 2008, we sold PMSI for approximately $31 million, net of a final working capital
adjustment. We received cash totaling $11.9 million and a $19 million subordinated note due from
PMSI on the fifth anniversary of the closing date.
In October 2007, we purchased Bellco, a privately held New York distributor of branded and
generic pharmaceuticals, for a purchase price of $162.2 million, net of cash acquired.
In October 2006, we acquired IgG, a specialty pharmacy and infusion services business
specializing in IVIG, for $37.2 million. In November 2006, we acquired AMD, a Canadian company that
provides services including reimbursement support and nursing support services, for $13.4 million.
In April 2007, we acquired Xcenda, a consulting business which applies customized solutions and
innovative approaches that discover and communicate the value of pharmaceuticals and other
healthcare technologies, for $25.2 million. Additionally, in fiscal 2007, in connection with our
fiscal 2006 acquisition of Brecon, we made a contingent payment in the amount of $7.6 million to
the former owners of Brecon. We also made payments of $2.9 million in fiscal 2007 related to
certain prior period acquisitions.
Net cash provided by investing activities in fiscal 2008 and 2007 included purchases and sales
of short-term investment securities. Net proceeds (purchases) relating to these investment
activities in fiscal 2008 and 2007 were $467.4 million and $(399.6) million, respectively. These
short-term investment securities primarily consisted of commercial paper and tax-exempt variable
rate demand notes used to maximize our after tax interest income. We do not have any short-term
investment securities as of September 30, 2009, nor have we purchased or sold short-term investment
securities since the quarter ended March 31, 2008.
Net cash used in investing activities in fiscal 2007 also included proceeds from the sales of
property and equipment, primarily related to the sale of certain distribution facilities and
proceeds from the sales of other assets, which principally related to the sale of certain retail
pharmacy assets of our former Long-Term Care business.
Net cash used in financing activities in fiscal 2009, 2008, and 2007 included net
(repayments) borrowings of $(8.8) million, $(16.4) million, and $101.8 million, respectively, under
our revolving and securitization credit facilities. The net borrowings in fiscal 2007 were
primarily related to our Canadian operations.
In connection with the spin-off transaction, Long-Term Care borrowed $125.0 million from a
financial institution, and provided a one-time distribution to us. This distribution was reflected
as a financing activity in fiscal 2007 on our Consolidated Statement of Cash Flows.
During fiscal 2009, 2008, and 2007, we purchased a total of $450.4 million, $679.7 million,
and $1,434.4 million, respectively, of our common stock in connection with our share repurchase
programs, which are summarized below.
In August 2006, our board of directors authorized a program allowing the purchase of up to
$750 million of our outstanding shares of common stock. During fiscal 2007, we purchased
31.1 million shares of our common stock to complete this program.
In May 2007, our board of directors authorized a program allowing the purchase of up to $850
million of our outstanding shares of common stock, subject to market conditions. During fiscal
2007, we purchased $652.6 million under this program. In November 2007, our board of directors
authorized an increase to the $850 million share repurchase program by $500 million, subject to
market conditions. During fiscal 2008, we purchased $679.7 million under this program. During
fiscal 2009, we purchased 1.2 million shares of our common stock to complete this program.
In November 2008, our board of directors authorized a program allowing the purchase of up to
$500 million of our outstanding shares of common stock, subject to market conditions. During
fiscal 2009, we purchased $431.9 million under this program. We have $68.1 million of availability
remaining under this share repurchase program as of September 30, 2009.
35
In November 2009, our board of directors authorized a new program allowing us to purchase up
to $500 million of our outstanding shares of common stock, subject to market conditions.
During fiscal 2008 and 2007, we paid quarterly cash dividends of $0.0375 and $0.025 per share,
respectively. In November 2008, our board of directors increased the quarterly dividend by 33% to
$0.05 per share. During the first three quarters of fiscal 2009, we paid quarterly cash dividends
of $0.05 per share. In May 2009, our board of directors increased the quarterly cash dividend by
20% to $0.06 per share and in the fourth quarter of fiscal 2009, we paid a quarterly cash dividend
of $0.06 per share. On November 12, 2009, our board of directors increased the quarterly dividend
again by 33% from $0.06 per share to $0.08 per share. We anticipate that we will continue to pay
quarterly cash dividends in the future. However, the payment and amount of future dividends remain
within the discretion of our board of directors and will depend upon our future earnings, financial
condition, capital requirements and other factors.
Market Risk
Our most significant market risk is the effect of fluctuations in interest rates relating to
our debt. We manage interest rate risk by using a combination of fixed-rate and variable-rate debt.
At September 30, 2009, we had $279.5 million of variable rate debt outstanding. The amount of
variable rate debt fluctuates during the year based on our working capital requirements. We
periodically evaluate financial instruments to manage our exposure to fixed and variable interest
rates. However, there are no assurances that such instruments will be available on terms
acceptable to us. There were no such financial instruments in effect at September 30, 2009.
We also have market risk exposure to interest rate fluctuations relating to our cash and cash
equivalents. We had $1.0 billion in cash and cash equivalents at September 30, 2009. The
unfavorable impact of a hypothetical decrease in interest rates on cash and cash equivalents would
be partially offset by the favorable impact of such a decrease on variable-rate debt. For every
$100 million of cash invested that is in excess of variable-rate debt, a 10 basis point decrease in
interest rates would increase our annual net interest expense by $0.1 million.
We are exposed to foreign currency and exchange rate risk from our non-U.S. operations. Our
largest exposure to foreign exchange rates exists primarily with the Canadian Dollar. We may
utilize foreign currency denominated forward contracts to hedge against changes in foreign exchange
rates. Such contracts generally have durations of less than one year. We had no foreign currency
denominated forward contracts at September 30, 2009. We may use derivative instruments to hedge our
foreign currency exposure but not for speculative or trading purposes.
Recent Accounting Pronouncements
On July 1, 2009, we adopted Accounting Standards Update (ASU) No. 2009-1, Topic 105
Generally Accepted Accounting Principles, which amended Accounting Standards Codification (ASC)
105, Generally Accepted Accounting Principles, to establish the Codification as the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date, the Codification superseded all
then-existing non-SEC accounting and reporting standards. All previous references to the superseded
standards in our consolidated financial statements have been replaced by references to the
applicable sections of the Codification. The adoption of these sections did not have an impact on
our consolidated financial statements.
In the first quarter of fiscal 2009, we adopted ASC 820-10, Fair Value Measurements and
Disclosures, (formerly referenced as SFAS No. 157, Fair Value Measurements), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. This new accounting standard did not require any new fair value measurements.
ASC 820-10 defines fair value as the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). ASC 820-10 establishes a fair value hierarchy, which prioritizes
the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs
are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are
observable other than quoted prices in active markets for identical assets and liabilities, quoted
prices for identical or similar assets or liabilities in inactive markets, or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities. Level 3 inputs are generally unobservable and typically reflect
managements estimates of assumptions that market participants would use in pricing the asset or
liability. At September 30, 2009, we had $928.3 million of
investments in a money market account,
which was valued as a level 1 investment.
Effective October 1, 2009, we will apply the provisions of ASC 820-10 to fair value
measurements relating to all nonfinancial assets and liabilities, such as goodwill and other
intangible assets, that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. This adoption is not expected to have a material impact on our financial
condition, results of operations, or liquidity.
36
During the first quarter of fiscal 2009, we adopted ASC 825-10, Financial Instruments
(formerly referenced as SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115), which allows companies to choose
to measure eligible financial instruments and certain other items at fair value that are not
otherwise required to be measured at fair value. We have not elected the fair value option for any
eligible financial instruments not already required to be measured at fair value.
On June 30, 2009, we adopted ASC 855-10, Subsequent Events, which establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before the financial statements are issued. We evaluated subsequent events through the date and
time our financial statements were issued on November 25, 2009.
Effective October 1, 2009, we will adopt the applicable sections of ASC 805, Business
Combinations, which provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree of a
business combination. Additionally, this ASC provides disclosure requirements to enable users of
financial statements to evaluate the nature and financial effects of the business combination. We
will also adopt certain other applicable sections that address application issues raised on the
initial recognition and measurement, subsequent measurement and accounting and disclosure of assets
and liabilities from contingencies from a business combination. The application of ASC 805
relating to an acquisition or divestiture subsequent to September 30, 2009 may have an impact to
our financial condition and/or results of operations.
Forward-Looking Statements
Certain of the statements contained in this Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) and elsewhere in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are based on managements current expectations
and are subject to uncertainty and change in circumstances. Among the factors that could cause
actual results to differ materially from those projected, anticipated or implied are the following:
changes in pharmaceutical market growth rates; the loss of one or more key customer or supplier
relationships; changes in customer mix; customer delinquencies, defaults or insolvencies; supplier
defaults or insolvencies; changes in pharmaceutical manufacturers pricing and distribution
policies or practices; adverse resolution of any contract or other dispute with customers or
suppliers; federal and state government enforcement initiatives to detect and prevent suspicious
orders of controlled substances and the diversion of controlled substances; qui tam litigation for
alleged violations of laws and regulations governing the marketing, sale and purchase of
pharmaceutical products; changes in U.S. legislation or regulatory action affecting pharmaceutical
product pricing or reimbursement policies, including under Medicaid and Medicare; changes in
regulatory or clinical medical guidelines and/or labeling for the pharmaceutical products we
distribute, including certain anemia products; price inflation in branded pharmaceuticals and price
deflation in generics; significant breakdown or interruption of our information technology systems;
our inability to implement an enterprise resource planning (ERP) system to handle business and
financial processes within AmerisourceBergen Drug Corporations operations and our corporate
functions without operating problems and/or cost overruns; success of integration, restructuring or
systems initiatives; interest rate and foreign currency exchange rate fluctuations; economic,
business, competitive and/or regulatory developments in Canada, the United Kingdom and elsewhere
outside of the United States, including potential changes in Canadian provincial legislation
affecting pharmaceutical product pricing or service fees or regulatory action by provincial
authorities in Canada to lower pharmaceutical product pricing or service fees; the impact of
divestitures or the acquisition of businesses that do not perform as we expect or that are
difficult for us to integrate or control; our inability to successfully complete any other
transaction that we may wish to pursue from time to time; changes in tax legislation or adverse
resolution of challenges to our tax positions; increased costs of maintaining, or reductions in our
ability to maintain, adequate liquidity and financing sources; volatility and deterioration of the capital and credit markets; and other economic, business, competitive, legal,
tax, regulatory and/or operational factors affecting our business generally. Certain additional
factors that management believes could cause actual outcomes and results to differ materially from
those described in forward-looking statements are set forth elsewhere in this MD&A, in Item 1A
(Risk Factors), Item 1 (Business) and elsewhere in this report.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Companys most significant market risks are the effects of changing interest rates and
foreign currency risk. See discussion on page 36 under the heading Market Risk, which is
incorporated by reference herein.
37
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of AmerisourceBergen Corporation
We have audited the accompanying consolidated balance sheets of AmerisourceBergen Corporation
and subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders equity, and cash flows for each of the three years in the
period ended September 30, 2009. Our audits also included the financial statement schedule listed
in the Index at Item 15(a). These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of AmerisourceBergen Corporation and subsidiaries at
September 30, 2009 and 2008, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, AmerisourceBergen Corporation
changed its method of accounting for uncertainty in income taxes in fiscal 2008.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), internal control over financial
reporting of AmerisourceBergen Corporation and subsidiaries as of September 30, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated November 25, 2009 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
November 25, 2009
39
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands, except share and |
|
|
|
per share data) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,009,368 |
|
|
$ |
878,114 |
|
Accounts receivable, less allowances for returns and doubtful accounts:
2009$370,303; 2008$393,714 |
|
|
3,916,509 |
|
|
|
3,480,267 |
|
Merchandise inventories |
|
|
4,972,820 |
|
|
|
4,211,775 |
|
Prepaid expenses and other |
|
|
55,056 |
|
|
|
55,914 |
|
Assets held for sale |
|
|
|
|
|
|
43,691 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
9,953,753 |
|
|
|
8,669,761 |
|
|
|
|
|
|
|
|
Property and equipment, at cost: |
|
|
|
|
|
|
|
|
Land |
|
|
35,665 |
|
|
|
35,258 |
|
Buildings and improvements |
|
|
292,903 |
|
|
|
281,001 |
|
Machinery, equipment and other |
|
|
694,555 |
|
|
|
616,942 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
1,023,123 |
|
|
|
933,201 |
|
Less accumulated depreciation |
|
|
(403,885 |
) |
|
|
(381,042 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
|
619,238 |
|
|
|
552,159 |
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Goodwill and other intangible assets |
|
|
2,859,064 |
|
|
|
2,875,366 |
|
Other assets |
|
|
140,685 |
|
|
|
120,500 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
2,999,749 |
|
|
|
2,995,866 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
13,572,740 |
|
|
$ |
12,217,786 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,517,162 |
|
|
$ |
7,326,580 |
|
Accrued expenses and other |
|
|
315,657 |
|
|
|
270,823 |
|
Current portion of long-term debt |
|
|
1,068 |
|
|
|
1,719 |
|
Deferred income taxes |
|
|
645,723 |
|
|
|
550,708 |
|
Liabilities held for sale |
|
|
|
|
|
|
17,759 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
9,479,610 |
|
|
|
8,167,589 |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
1,176,933 |
|
|
|
1,187,412 |
|
Other liabilities |
|
|
199,728 |
|
|
|
152,740 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par valueauthorized, issued and outstanding:
600,000,000 shares, 482,941,212 shares and 287,922,263 shares
at September 30, 2009, respectively, and 600,000,000 shares,
481,154,164 shares and 312,430,920 shares at September 30,
2008, respectively |
|
|
4,829 |
|
|
|
4,812 |
|
Additional paid-in capital |
|
|
3,737,835 |
|
|
|
3,689,617 |
|
Retained earnings |
|
|
2,919,760 |
|
|
|
2,479,078 |
|
Accumulated other comprehensive loss |
|
|
(46,096 |
) |
|
|
(16,490 |
) |
|
|
|
|
|
|
|
|
|
|
6,616,328 |
|
|
|
6,157,017 |
|
Treasury stock, at cost: 2009195,018,949 shares; 2008168,723,244 shares |
|
|
(3,899,859 |
) |
|
|
(3,446,972 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,716,469 |
|
|
|
2,710,045 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
13,572,740 |
|
|
$ |
12,217,786 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands, except per share data) |
|
Operating revenue |
|
$ |
70,052,006 |
|
|
$ |
67,518,933 |
|
|
$ |
61,266,792 |
|
Bulk deliveries to customer warehouses |
|
|
1,707,984 |
|
|
|
2,670,800 |
|
|
|
4,405,280 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
71,759,990 |
|
|
|
70,189,733 |
|
|
|
65,672,072 |
|
Cost of goods sold |
|
|
69,659,915 |
|
|
|
68,142,731 |
|
|
|
63,453,013 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2,100,075 |
|
|
|
2,047,002 |
|
|
|
2,219,059 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Distribution, selling and administrative |
|
|
1,120,240 |
|
|
|
1,119,393 |
|
|
|
1,339,885 |
|
Depreciation |
|
|
63,488 |
|
|
|
64,954 |
|
|
|
68,227 |
|
Amortization |
|
|
15,420 |
|
|
|
17,127 |
|
|
|
16,448 |
|
Facility consolidations, employee severance and other |
|
|
5,406 |
|
|
|
12,377 |
|
|
|
2,072 |
|
Intangible asset impairments |
|
|
11,772 |
|
|
|
5,290 |
|
|
|
3,690 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
883,749 |
|
|
|
827,861 |
|
|
|
788,737 |
|
Other loss |
|
|
1,368 |
|
|
|
2,027 |
|
|
|
3,004 |
|
Interest expense, net |
|
|
58,307 |
|
|
|
64,496 |
|
|
|
32,244 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
824,074 |
|
|
|
761,338 |
|
|
|
753,489 |
|
Income taxes |
|
|
312,222 |
|
|
|
292,274 |
|
|
|
278,686 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
511,852 |
|
|
|
469,064 |
|
|
|
474,803 |
|
Loss from discontinued operations, net of income tax expense
of $353, $2,150, and $10,285 for fiscal 2009, 2008, and
2007, respectively |
|
|
(8,455 |
) |
|
|
(218,505 |
) |
|
|
(5,636 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
503,397 |
|
|
$ |
250,559 |
|
|
$ |
469,167 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.70 |
|
|
$ |
1.46 |
|
|
$ |
1.28 |
|
Discontinued operations |
|
|
(0.03 |
) |
|
|
(0.68 |
) |
|
|
(0.02 |
) |
Rounding |
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1.67 |
|
|
$ |
0.78 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.69 |
|
|
$ |
1.44 |
|
|
$ |
1.26 |
|
Discontinued operations |
|
|
(0.03 |
) |
|
|
(0.67 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1.66 |
|
|
$ |
0.77 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
300,573 |
|
|
|
321,284 |
|
|
|
370,362 |
|
Diluted |
|
|
302,754 |
|
|
|
324,920 |
|
|
|
375,772 |
|
See notes to consolidated financial statements.
41
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Total |
|
|
|
(in thousands, except per share data) |
|
September 30, 2006 |
|
$ |
4,708 |
|
|
$ |
3,464,590 |
|
|
$ |
2,051,212 |
|
|
$ |
(15,303 |
) |
|
$ |
(1,364,050 |
) |
|
$ |
4,141,157 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
469,167 |
|
|
|
|
|
|
|
|
|
|
|
469,167 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,801 |
|
|
|
|
|
|
|
8,801 |
|
Reduction in minimum pension liability, net of tax of $7,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,032 |
|
|
|
|
|
|
|
12,032 |
|
Other, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209 |
) |
|
|
|
|
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC 715, net of tax of $6,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,568 |
) |
|
|
|
|
|
|
(10,568 |
) |
Cash dividends, $0.10 per share |
|
|
|
|
|
|
|
|
|
|
(37,249 |
) |
|
|
|
|
|
|
|
|
|
|
(37,249 |
) |
Divestiture of PharMerica Long-Term Care |
|
|
|
|
|
|
|
|
|
|
(196,641 |
) |
|
|
|
|
|
|
|
|
|
|
(196,641 |
) |
Exercise of stock options |
|
|
51 |
|
|
|
74,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,017 |
|
Excess tax benefit from exercise of stock options |
|
|
|
|
|
|
19,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,603 |
|
Share-based compensation expense |
|
|
|
|
|
|
24,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,964 |
|
Common stock purchases for employee stock purchase plan |
|
|
|
|
|
|
(1,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,622 |
) |
Settlement of accelerated stock repurchase agreement |
|
|
|
|
|
|
(1,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,494 |
) |
Purchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,403,238 |
) |
|
|
(1,403,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
4,759 |
|
|
|
3,581,007 |
|
|
|
2,286,489 |
|
|
|
(5,247 |
) |
|
|
(2,767,288 |
) |
|
|
3,099,720 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
250,559 |
|
|
|
|
|
|
|
|
|
|
|
250,559 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,708 |
) |
|
|
|
|
|
|
(8,708 |
) |
Benefit plan funded status adjustment, net of tax of $3,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,938 |
) |
|
|
|
|
|
|
(4,938 |
) |
Benefit plan actuarial loss amortization to earnings, net of tax of
$901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410 |
|
|
|
|
|
|
|
1,410 |
|
Other, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
993 |
|
|
|
|
|
|
|
993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends, $0.15 per share |
|
|
|
|
|
|
|
|
|
|
(48,674 |
) |
|
|
|
|
|
|
|
|
|
|
(48,674 |
) |
Adoption of ASC 740 |
|
|
|
|
|
|
|
|
|
|
(9,296 |
) |
|
|
|
|
|
|
|
|
|
|
(9,296 |
) |
Exercise of stock options |
|
|
53 |
|
|
|
71,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,223 |
|
Excess tax benefit from exercise of stock options |
|
|
|
|
|
|
11,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,988 |
|
Share-based compensation expense |
|
|
|
|
|
|
26,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,384 |
|
Common stock purchases for employee stock purchase plan |
|
|
|
|
|
|
(932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(932 |
) |
Purchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(679,684 |
) |
|
|
(679,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
4,812 |
|
|
|
3,689,617 |
|
|
|
2,479,078 |
|
|
|
(16,490 |
) |
|
|
(3,446,972 |
) |
|
|
2,710,045 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
503,397 |
|
|
|
|
|
|
|
|
|
|
|
503,397 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,707 |
) |
|
|
|
|
|
|
(4,707 |
) |
Benefit plan funded status adjustment, net of tax of $15,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,007 |
) |
|
|
|
|
|
|
(25,007 |
) |
Other, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
473,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends, $0.21 per share |
|
|
|
|
|
|
|
|
|
|
(62,696 |
) |
|
|
|
|
|
|
|
|
|
|
(62,696 |
) |
Exercise of stock options |
|
|
13 |
|
|
|
20,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,556 |
|
Excess tax benefit from exercise of stock options |
|
|
|
|
|
|
1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,510 |
|
Share-based compensation expense |
|
|
|
|
|
|
27,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,138 |
|
Common stock purchases for employee stock purchase plan |
|
|
|
|
|
|
(985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(985 |
) |
Purchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450,350 |
) |
|
|
(450,350 |
) |
Employee tax withholdings related to restricted share vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,521 |
) |
|
|
(2,521 |
) |
Other |
|
|
4 |
|
|
|
12 |
|
|
|
(19 |
) |
|
|
|
|
|
|
(16 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2009 |
|
$ |
4,829 |
|
|
$ |
3,737,835 |
|
|
$ |
2,919,760 |
|
|
$ |
(46,096 |
) |
|
$ |
(3,899,859 |
) |
|
$ |
2,716,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
42
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
503,397 |
|
|
$ |
250,559 |
|
|
$ |
469,167 |
|
Loss from discontinued operations |
|
|
8,455 |
|
|
|
218,505 |
|
|
|
5,636 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
511,852 |
|
|
|
469,064 |
|
|
|
474,803 |
|
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, including amounts charged to cost of goods sold |
|
|
74,612 |
|
|
|
75,239 |
|
|
|
76,680 |
|
Amortization, including amounts charged to interest expense |
|
|
19,704 |
|
|
|
20,643 |
|
|
|
21,117 |
|
Provision for doubtful accounts |
|
|
31,830 |
|
|
|
27,630 |
|
|
|
48,500 |
|
Provision for deferred income taxes |
|
|
84,324 |
|
|
|
62,112 |
|
|
|
11,979 |
|
Share-based compensation |
|
|
27,138 |
|
|
|
25,503 |
|
|
|
24,059 |
|
Loss (gain) on disposal of property and equipment |
|
|
3,318 |
|
|
|
5,036 |
|
|
|
(1,229 |
) |
Other, including intangible asset impairments |
|
|
13,031 |
|
|
|
1,888 |
|
|
|
5,808 |
|
Changes in operating assets and liabilities, excluding the effects of
acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(457,771 |
) |
|
|
8,745 |
|
|
|
(236,031 |
) |
Merchandise inventories |
|
|
(765,011 |
) |
|
|
(8,013 |
) |
|
|
286,096 |
|
Prepaid expenses and other assets |
|
|
(15,379 |
) |
|
|
(16,787 |
) |
|
|
(10,631 |
) |
Accounts payable, accrued expenses, and income taxes |
|
|
1,259,604 |
|
|
|
53,684 |
|
|
|
507,565 |
|
Other liabilities |
|
|
3,744 |
|
|
|
(5,120 |
) |
|
|
(1,001 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities-continuing operations |
|
|
790,996 |
|
|
|
719,624 |
|
|
|
1,207,715 |
|
Net cash (used in) provided by operating activities-discontinued operations |
|
|
(7,233 |
) |
|
|
17,445 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
783,763 |
|
|
|
737,069 |
|
|
|
1,207,904 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(145,837 |
) |
|
|
(137,309 |
) |
|
|
(111,278 |
) |
Cost of acquired companies, net of cash acquired |
|
|
(13,422 |
) |
|
|
(169,230 |
) |
|
|
(86,266 |
) |
Proceeds from sales of property and equipment |
|
|
108 |
|
|
|
3,020 |
|
|
|
8,077 |
|
Proceeds from sale of PMSI |
|
|
11,940 |
|
|
|
|
|
|
|
|
|
Proceeds from sales of other assets |
|
|
|
|
|
|
1,878 |
|
|
|
5,205 |
|
Purchases of investment securities available-for-sale |
|
|
|
|
|
|
(909,105 |
) |
|
|
(7,745,672 |
) |
Proceeds from sale of investment securities available-for-sale |
|
|
|
|
|
|
1,376,524 |
|
|
|
7,346,093 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities-continuing operations |
|
|
(147,211 |
) |
|
|
165,778 |
|
|
|
(583,841 |
) |
Net cash used in investing activities-discontinued operations |
|
|
(1,138 |
) |
|
|
(2,357 |
) |
|
|
(90,596 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
(148,349 |
) |
|
|
163,421 |
|
|
|
(674,437 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving and securitization credit facilities |
|
|
2,153,527 |
|
|
|
5,956,027 |
|
|
|
722,767 |
|
Repayments under revolving and securitization credit facilities |
|
|
(2,162,365 |
) |
|
|
(5,972,423 |
) |
|
|
(621,014 |
) |
Proceeds from borrowing related to PharMerica Long-Term Care distribution |
|
|
|
|
|
|
|
|
|
|
125,000 |
|
Purchases of common stock |
|
|
(450,350 |
) |
|
|
(679,684 |
) |
|
|
(1,434,385 |
) |
Exercises of stock options, including excess tax benefits of $1,510, $11,988, and
$19,603, in fiscal 2009, 2008, and 2007, respectively |
|
|
22,066 |
|
|
|
84,394 |
|
|
|
94,620 |
|
Cash dividends on common stock |
|
|
(62,696 |
) |
|
|
(48,674 |
) |
|
|
(37,249 |
) |
Other |
|
|
(4,342 |
) |
|
|
(2,057 |
) |
|
|
(4,270 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities-continuing operations |
|
|
(504,160 |
) |
|
|
(662,417 |
) |
|
|
(1,154,531 |
) |
Net cash used in financing activities-discontinued operations |
|
|
|
|
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(504,160 |
) |
|
|
(662,580 |
) |
|
|
(1,154,531 |
) |
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
131,254 |
|
|
|
237,910 |
|
|
|
(621,064 |
) |
Cash and cash equivalents at beginning of year |
|
|
878,114 |
|
|
|
640,204 |
|
|
|
1,261,268 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
1,009,368 |
|
|
$ |
878,114 |
|
|
$ |
640,204 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
43
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
Note 1. Summary of Significant Accounting Policies
AmerisourceBergen Corporation (the Company) is a pharmaceutical services company providing
drug distribution and related healthcare services and solutions to its pharmacy, physician and
manufacturer customers, which currently are based primarily in the United States and Canada. Prior
to the July 31, 2007 divestiture of PharMerica Long-Term Care (see below and Note 3), the Company
dispensed pharmaceuticals to long-term care patients. For further information on the Companys
operating segments, see Note 15.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries as of the dates and for the fiscal years indicated. All intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual amounts could differ
from these estimated amounts.
On
June 15, 2009, the Company effected a two-for-one stock split of
its outstanding shares of common stock in the form of a 100% stock
dividend to stockholders of record at the close of business on
May 29, 2009. All applicable share and per-share amounts in the
consolidated financial statements and related disclosures have been
retroactively adjusted to reflect this stock split.
On July 31, 2007, the Company completed the spin-off of its former institutional pharmacy
business, PharMerica Long-Term Care (Long-Term Care). Beginning August 1, 2007, the operating
results of Long-Term Care ceased to be included in the operating results of the Company. The
historical operating results of Long-Term Care were not reported as a discontinued operation of the
Company because of the significance of the continuing cash flows resulting from the pharmaceutical
distribution agreement entered into between the disposed component and the Company. Accordingly,
for periods prior to August 1, 2007, the Companys operating results include Long-Term Care. The
Pharmaceutical Distribution segments sales to Long-Term Care before the spin-off in the fiscal
year ended September 30, 2007 were $714.2 million, which were eliminated in consolidation in the
Companys historical operating results.
During the fiscal year ended September 30, 2008, the Company committed to a plan to divest its
workers compensation business, PMSI. The Company had both the ability and intent to sell PMSI in
its then present condition, and as a result, classified PMSIs assets and liabilities as held for
sale in the consolidated balance sheet as of September 30, 2008. The Company also classified
PMSIs operating results and cash flows as discontinued in the consolidated financial statements
for the current and prior fiscal years presented, as PMSI was eliminated from the ongoing
operations of the Company upon its divestiture and the Company will not have any significant
continuing involvement in the operations of the disposed component. Previously, PMSI was included
in the Companys Other reportable segment. In October 2008, the Company completed the sale of PMSI
(see Note 4).
Certain reclassifications have been made to prior-year amounts in order to conform to the
current-year presentation.
Business Combinations
The purchase price of an acquired company is allocated between tangible and intangible assets
acquired and liabilities assumed from the acquired business based on their estimated fair values,
with the residual of the purchase price recorded as goodwill. The results of operations of the
acquired businesses are included in the Companys results from the dates of acquisition (see Note
2).
Cash Equivalents
The Company classifies highly liquid investments with maturities of three months or less at
the date of purchase as cash equivalents. The carrying value of cash equivalents approximates fair
value.
Concentrations of Credit Risk and Allowance for Doubtful Accounts
The Company sells its merchandise inventories to a large number of customers in the healthcare
industry that include institutional and retail healthcare providers. Institutional healthcare
providers include acute care hospitals, health systems, mail order pharmacies, long-term care and
other alternate care pharmacies and providers of pharmacy services to such facilities, and
physician offices. Retail healthcare providers include national and regional retail drugstore
chains, independent community pharmacies and pharmacy departments of supermarkets and mass
merchandisers. The financial condition of the Companys customers can be affected by changes in
government reimbursement policies as well as by other economic pressures in the healthcare
industry.
44
The Companys trade accounts receivable are exposed to credit risk, but the risk is moderated
because the Companys customer base is diverse and geographically widespread primarily within the
U.S. and Canada. The Company generally does not require collateral for trade receivables. The
Company performs ongoing credit evaluations of its customers financial condition and maintains an
allowance for doubtful accounts. In determining the appropriate allowance for doubtful accounts,
the Company considers a combination of factors, such as the aging of trade receivables, industry
trends, its customers financial strength, credit standing, and payment and default history.
Changes in these factors, among others, may lead to adjustments in the Companys allowance for
doubtful accounts. The calculation of the required allowance requires judgment by Company
management as to the impact of those and other factors on the ultimate realization of its trade
receivables. Each of the Companys business units performs ongoing credit evaluations of its
customers financial condition and maintains reserves for probable bad debt losses based on
historical experience and for specific credit problems when they arise. There were no significant
changes to this process during the fiscal years ended September 30, 2009, 2008, and 2007 and bad
debt expense was computed in a consistent manner during these periods. The bad debt expense for any
period presented is equal to the changes in the period end allowance for doubtful accounts, net of
write-offs, recoveries and other adjustments. Schedule II of this Form 10-K sets forth a
rollforward of the allowance for doubtful accounts. At September 30, 2009, the largest trade
receivable due from a single customer represented approximately 9% of accounts receivable, net. In
fiscal 2009, Medco Health Solutions, Inc. (Medco), our largest customer, accounted for 17% of our
total revenue. No other single customer accounted for more than 5% of the Companys total revenue.
The Company maintains cash and cash equivalents with several financial institutions. Deposits
held with banks may exceed the amount of insurance provided on such deposits. These deposits may
be redeemed upon demand, and are maintained with financial institutions with reputable credit, and,
therefore, bear minimal credit risk. The Company seeks to mitigate such risks by monitoring the
risk profiles of these counterparties. The Company also seeks to mitigate risk by monitoring the
investment strategy of money market funds that it is invested in, which are classified as cash
equivalents.
Derivative Financial Instruments
The Company records all derivative financial instruments on the balance sheet at fair value
and complies with established criteria for designation and effectiveness of hedging relationships.
As of September 30, 2009 and 2008, there were no outstanding derivative financial instruments.
The Companys policy prohibits it from entering into derivative financial instruments for
speculative or trading purposes.
Equity Investments
The Company uses the equity method of accounting for its investments in entities in which it
has significant influence; generally, this represents an ownership interest of between 20% and 50%.
The Companys investments in marketable equity securities in which the Company does not have
significant influence are classified as available for sale and are carried at fair value, with
unrealized gains and losses excluded from earnings and reported in the accumulated other
comprehensive loss component of stockholders equity. Unrealized losses that are determined to be
other-than-temporary impairment losses are recorded as a component of earnings in the period in
which that determination is made.
Foreign Currency
The functional currency of the Companys foreign operations is the applicable local currency.
Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect
at the balance sheet date, while revenues and expenses are translated at the weighted-average
exchange rates for the period. The resulting translation adjustments are recorded as a component of
accumulated other comprehensive loss within stockholders equity.
Goodwill and Other Intangible Assets
The Company does not amortize purchased goodwill or intangible assets with indefinite lives;
rather, they are tested for impairment on at least an annual basis. Intangible assets with finite
lives, primarily customer relationships, non-compete agreements, patents and software technology,
are amortized over their useful lives, which range from 2 to 15 years.
The Companys operating segments are comprised of AmerisourceBergen Drug Corporation,
AmerisourceBergen Specialty Group, and AmerisourceBergen Packaging Group. Each operating segment
has an executive who is responsible for managing the segment and reporting directly to the
President and Chief Executive Officer of the Company, the Companys Chief Operating Decision Maker
(CODM). Each of the operating segments is comprised of a number of operating units (components),
for which discrete financial information is available. These components are aggregated into
reporting units for purposes of goodwill impairment testing.
45
In order to test goodwill and intangible assets with indefinite lives, a determination of the
fair value of the Companys reporting units and intangible assets with indefinite lives is required
and is based, among other things, on estimates of future operating performance of the reporting
unit and/or the component of the entity being valued. The Company is required to complete an
impairment test for goodwill and intangible assets with indefinite lives and record any resulting
impairment losses at least on an annual basis or more often if warranted by events or changes in
circumstances indicating that the carrying value may exceed fair value (impairment indicators).
This impairment test includes the projection and discounting of cash flows, analysis of the
Companys market capitalization and estimating the fair values of tangible and intangible assets
and liabilities. Estimates of future cash flows and determination of their present values are based
upon, among other things, certain assumptions about expected future operating performance and
appropriate discount rates determined by management. In fiscal 2009, due to the existence of
impairment indicators at U.S. Bioservices, a specialty pharmacy company within the Companys
specialty group, the Company performed an impairment test on the pharmacys trade name as of June
30, 2009, which resulted in an impairment charge of $8.9 million. In fiscal 2008, PMSI experienced
certain customer losses and learned that it would lose its largest customer at the end of calendar
2008. As a result, and after considering other factors, the Company committed to a plan to divest
PMSI. The Company performed an interim impairment test of its PMSI reporting unit and determined
that its goodwill was impaired. Therefore, PMSI wrote-off the carrying value of its goodwill of
$199.1 million. In addition, it also recognized charges of $26.7 million to record the estimated
loss on the sale of PMSI (see Note 4). The Company completed its required annual impairment tests
relating to goodwill and other intangible assets with indefinite lives in the fourth quarter of
fiscal 2009 and 2008 and, as a result, recorded $1.6 million and $5.3 million of trade name
impairment charges, respectively. The Companys estimates of cash flows may differ from actual
cash flows due to, among other things, economic conditions, changes to the business model, or
changes in operating performance. Significant differences between these estimates and actual cash
flows could materially affect the Companys future financial results.
Income Taxes
The Company accounts for income taxes using a method that requires recognition of deferred tax
assets and liabilities for expected future tax consequences of temporary differences that currently
exist between tax bases and financial reporting bases of the Companys assets and liabilities
(commonly known as the asset and liability method). In assessing the ability to realize deferred
tax assets, the Company considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
During fiscal 2008, the Company adopted Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 740, Income Taxes (formerly referenced as FASB
Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109), which changed the framework for accounting for uncertainty in income
taxes. The Company recognizes the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities,
including resolutions of any related appeals or litigation processes, based on the technical merits
of the position. The cumulative effect of this adoption resulted in a $9.3 million reduction to
retained earnings.
Loss Contingencies
The Company accrues for estimated loss contingencies related to litigation if it is probable
that a liability has been incurred and the amount of the loss can be reasonably estimated.
Assessing contingencies is highly subjective and requires judgments about future events. The
Company regularly reviews loss contingencies to determine the adequacy of the accruals and related
disclosures. The amount of the actual loss may differ significantly from these estimates.
Manufacturer Incentives
The Company accounts for fees and other incentives received from its suppliers, relating to
the purchase or distribution of inventory, as a reduction to cost of goods sold. The Company
considers these fees and other incentives to represent product discounts, and as a result, they are
capitalized as product costs and relieved through cost of goods sold upon the sale of the related
inventory.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 75% and 78% of
the Companys inventories at September 30, 2009 and 2008, respectively, has been determined using
the last-in, first-out (LIFO) method. If the Company had used the first-in, first-out (FIFO) method
of inventory valuation, which approximates current replacement cost, inventories would have been
approximately $191.1 million and $176.0 million higher than the amounts reported at September 30,
2009 and 2008, respectively. The Company recorded a LIFO charge of
$15.1 million, $21.1 million,
and $2.2 million in fiscal 2009, 2008, and 2007, respectively. During the fiscal year ended
September 30, 2007, inventory declines resulted in a liquidation of LIFO layers carried at lower
costs prevailing in prior years. The effect of the liquidation in fiscal 2007 was to decrease cost
of goods sold by $7.2 million and increase diluted earnings per share by $0.01.
46
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over
the estimated useful lives of the assets, which range from 3 to 40 years for buildings and
improvements and from 3 to 10 years for machinery, equipment and other. The costs of repairs and
maintenance are charged to expense as incurred.
The Company capitalizes project costs relating to computer software developed or obtained for
internal use when the activities related to the project reach the application development stage.
Software development costs are depreciated using the straight-line method over the estimated useful
lives of the assets which range from 5 to 10 years.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, product has
been delivered or services have been rendered, the price is fixed or determinable and
collectibility is reasonably assured. Revenue as reflected in the accompanying consolidated
statements of operations is net of estimated sales returns and allowances.
The Companys customer sales return policy generally allows customers to return products only
if the products can be resold at full value or returned to suppliers for full credit. The Company
records an accrual for estimated customer sales returns at the time of sale to the customer. At
September 30, 2009 and 2008, the Companys accrual for estimated customer sales returns was $279.3
million and $282.6 million, respectively.
The Company reports the gross dollar amount of bulk deliveries to customer warehouses in
revenue and the related costs in cost of goods sold. Bulk delivery transactions are arranged by the
Company at the express direction of the customer, and involve either drop shipments from the
supplier directly to customers warehouse sites or cross-dock shipments from the supplier to the
Company for immediate shipment to the customers warehouse sites. The Company is a principal to
these transactions because it is the primary obligor and has the ultimate and contractual
responsibility for fulfillment and acceptability of the products purchased, and bears full risk of
delivery and loss for products, whether the products are drop-shipped or shipped via cross-dock.
The Company also bears full credit risk associated with the creditworthiness of any bulk delivery
customer. As a result, the Company records bulk deliveries to customer warehouses as gross
revenues. Gross profit earned by the Company on bulk deliveries was not material in any year
presented.
Share-Based Compensation
The Company accounts for the compensation cost of all share-based payments at fair value and
reports the related expense within distribution, selling and administrative expenses to correspond
with the same line item as the cash compensation paid to employees. The benefits of tax deductions
in excess of recognized compensation expense are reported as a financing cash flow ($1.5 million,
$12.0 million, and $19.6 million for the fiscal years ended September 30, 2009, 2008, and 2007
respectively).
Shipping and Handling Costs
Shipping and handling costs include all costs to warehouse, pick, pack and deliver inventory
to customers. These costs, which were $297.3 million, $301.6 million and $335.0 million for the
fiscal years ended September 30, 2009, 2008 and 2007, respectively, are included in distribution,
selling and administrative expenses.
Supplier Reserves
The Company establishes reserves against amounts due from its suppliers relating to various
price and rebate incentives, including deductions or billings taken against payments otherwise due
them from the Company. These reserve estimates are established based on the judgment of Company
management after carefully considering the status of current outstanding claims, historical
experience with the suppliers, the specific incentive programs and any other pertinent information
available to the Company. The Company evaluates the amounts due from its suppliers on a continual
basis and adjusts the reserve estimates when appropriate based on changes in factual circumstances.
The ultimate outcome of any outstanding claim may be different than the Companys estimate.
Recent Accounting Pronouncements
On July 1, 2009, the Company adopted Accounting Standards Update (ASU) No. 2009-1, Topic
105 Generally Accepted Accounting Principles, which amended ASC 105, Generally Accepted
Accounting Principles, to establish the Codification as the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All previous references to the superseded standards in the
Companys consolidated financial statements have been replaced by references to the applicable
sections of the Codification. The adoption of these sections did not have a material impact on the
Companys consolidated financial statements.
47
In the first quarter of fiscal 2009, the Company adopted ASC 820-10, Fair Value Measurements
and Disclosures, (formerly referenced as SFAS No. 157, Fair Value Measurements), which defines
fair value, establishes a framework for measuring fair value, and expands disclosures about fair
value measurements. This new accounting standard did not require any new fair value measurements.
The Company applies fair value accounting for all financial assets and liabilities and
non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis.
ASC 820-10 defines fair value as the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). ASC 820-10 establishes a fair value hierarchy, which prioritizes
the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs
are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are
observable other than quoted prices in active markets for identical assets and liabilities, quoted
prices for identical or similar assets or liabilities in inactive markets, or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities. Level 3 inputs are generally unobservable and typically reflect
managements estimates of assumptions that market participants would use in pricing the asset or
liability. At September 30, 2009, the Company had
$928.3 million of investments in a money market
account, which was valued as a level 1 investment.
Effective October 1, 2009, the Company will apply the provisions of ASC 820-10 to fair value
measurements relating to all nonfinancial assets and liabilities, such as goodwill and other
intangible assets, that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. This adoption is not expected to have a material impact on the Companys
financial position, results of operations, or liquidity.
During the first quarter of fiscal 2009, the Company adopted ASC 825-10, Financial
Instruments (formerly referenced as SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115), which allows companies
to choose to measure eligible financial instruments and certain other items at fair value that are
not otherwise required to be measured at fair value. The Company has not elected the fair value
option for any eligible financial instruments not already required to be measured at fair value.
On June 30, 2009, the Company adopted ASC 855, Subsequent Events, which establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before the financial statements are issued. The Company evaluated subsequent events through the
date and time the financial statements were issued on November 25, 2009.
Effective October 1, 2009, the Company will adopt the applicable sections of ASC 805,
Business Combinations, which provides revised guidance for recognizing and measuring identifiable
assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. Additionally, this ASC provides disclosure requirements to enable users
of financial statements to evaluate the nature and financial effects of the business combination.
The Company will also adopt certain other applicable sections that address application issues
raised on the initial recognition and measurement, subsequent measurement and accounting and
disclosure of assets and liabilities from contingencies from a business combination. The
application of ASC 805 relating to an acquisition or divestiture subsequent to September 30, 2009
may have an impact to the Companys financial position and/or results of operations.
Note 2. Acquisitions
Fiscal 2009 Acquisition
On May 29, 2009, the Company acquired Innomar Strategies Inc. (Innomar) for a purchase price
of $13.4 million, net of a working capital adjustment. Innomar is a Canadian specialty
pharmaceutical services company that provides services within Canada to pharmaceutical and
biotechnology companies, including: strategic consulting and access solutions, specialty logistics
management, patient assistance and nursing services, and clinical research services. The
acquisition of Innomar expanded the Companys specialty business in Canada. The purchase price was
allocated to the underlying assets acquired and liabilities assumed based upon their fair values at
the date of acquisition. The purchase price exceeded the fair value of the net tangible and
intangible assets acquired by $8.3 million, which was allocated to goodwill. The fair value of the
intangible assets acquired of $4.6 million primarily consist of a trade name of $1.6 million and
customer relationships of $2.6 million. The Company has begun to amortize the acquired customer
relationships over their weighted average life of 10 years.
Fiscal 2008 Acquisition
On October 1, 2007, the Company acquired Bellco Health (Bellco) for a purchase price of
$162.2 million, net of $20.7 million of cash acquired. Bellco is a pharmaceutical distributor in
the Metro New York City area, where it primarily services independent retail community pharmacies.
The acquisition of Bellco expanded the Companys presence in this large community pharmacy market.
Nationally, Bellco markets and sells generic pharmaceuticals to individual retail pharmacies, and
provides pharmaceutical products and services to dialysis clinics. The purchase price was allocated
to the underlying assets acquired and liabilities assumed based upon their fair values at the date
of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible
assets acquired by $139.8 million, which was allocated to goodwill. The fair values of the
significant tangible assets acquired and liabilities assumed were as follows: accounts receivable
of $112.2 million, merchandise inventories of $106.5 million, and accounts payable and
accrued expenses of $237.0 million. The fair values of the intangible assets acquired of $31.7
million primarily consist of customer relationships of $28.7 million, which are being amortized
over their weighted average life of 8.9 years.
48
Fiscal 2007 Acquisitions
In October 2006, the Company acquired I.G.G. of America, Inc. (IgG), a specialty pharmacy
and infusion services business specializing in the blood derivative intravenous immunoglobulin
(IVIG), for $37.2 million. The addition of IgG supports the Companys strategy of building its
specialty pharmaceutical services to manufacturers. The purchase price was allocated to the
underlying assets acquired and liabilities assumed based upon their fair values at the date of the
acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets
acquired by $20.4 million, which was allocated to goodwill. Intangible assets acquired of $11.6
million consist of tradename of $3.3 million, non-compete agreements of $2.6 million and customer
relationships of $5.7 million. Non-compete agreements and customer relationships are being
amortized over their weighted average lives of 5 years and 7 years, respectively.
In November 2006, the Company acquired Access M.D., Inc. (AMD), a Canadian company, for
$13.4 million. AMD provides services, including reimbursement support, third-party logistics and
nursing support services, to manufacturers of specialty pharmaceuticals such as injectable and
biological therapies. The acquisition of AMD expanded the Companys specialty services businesses
into Canada. The purchase price was allocated to the underlying assets acquired and liabilities
assumed based on their fair values at the date of the acquisition. The purchase price exceeded the
fair value of the net tangible and intangible assets acquired by $11.9 million, which was allocated
to goodwill. Intangible assets acquired of $2.9 million primarily consist of tradename of $1.5
million and non-compete agreements of $0.9 million. Non-compete agreements are being amortized over
their weighted average lives of 5 years.
In April 2007, the Company acquired Xcenda LLC (Xcenda) for a purchase price of $25.2
million. Xcenda enhanced the Companys consulting business within its existing pharmaceutical and
specialty services businesses and provided additional capabilities within pharmaceutical brand
services, applied health outcomes and biopharma strategies. The purchase price was allocated to the
underlying assets acquired and liabilities assumed based upon their fair values at the date of the
acquisition. The purchase price exceeded the fair values of the net tangible and intangible assets
acquired by $18.7 million, which was allocated to goodwill. Intangible assets acquired of $5.9
million primarily consist of customer relationships of $2.7 million and tradename of $3.1 million.
Customer relationships are being amortized over their weighted average life of 5 years.
Pro forma results of operations for the aforementioned fiscal 2009, 2008 and 2007 acquisitions
have not been presented because the effects were not material to the consolidated financial
statements on either an individual or aggregate basis.
Note 3. Divestiture of PharMerica Long-Term Care
On July 31, 2007, the Company and Kindred Healthcare, Inc. (Kindred) completed the spin-offs
and subsequent combination of their institutional pharmacy businesses, Long-Term Care and Kindred
Pharmacy Services (KPS), to form a new, independent, publicly traded company named PharMerica
Corporation (PMC). At closing, in accordance with the terms of the master transaction agreement,
the Company entered into a pharmaceutical distribution agreement with PMC. In connection with this
transaction, Long-Term Care borrowed $125 million from a financial institution and provided a
one-time distribution back to the Company. The cash distribution by Long-Term Care to the Company
was tax-free. The institutional pharmacy businesses were then spun off to the stockholders of their
respective parent companies, followed immediately by the merger of the two institutional pharmacy
businesses into subsidiaries of PMC, which resulted in the Companys and Kindreds stockholders
each owning approximately 50 percent of PMC immediately after the closing of the transaction. The
Companys stockholders received 0.0416876 shares of PMC common stock for each share of
AmerisourceBergen common stock owned.
In connection with this transaction, the Company spun off $196.6 million of net assets from
its institutional pharmacy business and recorded a corresponding reduction to its retained
earnings. The net assets divested consisted of $169.3 million of accounts receivable, $51.3 million
of inventory, $35.9 million of property and equipment, $149.2 million of goodwill, $9.4 million of
other assets, $125.0 million of long-term debt, $34.8 million of accounts payable and accrued
expenses, and $58.7 million of deferred tax liabilities.
49
Note 4. Discontinued Operations
In October 2008, the Company completed the divestiture of its workers compensation business,
PMSI. The Company classified PMSIs assets and liabilities as held for sale in the consolidated
balance sheet as of September 30, 2008 and classified PMSIs operating results and cash flows as
discontinued in the consolidated financial statements for all periods presented. Previously, PMSI
was included in the Companys Other reportable segment. PMSIs revenue and (loss) income before
income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenue |
|
$ |
28,993 |
|
|
$ |
403,759 |
|
|
$ |
461,370 |
|
(Loss) income before income taxes |
|
$ |
(3,825 |
) |
|
$ |
(216,355 |
) |
|
$ |
31,561 |
|
The Company sold PMSI for approximately $31 million, net of a final working capital
adjustment, including a $19 million subordinated note payable due from PMSI on the fifth
anniversary of the closing date (the maturity date), of which $4 million may be payable in
October 2010 if PMSI achieves certain revenue targets with respect to its largest customer.
Interest, which accrues at an annual rate of LIBOR plus 4% (not to exceed 8%), will be payable in
cash on a quarterly basis if PMSI achieves a defined minimum fixed charge coverage ratio or will be
compounded quarterly and paid at maturity. Additionally, if PMSIs annual net revenue exceeds
certain thresholds through December 2011, the Company may be entitled to additional payments of up
to $10 million under the subordinated note payable due from PMSI on the maturity date of the note.
The Company recorded a non-cash charge of $225.8 million during fiscal 2008 to reduce the
carrying value of PMSI. This charge, which is included in the loss from discontinued operations for
the fiscal year ended September 30, 2008, was comprised of a $199.1 million write-off of PMSIs
goodwill and a $26.7 million charge to record the Companys loss on the sale of PMSI. The tax
benefit recorded in connection with the above charge was minimal, as the loss on the sale of PMSI
will be treated as a capital loss for income tax purposes, and the Company does not have
significant capital gains to offset the capital loss.
The following table summarizes the assets and liabilities of PMSI, which were held for sale as
of September 30, 2008 (in thousands):
|
|
|
|
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
44,033 |
|
Other assets |
|
|
(342 |
) |
Liabilities: |
|
|
|
|
Accounts payable |
|
|
14,959 |
|
Other liabilities |
|
|
2,800 |
|
|
|
|
|
Net assets |
|
$ |
25,932 |
|
|
|
|
|
In 2007, the Company received an adverse court decision with respect to a contingent
purchase price adjustment in connection with Bridge Medical, Inc., which the Company disposed in
2005. As a result, the Company recorded a charge of $24.6 million, net of income taxes of $2.3
million, in discontinued operations in the fiscal year ended September 30, 2007. In fiscal 2009,
the Company incurred additional costs related to this disposition.
50
Note 5. Income Taxes
The income tax provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
200,902 |
|
|
$ |
198,187 |
|
|
$ |
238,969 |
|
State and local |
|
|
24,942 |
|
|
|
26,862 |
|
|
|
26,180 |
|
Foreign |
|
|
2,054 |
|
|
|
5,113 |
|
|
|
1,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,898 |
|
|
|
230,162 |
|
|
|
266,707 |
|
|
|
|
|
|
|
|
|
|
|
Deferred provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
81,711 |
|
|
|
55,137 |
|
|
|
10,564 |
|
State and local |
|
|
6,178 |
|
|
|
9,824 |
|
|
|
3,249 |
|
Foreign |
|
|
(3,565 |
) |
|
|
(2,849 |
) |
|
|
(1,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
84,324 |
|
|
|
62,112 |
|
|
|
11,979 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
312,222 |
|
|
$ |
292,274 |
|
|
$ |
278,686 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory federal income tax rate to the effective income tax
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Statutory federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income tax rate, net of federal tax benefit |
|
|
2.3 |
|
|
|
3.2 |
|
|
|
2.6 |
|
Foreign |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
Other |
|
|
0.7 |
|
|
|
0.1 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
37.9 |
% |
|
|
38.4 |
% |
|
|
37.0 |
% |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts. Significant components of
the Companys deferred tax liabilities (assets) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Merchandise inventories |
|
$ |
723,464 |
|
|
$ |
632,843 |
|
Property and equipment |
|
|
25,704 |
|
|
|
14,038 |
|
Goodwill and other intangible assets |
|
|
146,083 |
|
|
|
137,242 |
|
Other |
|
|
2,254 |
|
|
|
1,163 |
|
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
897,505 |
|
|
|
785,286 |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
|
(59,742 |
) |
|
|
(49,093 |
) |
Capital loss carryforwards |
|
|
(235,677 |
) |
|
|
|
|
Allowance for doubtful accounts |
|
|
(34,124 |
) |
|
|
(38,917 |
) |
Accrued expenses |
|
|
(19,491 |
) |
|
|
(16,070 |
) |
Employee and retiree benefits |
|
|
(28,367 |
) |
|
|
(11,621 |
) |
Stock options |
|
|
(24,532 |
) |
|
|
(18,834 |
) |
Other |
|
|
(28,242 |
) |
|
|
(50,754 |
) |
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
(430,175 |
) |
|
|
(185,289 |
) |
Valuation allowance for deferred tax assets |
|
|
260,232 |
|
|
|
28,108 |
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance |
|
|
(169,943 |
) |
|
|
(157,181 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
727,562 |
|
|
$ |
628,105 |
|
|
|
|
|
|
|
|
51
As of September 30, 2009, the Company had $22.8 million of potential tax benefits from
federal net operating loss carryforwards expiring in 12 to 13 years, and $30.9 million of potential
tax benefits from state net operating loss carryforwards expiring in 1 to 20 years and $3.8 million
of potential tax benefits from foreign net operating loss carryforwards expiring in 5 to 7 years.
As of September 30, 2009, the Company had $235.7 million of potential tax benefits from capital
loss carryforwards expiring in 5 years. As of September 30, 2009, the Company had $2.2 million of
state alternative minimum tax credit carryforwards.
In fiscal 2009, the Company increased the valuation allowance on deferred tax assets by $232.1
million primarily due to the addition of capital loss carryforwards resulting from the sale of
PMSI. In fiscal 2008, the Company increased the valuation allowance on deferred tax assets by $3.7
million primarily due to the addition of certain state net operating loss carryforwards.
In fiscal 2009, 2008 and 2007, tax benefits of $1.5 million, $12.0 million and $19.6 million,
respectively, related to the exercise of employee stock options were recorded as additional paid-in
capital.
Income tax payments, net of refunds, were $192.9 million, $262.9 million and $253.2 million in
the fiscal years ended September 30, 2009, 2008 and 2007, respectively.
The Company files income tax returns in U.S. federal and state jurisdictions as well as
various foreign jurisdictions. The Companys U.S. federal income tax returns for fiscal 2006 and
subsequent years remain subject to examination by the U.S. Internal Revenue Service (IRS). The
IRS is currently examining the Companys tax return for fiscal 2006 and 2007. In Canada, the
Company is currently under examination for fiscal years 2007 and 2008.
The Company recognizes the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities,
including resolutions of any related appeals or litigation processes, based on the technical merits
of the position. As of September 30, 2009 and 2008, the Company had unrecognized tax benefits,
defined as the aggregate tax effect of differences between tax return positions and the benefits
recognized in the Companys financial statements, of $54.4 million and $49.3 million, respectively
($39.4 million and $35.0 million, net of federal benefit, respectively). As of September 30, 2009
and 2008, included in these amounts are $16.7 million and $15.3 million of interest and penalties,
respectively, which the Company continues to record in income tax expense. A reconciliation of the
beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as
follows (in thousands):
|
|
|
|
|
Balance at October 1, 2007 |
|
$ |
39,930 |
|
Additions of tax positions of the current year |
|
|
7,180 |
|
Reductions of tax positions of the prior years |
|
|
(2,492 |
) |
Settlements with taxing authorities |
|
|
(6,617 |
) |
Expiration of statutes of limitations |
|
|
(3,981 |
) |
|
|
|
|
Balance at September 30, 2008 |
|
|
34,020 |
|
Additions of tax positions of the current year |
|
|
8,250 |
|
Additions of tax positions of the prior years |
|
|
624 |
|
Reductions of tax positions of the prior years |
|
|
(2,114 |
) |
Settlements with taxing authorities |
|
|
(1,073 |
) |
Expiration of statutes of limitations |
|
|
(2,058 |
) |
|
|
|
|
Balance at September 30, 2009 |
|
$ |
37,649 |
|
|
|
|
|
If recognized as of September 30, 2009 and 2008, net of federal benefit, $39.4 million
and $33.1 million, respectively, of the Companys unrecognized tax benefit would reduce income tax
expense and the effective tax rate. During the next 12 months, it is reasonably possible that
state tax audit resolutions and the expiration of statutes of limitations could result in a
reduction of unrecognized tax benefits by approximately $10.7 million.
52
Note 6. Goodwill and Other Intangible Assets
Following is a summary of the changes in the carrying value of goodwill for the fiscal years
ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
Goodwill at September 30, 2007 |
|
$ |
2,411,949 |
|
Goodwill recognized in connection with acquisition (See Note 2) |
|
|
139,814 |
|
Foreign currency translation |
|
|
(11,263 |
) |
Adjustment to goodwill relating to deferred taxes |
|
|
(3,379 |
) |
Other |
|
|
(176 |
) |
|
|
|
|
Goodwill at September 30, 2008 |
|
$ |
2,536,945 |
|
Goodwill recognized in connection with acquisition (See Note 2) |
|
|
8,284 |
|
Foreign currency translation |
|
|
(4,153 |
) |
Adjustment to goodwill relating to deferred taxes |
|
|
1,276 |
|
|
|
|
|
Goodwill at September 30, 2009 |
|
$ |
2,542,352 |
|
|
|
|
|
Approximately $139.8 million of goodwill recognized in connection with the Companys
fiscal 2008 business acquisition is expected to be deductible for income tax purposes.
Following is a summary of other intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Indefinite-lived intangibles trade names |
|
$ |
241,554 |
|
|
$ |
|
|
|
$ |
241,554 |
|
|
$ |
252,138 |
|
|
$ |
|
|
|
$ |
252,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
121,419 |
|
|
|
(56,679 |
) |
|
|
64,740 |
|
|
|
119,521 |
|
|
|
(44,664 |
) |
|
|
74,857 |
|
Other |
|
|
33,100 |
|
|
|
(22,682 |
) |
|
|
10,418 |
|
|
|
31,306 |
|
|
|
(19,880 |
) |
|
|
11,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets |
|
$ |
396,073 |
|
|
$ |
(79,361 |
) |
|
$ |
316,712 |
|
|
$ |
402,965 |
|
|
$ |
(64,544 |
) |
|
$ |
338,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fiscal year ended September 30, 2009, the Company recorded an $8.9 million
trade name impairment charge relating to U.S. Bioservices, a specialty pharmacy company within the
Companys specialty group, and trade name impairment
charges totaling $2.9 million relating to two smaller business units.
During the fiscal year ended September 30, 2008, the Company recorded trade name impairment
charges totaling $5.3 million relating to certain of its smaller business units.
Amortization expense for other intangible assets was $15.4 million, $17.1 million, and $16.4
million in the fiscal years ended September 30, 2009, 2008 and 2007, respectively. Amortization
expense for other intangible assets is estimated to be $15.9 million in fiscal 2010, $15.0 million
in fiscal 2011, $12.8 million in fiscal 2012, $10.9 million in fiscal 2013, $7.8 million in 2014
and $12.8 million thereafter.
53
Note 7. Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in thousands) |
|
Blanco revolving credit facility at 2.25% and 3.04%, respectively, due 2010 |
|
$ |
55,000 |
|
|
$ |
55,000 |
|
Receivables securitization facility due 2010 |
|
|
|
|
|
|
|
|
Multi-currency revolving credit facility at 0.92% and 3.76%, respectively, due 2011 |
|
|
224,026 |
|
|
|
235,130 |
|
$400,000, 5 5/8% senior notes due 2012 |
|
|
399,058 |
|
|
|
398,773 |
|
$500,000, 5 7/8% senior notes due 2015 |
|
|
498,339 |
|
|
|
498,112 |
|
Other |
|
|
1,578 |
|
|
|
2,116 |
|
|
|
|
|
|
|
|
Total debt |
|
|
1,178,001 |
|
|
|
1,189,131 |
|
Less current portion |
|
|
1,068 |
|
|
|
1,719 |
|
|
|
|
|
|
|
|
Total, net of current portion |
|
$ |
1,176,933 |
|
|
$ |
1,187,412 |
|
|
|
|
|
|
|
|
Long-Term Debt
In April 2009, the Company amended the Blanco revolving credit facility (the Blanco Credit
Facility) to, among other things, extend the maturity date of the Blanco Credit Facility to April
2010. The Blanco Credit Facility is not classified in the current portion of long-term debt on the
accompanying consolidated balance sheet at September 30, 2009 because the Company has the ability
and intent to refinance it on a long-term basis. Borrowings under the Blanco Credit Facility are
guaranteed by the Company. Interest on borrowings under the Blanco Credit Facility accrues at
specific rates based on the Companys debt rating (200 basis points over LIBOR at September 30,
2009). Additionally, the Company is required to pay quarterly facility fees of 50 basis points on
any unused portion of the facility.
The Company has a $695 million multi-currency senior unsecured revolving credit
facility, which expires in November 2011, (the Multi-Currency Revolving Credit Facility) with a syndicate of lenders. This amount
reflects the reduction of $55 million in availability under the facility as a result of the
September 2008 bankruptcy of Lehman Commercial Paper, Inc. Interest on borrowings under the
Multi-Currency Revolving Credit Facility accrues at specified rates based on the Companys debt
rating and ranges from 19 basis points to 60 basis points over LIBOR/EURIBOR/Bankers Acceptance
Stamping Fee, as applicable (40 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at
September 30, 2009). Additionally, interest on borrowings denominated in Canadian dollars may
accrue at the greater of the Canadian prime rate or the CDOR rate. The Company pays quarterly
facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at
specified rates based on the Companys debt rating, ranging from 6 basis points to 15 basis points
of the total commitment (10 basis points at September 30, 2009). The Company may choose to repay or
reduce its commitments under the Multi-Currency Revolving Credit Facility at any time. The
Multi-Currency Revolving Credit Facility contains covenants, including compliance with a financial
leverage ratio test, as well as others that impose limitations on, among other things, indebtedness
of excluded subsidiaries and asset sales.
The Company has outstanding $400 million of 5.625% senior notes due September 15, 2012 (the
2012 Notes) and $500 million of 5.875% senior notes due September 15, 2015 (the 2015 Notes).
The 2012 Notes and 2015 Notes each were sold at 99.5% of principal amount and have an effective
interest yield of 5.71% and 5.94%, respectively. Interest on the 2012 Notes and the 2015 Notes is
payable semiannually in arrears. In connection with the issuance of the 2012 Notes and the 2015
Notes, the Company incurred approximately $6.7 million and $8.3 million of costs, respectively,
which were deferred and are being amortized over the terms of the notes.
The indentures governing the Multi-Currency Revolving Credit Facility, the 2012 Notes, and the
2015 Notes, contain restrictions and covenants which include limitations on additional
indebtedness; distributions and dividends to stockholders; the repurchase of stock and the making
of other restricted payments; issuance of preferred stock; creation of certain liens; transactions
with subsidiaries and other affiliates; and certain corporate acts such as mergers, consolidations,
and the sale of substantially all assets. An additional covenant requires compliance with a
financial leverage ratio test.
54
Receivables Securitization Facility
In April 2009, the Company amended its receivables securitization facility (Receivables
Securitization Facility), electing to reduce the amount available under the facility from $975
million to $700 million and extend the expiration date to April 2010. The Company continues to
have available to it an accordion feature whereby the commitment on the Receivables Securitization
Facility may be increased by up to $250 million, subject to lender approval, for seasonal needs
during the December and March quarters. Interest rates are based on prevailing market rates for
short-term commercial paper plus a program fee. The Company pays a
commitment fee to maintain the availability under the Receivables Securitization Facility.
The program fee and the commitment fee were 150 basis points and 75 basis points, respectively, at
September 30, 2009. At September 30, 2009, there were no borrowings outstanding under the
Receivables Securitization Facility. In connection with the Receivables Securitization Facility,
ABDC sells on a revolving basis certain accounts receivable to Amerisource Receivables Financial
Corporation, a wholly owned special purpose entity, which in turn sells a percentage ownership
interest in the receivables to commercial paper conduits sponsored by financial institutions. ABDC
is the servicer of the accounts receivable under the Receivables Securitization Facility. After the
maximum limit of receivables sold has been reached and as sold receivables are collected,
additional receivables may be sold up to the maximum amount available under the facility. The
facility is a financing vehicle utilized by the Company because it generally offers an attractive
interest rate relative to other financing sources. The Company securitizes its trade accounts,
which are generally non-interest bearing, in transactions that are accounted for as borrowings.
The agreement governing the Receivables Securitization Facility contains restrictions and covenants
which include limitations on the incurrence of additional indebtedness, making of certain
restricted payments, issuance of preferred stock, creation of certain liens, and certain corporate
acts such as mergers, consolidations and sale of substantially all assets.
Other Information
Scheduled future principal payments of long-term debt are $56.1 million in fiscal 2010, $0.3
million in fiscal 2011, $624.3 million in fiscal 2012, and $500.0 million in fiscal 2015.
Interest paid on the above indebtedness during the fiscal years ended September 30, 2009, 2008
and 2007 was $56.9 million, $68.5 million, and $65.9 million, respectively.
Total amortization of financing fees and the accretion of original issue discounts, which are
recorded as components of interest expense, were $4.3 million, $3.5 million, and $4.7 million, for
the fiscal years ended September 30, 2009, 2008 and 2007, respectively.
Note 8. Stockholders Equity and Earnings per Share
The authorized capital stock of the Company consists of 600,000,000 shares of common stock,
par value $0.01 per share (the Common Stock), and 10,000,000 shares of preferred stock, par value
$0.01 per share (the Preferred Stock).
The board of directors is authorized to provide for the issuance of shares of Preferred Stock
in one or more series with various designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions. Except as required by law,
or as otherwise provided by the board of directors of the Company, the holders of Preferred Stock
will have no voting rights and will not be entitled to notice of meetings of stockholders. Holders
of Preferred Stock will be entitled to receive, when declared by the board of directors, out of
legally available funds, dividends at the rates fixed by the board of directors for the respective
series of Preferred Stock, and no more, before any dividends will be declared and paid, or set
apart for payment, on Common Stock with respect to the same dividend period. No shares of Preferred
Stock have been issued as of September 30, 2009.
The holders of the Companys Common Stock are entitled to one vote per share and have the
exclusive right to vote for the board of directors and for all other purposes as provided by law.
Subject to the rights of holders of the Companys Preferred Stock, holders of Common Stock are
entitled to receive ratably on a per share basis such dividends and other distributions in cash,
stock or property of the Company as may be declared by the board of directors from time to time out
of the legally available assets or funds of the Company.
The following table illustrates the components of accumulated other comprehensive loss, net of
income taxes, as of September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Pension and postretirement adjustments (See Note 9) |
|
$ |
(41,069 |
) |
|
$ |
(16,062 |
) |
Foreign currency translation |
|
|
(4,537 |
) |
|
|
170 |
|
Other |
|
|
(490 |
) |
|
|
(598 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(46,096 |
) |
|
$ |
(16,490 |
) |
|
|
|
|
|
|
|
In August 2006, the Companys board of directors authorized a program allowing the
Company to purchase up to $750 million of its outstanding shares of Common Stock. During the fiscal
year ended September 30, 2007, the Company purchased 31.1 million shares of its Common Stock under
this program for a total of $750.0 million.
55
In May 2007, the Companys board of directors authorized a program allowing the Company to
purchase up to $850 million of its outstanding shares of Common Stock, subject to market
conditions. During the fiscal year ended September 30, 2007, the Company purchased 27.6 million
shares of Common Stock under this program for a total of $652.6 million. In November 2007, the
Companys
board of directors authorized an increase to the $850 million share repurchase program by $500
million, subject to market conditions. During the fiscal year ended September 30, 2008, the Company
purchased 31.8 million shares of Common Stock under this program for a total of $679.7 million.
During the fiscal year ended September 30, 2009, the Company purchased 1.2 million shares of its
Common Stock to complete its authorization under this program.
In November 2008, the Companys board of directors authorized a program allowing the Company
to purchase up to $500 million of its outstanding shares of Common Stock, subject to market
conditions. During the fiscal year ended September 30, 2009, the Company purchased 23.3 million
shares of Common Stock under this program for a total of $431.9 million. The Company had $68.1
million of availability remaining under this share repurchase program as of September 30, 2009.
In November 2009, the Companys board of directors authorized a new program allowing the
Company to purchase up to $500 million of its outstanding shares of Common Stock, subject to market
conditions.
Basic earnings per share is computed on the basis of the weighted average number of shares of
Common Stock outstanding during the periods presented. Diluted earnings per share is computed on
the basis of the weighted average number of shares of Common Stock outstanding during the periods
plus the dilutive effect of stock options and restricted stock. The following table (in thousands)
is a reconciliation of the numerator and denominator of the computation of basic and diluted
earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic |
|
|
300,573 |
|
|
|
321,284 |
|
|
|
370,362 |
|
Effect of dilutive securitiesstock options and restricted stock |
|
|
2,181 |
|
|
|
3,636 |
|
|
|
5,410 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdiluted |
|
|
302,754 |
|
|
|
324,920 |
|
|
|
375,772 |
|
|
|
|
|
|
|
|
|
|
|
The potentially dilutive employee stock options that were antidilutive for fiscal 2009,
2008 and 2007 were 13.6 million, 10.6 million and 4.3 million, respectively.
Note 9. Pension and Other Benefit Plans
The Company sponsors various retirement benefit plans, including defined benefit pension
plans, defined contribution plans, postretirement medical plans and a deferred compensation plan
covering eligible employees. Expenses relating to these plans were $21.9 million, $20.0 million,
and $27.1 million in fiscal 2009, 2008 and 2007, respectively.
The Company adopted the recognition and disclosure provisions of ASC 715,
Compensation-Retirement Benefits (formerly referred to as FASB Statement No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans) as of September 30, 2007.
This adoption required the Company to recognize the funded status (i.e. the difference between the
fair value of plan assets and the projected benefit obligations) of its defined benefit pension
plans and postretirement benefit plans in its balance sheet, with a corresponding adjustment to
accumulated other comprehensive income (loss), net of income taxes. The Company made an adjustment
of $10.6 million, net of income taxes, relating to net actuarial losses with respect to its defined
benefit pension plans and postretirement benefit plans, in accumulated other comprehensive income
(loss) as a result of this adoption. Included in accumulated other comprehensive income (loss) at
September 30, 2009 are net actuarial losses of $67.3 million ($41.1 million, net of income taxes).
The net actuarial loss in accumulated other comprehensive income (loss) that is expected to be
amortized into fiscal 2010 net periodic pension expense is $3.3 million ($2.0 million, net of
income tax).
The Company adopted the measurement provisions of ASC 715 in the fourth quarter of fiscal
2009. As required, our defined benefit plan assets and obligations are now measured as of the
Companys fiscal year-end. The Company previously performed this measurement at June 30. The
Companys adoption of the measurement provisions of ASC 715 did not have a material impact on its
financial position or results of operations.
Defined Benefit Plans
The Company provides a benefit for certain employees under two different noncontributory
defined benefit pension plans consisting of a salaried plan and a supplemental executive retirement
plan. Additionally, the Company previously provided benefits to certain employees under a union
plan, which was merged with the salaried plan on October 1, 2005. For each employee, the benefits
are based on years of service and average compensation. Pension costs, which are computed using the
projected unit credit cost method, are funded to at least the minimum level required by government
regulations. Since 2002, the salaried and the supplemental executive retirement plans have been
closed to new participants and benefits that can be earned by active participants in the plan were
limited.
The Company has an unfunded supplemental executive retirement plan for its former Bergen
officers and key employees. This plan is a target benefit plan, with the annual lifetime benefit
based upon a percentage of salary during the five final years of pay at age 62, offset by several
other sources of income including benefits payable under a prior supplemental retirement plan.
Since 2002, the plan has been closed to new participants and benefits that can be earned by active
participants were limited.
56
The following table sets forth (in thousands) a reconciliation of the changes in the
Company-sponsored defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
Change in Projected Benefit Obligations: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
106,082 |
|
|
$ |
109,772 |
|
Interest cost |
|
|
8,601 |
|
|
|
6,791 |
|
Actuarial losses (gains) |
|
|
22,208 |
|
|
|
(6,238 |
) |
Benefit payments |
|
|
(7,872 |
) |
|
|
(5,003 |
) |
Other |
|
|
(91 |
) |
|
|
760 |
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
128,928 |
|
|
$ |
106,082 |
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
94,051 |
|
|
$ |
104,376 |
|
Actual return on plan assets |
|
|
(6,811 |
) |
|
|
(8,043 |
) |
Employer contributions |
|
|
3,007 |
|
|
|
3,874 |
|
Expenses |
|
|
(1,081 |
) |
|
|
(1,153 |
) |
Benefit payments |
|
|
(7,872 |
) |
|
|
(5,003 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
81,294 |
|
|
$ |
94,051 |
|
|
|
|
|
|
|
|
Funded Status and Amounts Recognized: |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(47,634 |
) |
|
$ |
(12,031 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(47,634 |
) |
|
$ |
(12,031 |
) |
|
|
|
|
|
|
|
Amounts recognized in the balance sheets consist of: |
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
|
|
|
$ |
2,254 |
|
Current liabilities |
|
|
(3,876 |
) |
|
|
(5,862 |
) |
Noncurrent liabilities |
|
|
(43,758 |
) |
|
|
(8,423 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(47,634 |
) |
|
$ |
(12,031 |
) |
|
|
|
|
|
|
|
Weighted average assumptions used (as of the end of the fiscal year) in computing the
benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Discount rate |
|
|
5.55 |
% |
|
|
6.85 |
% |
Rate of increase in compensation levels |
|
|
N/A |
|
|
|
N/A |
|
Expected long-term rate of return on assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
The expected long-term rate of return for the plans represents the average rate of return to
be earned on plan assets over the period the benefits included in the benefit obligation are to be
paid.
The following table provides components of net periodic benefit cost for the
Company-sponsored defined benefit pension plans together with contributions charged to expense for
multi-employer union-administered defined benefit pension plans that the Company participates in
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Components of Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,677 |
|
Interest cost on projected benefit obligation |
|
|
6,958 |
|
|
|
6,791 |
|
|
|
6,393 |
|
Expected return on plan assets |
|
|
(8,102 |
) |
|
|
(8,170 |
) |
|
|
(7,430 |
) |
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
19 |
|
Recognized net actuarial loss |
|
|
1,313 |
|
|
|
1,481 |
|
|
|
1,309 |
|
Loss due to curtailments, settlements and other |
|
|
297 |
|
|
|
971 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost of defined benefit pension plans |
|
|
466 |
|
|
|
1,073 |
|
|
|
3,128 |
|
Net pension cost of multi-employer plans |
|
|
385 |
|
|
|
469 |
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
$ |
851 |
|
|
$ |
1,542 |
|
|
$ |
3,683 |
|
|
|
|
|
|
|
|
|
|
|
57
Weighted average assumptions used (as of the beginning of the fiscal year) in computing
the net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Discount rate |
|
|
6.85 |
% |
|
|
6.30 |
% |
|
|
6.35 |
% |
Rate of increase in compensation levels |
|
|
N/A |
|
|
|
N/A |
|
|
|
4.00 |
% |
Expected long-term rate of return on assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
To determine the expected long-term rate of return on assets, the Company considered the
current and expected asset allocations, as well as historical and expected returns on various
categories of plan assets.
The Compensation and Succession Planning Committee (Compensation Committee) of the Companys
board of directors has established the investment policy of the pension plans, including the
selection of acceptable asset classes, allowable ranges of holdings, the definition of acceptable
securities within each class, and investment performance expectations. Additionally, the Companys
Benefits Committee, pursuant to authority delegated by the Compensation Committee, has established
rules for the rebalancing of assets between asset classes and among individual investment managers.
The investment portfolio contains a diversified portfolio of investment categories, including
equities, fixed income securities and cash. Securities are also diversified in terms of domestic
and international securities and large cap and small cap stocks. The actual and target asset
allocations expressed as a percentage of the plans assets at the measurement date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Target |
|
|
|
Allocation |
|
|
Allocation |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Asset Category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
49 |
% |
|
|
68 |
% |
|
|
70 |
% |
|
|
70 |
% |
Debt securities |
|
|
|
|
|
|
30 |
|
|
|
30 |
|
|
|
30 |
|
Cash and cash equivalents |
|
|
51 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In August 2009, the Compensation Committee elected to engage the services of a new
investment manager for the plans assets. As of September 30, 2009, 51% of the plans assets were
temporarily invested in cash in anticipation of transferring the plans assets to the new
investment manager. In October 2009, the transfer of the plans assets to the new investment
manager was completed.
The investment goals are to achieve the optimal return possible within the specific risk
parameters and, at a minimum, produce results, which achieve the plans assumed interest rate for
funding the plans over a full market cycle. High levels of risk and volatility are reduced by
maintaining diversified portfolios. Allowable investments include government-backed fixed income
securities, investment grade corporate bonds, residential backed
mortgage securities, equity securities and cash equivalents. Prohibited investments include unregistered or restricted
stock, commodities, margin trading, options and futures, short-selling, venture capital, private
placements, real estate and other high risk investments.
As of September 30, 2009, all of the Companys defined benefit pension plans had accumulated
and projected benefit obligations in excess of plan assets. As of September 30, 2008, certain of
the Companys defined benefit pension plans had accumulated and projected benefit obligations in
excess of plan assets. The amounts related to these plans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Accumulated benefit obligation |
|
$ |
128,928 |
|
|
$ |
14,295 |
|
Projected benefit obligation |
|
$ |
128,928 |
|
|
$ |
14,295 |
|
Plan assets at fair value |
|
$ |
81,294 |
|
|
$ |
10 |
|
58
Although the Company is not required to contribute to its pension plans in fiscal 2010, it
elected to make a $9.0 million contribution in October 2009 relating to its salaried benefit plan.
Expected benefit payments over the next ten years, are anticipated to be paid as follows (in
thousands):
|
|
|
|
|
|
|
Pension Benefits |
|
Fiscal Year: |
|
|
|
|
2010 |
|
$ |
7,728 |
|
2011 |
|
|
4,519 |
|
2012 |
|
|
4,508 |
|
2013 |
|
|
11,581 |
|
2014 |
|
|
5,519 |
|
20152019 |
|
|
33,479 |
|
|
|
|
|
Total |
|
$ |
67,334 |
|
|
|
|
|
Expected benefit payments are based on the same assumptions used to measure the benefit
obligations.
Postretirement Benefit Plans
The Company provides medical benefits to certain retirees, principally former employees of
Bergen. Employees became eligible for such postretirement benefits after meeting certain age and
years of service criteria. Since 2002, the plans have been closed to new participants and benefits
that can be earned by active participants were limited. As a result of special termination benefit
packages previously offered, the Company also provides dental and life insurance benefits to a
limited number of retirees and their dependents. These benefit plans are unfunded.
The following table sets forth (in thousands) a reconciliation of the changes in the
Company-sponsored postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
Change in Accumulated Benefit Obligations: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
11,064 |
|
|
$ |
16,047 |
|
Interest cost |
|
|
703 |
|
|
|
775 |
|
Actuarial losses (gains) |
|
|
1,876 |
|
|
|
(4,208 |
) |
Benefit payments |
|
|
(1,392 |
) |
|
|
(1,550 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
12,251 |
|
|
$ |
11,064 |
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
|
|
|
$ |
|
|
Employer contributions |
|
|
1,392 |
|
|
|
1,550 |
|
Benefit payments |
|
|
(1,392 |
) |
|
|
(1,550 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Funded Status and Amounts Recognized: |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(12,251 |
) |
|
$ |
(11,064 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(12,251 |
) |
|
$ |
(11,064 |
) |
|
|
|
|
|
|
|
Amounts recognized in the balance sheets consist of: |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
(1,484 |
) |
|
$ |
(1,366 |
) |
Noncurrent liabilities |
|
|
(10,767 |
) |
|
|
(9,698 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(12,251 |
) |
|
$ |
(11,064 |
) |
|
|
|
|
|
|
|
Weighted average assumptions used (as of the end of the fiscal year) in computing the
funded status of the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Discount rate |
|
|
5.55 |
% |
|
|
6.85 |
% |
Health care trend rate assumed for next year |
|
|
8.25 |
% |
|
|
8.25 |
% |
Rate to which the cost trend rate is assumed to decline |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that the rate reaches the ultimate trend rate |
|
|
2019 |
|
|
|
2018 |
|
59
Assumed health care trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates would have
the following effect (in thousands):
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point |
|
|
|
Increase |
|
|
Decrease |
|
Effect on total service and interest cost components |
|
$ |
1,053 |
|
|
$ |
(898 |
) |
Effect on benefit obligation |
|
|
70 |
|
|
|
(60 |
) |
The following table provides components of net periodic benefit cost for the
Company-sponsored postretirement benefit plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Components of Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on projected benefit obligation |
|
$ |
703 |
|
|
$ |
775 |
|
|
$ |
992 |
|
Recognized net actuarial gains |
|
|
(879 |
) |
|
|
(44 |
) |
|
|
(426 |
) |
|
|
|
|
|
|
|
|
|
|
Total postretirement benefit expense |
|
$ |
(176 |
) |
|
$ |
731 |
|
|
$ |
566 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used (as of the beginning of the fiscal year) in computing
the net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Discount rate |
|
|
6.85 |
% |
|
|
6.30 |
% |
|
|
6.35 |
% |
Health care trend rate assumed for next year |
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
10.50 |
% |
Rate to which the cost trend rate is assumed to decline |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that the rate reaches the ultimate trend rate |
|
|
2019 |
|
|
|
2018 |
|
|
|
2017 |
|
Expected postretirement benefit payments over the next ten years are anticipated to be paid as
follows (in thousands):
|
|
|
|
|
|
|
Postretirement |
|
|
|
Benefits |
|
Fiscal Year: |
|
|
|
|
2010 |
|
$ |
1,484 |
|
2011 |
|
|
1,408 |
|
2012 |
|
|
1,277 |
|
2013 |
|
|
1,147 |
|
2014 |
|
|
1,050 |
|
2015-2019 |
|
|
3,836 |
|
|
|
|
|
Total |
|
$ |
10,202 |
|
|
|
|
|
Defined Contribution Plans
The Company sponsors the AmerisourceBergen Employee Investment Plan, which is a defined
contribution 401(k) plan covering salaried and certain hourly employees. Eligible participants may
contribute to the plan from 1% to 25% of their regular compensation before taxes. The Company
contributes $1.00 for each $1.00 invested by the participant up to the first 3% of the
participants salary and $0.50 for each additional $1.00 invested by the participant of up to an
additional 2% of salary. An additional discretionary contribution, in an amount not to exceed the
limits established by the Internal Revenue Code, may also be made depending upon the Companys
performance. All contributions are invested at the direction of the employee in one or more funds.
All contributions vest immediately except for the discretionary contributions made by the Company
that vest in full after five years of credited service.
The Company also sponsors the AmerisourceBergen Corporation Supplemental 401(k) Plan. This
unfunded plan provides benefits for selected key management, including all of the Companys
executive officers. This plan will provide eligible participants with an annual amount equal to 4%
of the participants base salary and bonus incentive to the extent that his or her compensation
exceeds the annual compensation limit established by Section 401(a) (17) of the Internal Revenue
Code.
Costs of the defined contribution plans charged to expense for the fiscal years ended
September 30, 2009, 2008 and 2007 were $21.1 million, $18.8 million, and $20.9 million,
respectively.
60
Deferred Compensation Plan
The Company sponsors the AmerisourceBergen Corporation 2001 Deferred Compensation Plan. This
unfunded plan, under which 2.96 million shares of Common Stock are authorized for issuance, allows
eligible officers, directors and key management employees to defer a portion of their annual
compensation. The amount deferred may be allocated by the employee to cash, mutual funds or stock
credits. Stock credits, including dividend equivalents, are equal to the full and fractional number
of shares of Common Stock that could be purchased with the participants compensation allocated to
stock credits based on the average of closing prices of Common Stock during each month, plus, at
the discretion of the board of directors, up to one-half of a share of Common Stock for each full
share credited. Stock credit distributions are made in shares of Common Stock. No shares of Common
Stock have been issued under the deferred compensation plan through September 30, 2009. The
Companys liability relating to its deferred compensation plan as of September 30, 2009 and 2008
was $6.5 million and $6.3 million, respectively.
Note 10. Share-Based Compensation
Stock Option Plans
The Companys employee stock option plans provide for the granting of incentive and
nonqualified stock options to acquire shares of Common Stock to employees at a price not less than
the fair market value of the Common Stock on the date the option is granted. Option terms and
vesting periods are determined at the date of grant by the Compensation Committee of the board of
directors. Employee options generally vest ratably, in equal amounts, over a four-year service
period and expire in ten years (seven years for all grants issued in February 2008 and thereafter).
The Companys non-employee director stock option plans provide for the granting of nonqualified
stock options to acquire shares of Common Stock to non-employee directors at the fair market value
of the Common Stock on the date of the grant. Non-employee director options vest ratably, in equal
amounts, over a three-year service period, and options expire in ten years.
In connection with the divestiture of Long-Term Care, the Companys stockholders received PMC
common stock, as previously discussed in Note 3 and the Companys Common Stock commenced trading
without Long-Term Care on August 1, 2007. As a result, the price of the Companys Common Stock
decreased from $23.56 per share at the closing of regular trading on July 31, 2007 to an opening
price on August 1, 2007 of $23.05 per share. In accordance with the antidilution provisions of the
Companys stock option plans, the number of stock options previously granted to each employee or
non-employee director, as well as the corresponding grant price, was adjusted accordingly to
reflect the decline in the market price of the Companys Common Stock between the July 31, 2007
closing price and the August 1, 2007 opening price, as quoted on the New York Stock Exchange (the
Modification). The net effect of the adjustments was to reduce the exercise prices of all
outstanding options by the same percentage that the price of the Companys Common Stock decreased
from July 31, 2007 to August 1, 2007, increase the number of options exercisable under each grant,
and preserve the aggregate spread (whether positive or negative) associated with each grant of
options.
At September 30, 2009, options for an additional 29.6 million shares may be granted under the
Companys 2002 employee incentive plan and options for an additional 169 thousand shares may be
granted under the Companys non-employee director stock option plan.
The estimated fair values of options granted are expensed as compensation on a straight-line
basis over the requisite service periods of the awards and are net of estimated forfeitures. The
Company estimates the fair values of option grants using a binomial option pricing model. Expected
volatilities are based on the historical volatility of the Companys Common Stock and other
factors, such as implied market volatility. The Company uses historical exercise data, taking into
consideration the optionees ages at grant date, to estimate the terms for which the options are
expected to be outstanding. The Company anticipates that the terms of options granted in the future
will be similar to those granted in the past. The risk-free rates during the terms of such options
are based on the U.S. Treasury yield curve in effect at the time of grant.
The weighted average fair values of the options granted during the fiscal years ended
September 30, 2009, 2008 and 2007 were $4.18, $4.92, and $7.43, respectively. The following
assumptions were used to estimate the fair values of options granted:
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, |
|
|
|
2009 |
|
2008 |
|
2007 |
|
Weighted average risk-free interest rate |
|
1.59 |
% |
2.79 |
% |
4.73 |
% |
Expected dividend yield |
|
1.13 |
% |
0.70 |
% |
0.37 |
% |
Weighted average volatility of common stock |
|
31.82 |
% |
28.14 |
% |
24.49 |
% |
Weighted average expected life of the options |
|
3.83 years |
|
3.71 years |
|
4.38 years |
|
Changes to the above valuation assumptions could have a significant impact on share-based
compensation expense. During the fiscal years ended September 30, 2009, 2008 and 2007, the Company
recorded stock option expense of $17.4 million, $17.4 million, and $17.5 million, respectively.
61
A summary of the Companys stock option activity and related information for its option
plans for the fiscal year ended September 30, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
(000s) |
|
|
Price |
|
|
Term |
|
|
(000s) |
|
Outstanding at September 30, 2008 |
|
|
23,606 |
|
|
$ |
19 |
|
|
6 years |
|
|
|
|
|
Granted |
|
|
3,770 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,427 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(937 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
25,012 |
|
|
$ |
19 |
|
|
5 years |
|
|
$ |
108,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
16,560 |
|
|
$ |
18 |
|
|
5 years |
|
|
$ |
88,035 |
|
Expected to
vest after September 30, 2009 |
|
|
7,207 |
|
|
$ |
21 |
|
|
6 years |
|
|
$ |
17,046 |
|
The intrinsic value of stock option exercises during fiscal 2009, 2008 and 2007 was $7.4
million, $38.5 million, and $54.8 million, respectively.
A summary of the status of the Companys nonvested options as of September 30, 2009 and
changes during the fiscal year ended September 30, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Options |
|
|
Grant Date |
|
|
|
(000s) |
|
|
Fair Value |
|
Nonvested at September 30, 2008 |
|
|
9,138 |
|
|
$ |
6 |
|
Granted |
|
|
3,770 |
|
|
|
4 |
|
Vested |
|
|
(3,876 |
) |
|
|
5 |
|
Forfeited |
|
|
(580 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009 |
|
|
8,452 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
Expected future compensation expense relating to the 8.5 million nonvested options outstanding
as of September 30, 2009 is $31.7 million over a weighted-average period of 2 years.
Restricted Stock Plan
Restricted shares vest in full after three years. The estimated fair value of restricted
shares under the Companys restricted stock plans is determined by the product of the number of
shares granted and the grant date market price of the Companys Common Stock. The estimated fair
value of restricted shares is expensed on a straight-line basis over the requisite service period
of three years. During the fiscal years ended September 30, 2009, 2008 and 2007, the Company
recorded restricted stock expense of $7.5 million, $6.6 million, and $5.4 million, respectively.
A summary of the status of the Companys restricted shares as of September 30, 2009 and
changes during the fiscal year ended September 30, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
Average |
|
|
|
Shares |
|
|
Grant Date |
|
|
|
(000s) |
|
|
Fair Value |
|
Nonvested at September 30, 2008 |
|
|
1,210 |
|
|
$ |
23 |
|
Granted |
|
|
378 |
|
|
|
18 |
|
Vested |
|
|
(382 |
) |
|
|
22 |
|
Forfeited |
|
|
(109 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009 |
|
|
1,097 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
Expected future compensation expense relating to the 1.1 million restricted shares
outstanding as of September 30, 2009 is $9.5 million over a weighted-average period of 1.3 years.
62
Employee Stock Purchase Plan
The stockholders approved the adoption of the AmerisourceBergen 2002 Employee Stock Purchase
Plan, under which up to an aggregate of 16,000,000 shares of Common Stock may be sold to eligible
employees (generally defined as employees with at least 30 days of service with the Company). Under
this plan, the participants may elect to have the Company withhold up to 25% of base salary to
purchase shares of the Companys Common Stock at a price equal to 85% of the fair market value of
the stock on the first or last business day of each six-month purchase period, whichever is lower
(95% of the fair market value of the stock on the last business day of each six-month purchase
period, beginning January 2010). Each participant is limited to $25,000 of purchases during each
calendar year. During the fiscal years ended September 30, 2009, 2008 and 2007, the Company
acquired 331,639 shares, 299,956 shares, and 308,480 shares, respectively, from the open market for
issuance to participants in this plan. As of September 30, 2009, the Company has withheld $1.5
million from eligible employees for the purchase of additional shares of Common Stock.
Note 11. Leases and Other Commitments
At September 30, 2009, future minimum payments totaling $238.9 million under noncancelable
operating leases with remaining terms of more than one fiscal year were due as follows; 2010$52.4
million; 2011$45.6 million; 2012$29.5 million; 2013$20.5 million; 2014$15.9 million; and
thereafter$75.0 million. In the normal course of business, operating leases are generally renewed
or replaced by other leases. Certain operating leases include escalation clauses. Total rental
expense was $62.8 million in fiscal 2009, $63.0 million in fiscal 2008, and $71.3 million in fiscal
2007.
The Company has commitments to purchase product from influenza vaccine manufacturers through
June 30, 2015. The Company is required to purchase annual doses at prices that the Company
believes will represent market prices. The Company currently estimates its remaining purchase
commitment under these agreements, as amended, will be approximately $270.2 million as of September
30, 2009, of which $36.5 million represents the Companys commitment in fiscal 2010.
The Company has commitments to purchase blood products from suppliers through December 31,
2012. The Company is required to purchase quantities at prices that the Company believes will
represent market prices. The Company currently estimates its remaining purchase commitment under
these agreements will be approximately $421.6 million as of September 30, 2009, of which $165.0
million represents the Companys commitment in fiscal 2010.
The Company outsources to IBM Global Services (IBM) a significant portion of its corporate
and ABDC information technology activities and, in fiscal 2009, expanded and amended its
relationship by engaging IBM to provide assistance with the implementation of the Companys new
enterprise resource planning (ERP) platform. The remaining commitment under the Companys
ten-year arrangement, as amended, which expires in June 2015, is approximately $134.8 million.
Note 12. Facility Consolidations, Employee Severance and Other
The following table illustrates the charges incurred by the Company relating to facility
consolidations, employee severance and other for the three fiscal years ended September 30, 2009
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Facility consolidations and employee severance |
|
$ |
5,406 |
|
|
$ |
9,741 |
|
|
$ |
(5,863 |
) |
Information technology transition costs |
|
|
|
|
|
|
|
|
|
|
1,679 |
|
Costs relating to business divestitures |
|
|
|
|
|
|
2,636 |
|
|
|
9,335 |
|
Gain on sale of retail pharmacy assets |
|
|
|
|
|
|
|
|
|
|
(3,079 |
) |
|
|
|
|
|
|
|
|
|
|
Total facility consolidations, employee severance and other |
|
$ |
5,406 |
|
|
$ |
12,377 |
|
|
$ |
2,072 |
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2008, the Company announced a more streamlined organizational structure and
introduced an initiative (cE2) designed to drive increased customer efficiency and cost
effectiveness. In connection with these efforts, the Company has reduced various operating costs
and terminated certain positions. During fiscal 2009 and 2008, the Company terminated 197 and 130
employees and incurred $3.1 million and $10.0 million of employee severance costs, respectively,
relating to the cE2 initiative. Employees receive their severance benefits over a period of time,
generally not in excess of 12 months, or in the form of a lump-sum payment.
During fiscal 2007, the Company completed its integration plan to consolidate its distribution
network and eliminate duplicative administrative functions. The plan included building six new
facilities, closing 31 facilities, and outsourcing a significant amount of its information
technology activities. During fiscal 2008, the Company reversed $1.0 million of employee severance
charges previously estimated and recorded related to this integration plan.
During fiscal 2006, the Company incurred a charge of $13.9 million for an increase in a
compensation accrual due to an adverse decision in an employment-related dispute with a former
Bergen Brunswig chief executive officer whose employment was terminated in 1999. In October 2007,
the Company received a favorable ruling from a California appellate court reversing certain
portions of the prior adverse decision. As a result, the Company reduced its liability in fiscal
2007 to the Bergen Brunswig chief executive officer by $10.4 million (see Bergen Brunswig Matter
under Note 13). The fiscal 2006 compensation expense and the fiscal 2007 reduction
thereof were recorded as a component of the facility consolidations and employee severance
line. During fiscal 2009, the Company recorded $2.2 million of expense relating to this matter.
63
During fiscal 2007, the Company recognized a $3.1 million gain relating to the sale of certain
retail pharmacy assets of its former Long-Term Care business.
The following table, which includes the total compensation accrual due to the former Bergen
Brunswig chief executive officer, displays the activity in accrued expenses and other from
September 30, 2007 to September 30, 2009 related to the matters discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
Lease Cancellation |
|
|
|
|
|
|
Severance |
|
|
Costs and Other |
|
|
Total |
|
Balance as of September 30, 2007 |
|
$ |
10,997 |
|
|
$ |
4,865 |
|
|
$ |
15,862 |
|
Expense recorded during the period |
|
|
9,060 |
|
|
|
3,317 |
|
|
|
12,377 |
|
Payments made during the period |
|
|
(2,976 |
) |
|
|
(3,826 |
) |
|
|
(6,802 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008 |
|
|
17,081 |
|
|
|
4,356 |
|
|
|
21,437 |
|
Expense recorded during the period |
|
|
5,255 |
|
|
|
151 |
|
|
|
5,406 |
|
Payments made during the period |
|
|
(14,460 |
) |
|
|
(958 |
) |
|
|
(15,418 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009 |
|
$ |
7,876 |
|
|
$ |
3,549 |
|
|
$ |
11,425 |
|
|
|
|
|
|
|
|
|
|
|
Note 13. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes involved in lawsuits,
administrative proceedings, government subpoenas, and government investigations, including
antitrust, commercial, environmental, product liability, intellectual property, regulatory,
employment discrimination, and other matters. Significant damages or penalties may be sought from
the Company in some matters, and some matters may require years for the Company to resolve. The
Company establishes reserves based on its periodic assessment of estimates of probable losses.
There can be no assurance that an adverse resolution of one or more matters during any subsequent
reporting period will not have a material adverse effect on the Companys results of operations for
that period or on the Companys financial condition.
RxUSA Matter
In 2001, the Company sued one of its former customers, Rx USA International, Inc. and certain
related companies (RxUSA), seeking over $300,000 for unpaid invoices. Thereafter, RxUSA filed
counterclaims alleging breach of contract claiming that it was overbilled for products by over
$400,000. RxUSA also alleged violations of the federal and New York antitrust laws, tortious
interference with business relations and defamation. The Federal District Court granted summary
judgment for the Company on the antitrust and defamation counterclaims, but denied the motion on
the breach of contract and tortious interference counterclaims. In connection with its tortious
interference counterclaim, RxUSA asserted compensatory damages of $61 million plus punitive
damages. The trial of the Companys claims and RxUSAs remaining counterclaims commenced in the
United States District Court for the Eastern District of New York on January 26, 2009 and concluded
on February 6, 2009. The jury returned a verdict in the Companys favor on all claims and
counterclaims in the case: rejecting RxUSAs claims for tortious interference and breach of
contract in their entirety, while finding that RxUSA breached its contract with the Company and
ordering RxUSA to satisfy the unpaid invoices in the full amount claimed by the Company. The case
is now in post-trial proceedings, with several matters still pending, including the Companys
motion to sanction RxUSA. On May 1, 2009, RxUSA filed a voluntary petition in bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code and an automatic stay went into effect with respect to
certain legal proceedings involving the debtor, including the proceedings in this matter. In July
2009, the U.S. Bankruptcy Court for the Eastern District of New York granted the Companys motion
for relief from the automatic stay, which will allow the post-trial proceedings to re-commence. On
September 21, 2009, the United States District Court for the Eastern District of New York held a
hearing on the Companys motion for sanctions.
Bergen Brunswig Matter
A former Bergen Brunswig chief executive officer who was terminated in 1999 filed an action
that year in the Superior Court of the State of California, County of Orange (the Superior Court)
claiming that Bergen Brunswig (predecessor in interest to AmerisourceBergen Corporation) had
breached its obligations to him under his employment agreement. Shortly after the filing of the
lawsuit, Bergen Brunswig made a California Civil Procedure Code § 998 Offer of Judgment to the
executive, which the executive accepted. The resulting judgment awarded the executive damages and
the continuation of certain employment benefits. Since then, the Company and the executive have
engaged in litigation as to what specific benefits were included in the scope of the Offer of
Judgment and the value of those benefits. The Superior Court entered an Order in Implementation of
Judgment on June 7, 2001, which identified the specific benefits encompassed by the Offer of
Judgment. Following submission by the
64
executive
of a claim for benefits pursuant to the Bergen Brunswig Supplemental Executive Retirement Plan (the Plan), the Company followed
the administrative procedure set forth in the Plan. This procedure involved separate reviews by two
independent parties, the first by the Review Official appointed by the Plan Administrator and
second by the Plan Trustee, and resulted in a determination that the executive was entitled to a
$1.9 million supplemental retirement benefit and such amount was paid. The executive challenged
this award and on July 7, 2006, the Superior Court entered a Second Order in Implementation of
Judgment determining that the executive was entitled to a supplemental retirement benefit, net of
the $1.9 million previously paid to him, in the amount of $19.4 million, which included interest at
the rate of ten percent per annum from August 29, 2001. The Company recorded a charge of $13.9
million in June 2006 to establish the total liability of $19.4 million on its balance sheet. Both
the executive and the Company appealed the ruling of the Superior Court. On October 12, 2007, the
Court of Appeal for the State of California, Fourth Appellate District (the Court of Appeal) made
certain rulings, and reversed certain portions of the July 2006 decision of the Superior Court in a
manner that was favorable to the Company. As a result, in fiscal 2007, the Company reduced its
total liability to the executive by $10.4 million. The parties then entered into a stipulation to
remand the calculation of the executives supplemental retirement benefit to the Plan Administrator
in accordance with the Court of Appeals decision of October 12, 2007. On June 10, 2008, the Plan
Administrator issued a decision that the executive was entitled to receive approximately $6.9
million in supplemental retirement benefits plus interest, less the $1.9 million already paid to
the executive under the Plan. The executive appealed this determination and a hearing on his
appeal was held in August 2008 before a Review Official appointed by the Plan Administrator. On
October 31, 2008, the Review Official issued a decision affirming in most respects the Plan
Administrators determination of the executives supplemental retirement benefit. On November 17,
2008, the executive filed a motion for a Third Order in Implementation of Judgment with the
Superior Court asking the court to overturn the decision of the Review Official. On March 9, 2009,
the Company paid the executive approximately $5.6 million, plus interest, for the executives
supplemental retirement benefit, as determined by the Review Official. On April 9, 2009, the
Superior Court affirmed most aspects of the Review Officials determination of decision, but held
that the Review Official had abused his discretion by discounting the executives supplemental
retirement benefit to its present value. As a result, the Superior Court held that the executive
was entitled to an additional supplemental retirement benefit of approximately $6.6 million, plus
interest, beyond what has already been paid by the Company. During the fiscal year ended September
30, 2009, the Company accrued an additional $2.2 million related to this matter. The Company
believes that the Superior Courts holding is inconsistent with the 2007 Court of Appeal decision
and on May 4, 2009, filed a Notice of Appeal appealing the Superior Courts holding. The executive
also appealed the Superior Courts holding.
Ontario Ministry of Health and Long-Term Care Civil Rebate Payment Order and Civil Complaint
On April 27, 2009, the Ontario Ministry of Health and Long-Term Care (OMH) notified the
Companys Canadian subsidiary, AmerisourceBergen Canada Corporation (ABCC), that it had entered a
Rebate Payment Order requiring ABCC to pay C$5.8 million to the Ontario Ministry of Finance. OMH
maintains that it has reasonable grounds to believe that ABCC accepted rebates, directly or
indirectly, in violation of the Ontario Drug Interchangeability and Dispensing Fee Act. OMH at the
same time announced similar rebate payment orders against other wholesalers, generic manufacturers,
pharmacies and individuals. ABCC was cooperating fully with OMH prior to the entry of the Order by
responding fully to requests for information and/or documents and will continue to cooperate. ABCC
filed an appeal of the Order pursuant to OMH procedures in May 2009. In addition, on the same day
that the Order was issued, OMH notified ABCC that it had filed a civil complaint with Health Canada
(department of the Canadian government responsible for national public health) against ABCC for
potential violations of the Canadian Food and Drug Act. Health Canada subsequently conducted an
audit of ABCC, and ABCC has cooperated fully with Health Canada in the conduct of the audit. In
October 2009, the Company met with representatives of OMH to present its position on the Rebate
Payment Order. Although ABCC believes that it has not violated the relevant statutes and
regulations and has conducted its business consistent with widespread industry practices, it cannot
predict the outcome of these matters.
Qui Tam Matter
On October 30, 2009, fourteen states and the District of Columbia filed a complaint (the
Intervention Complaint) in the United States District Court for the District of Massachusetts
(the Federal District Court) naming Amgen Inc. as well as two business units of AmerisourceBergen
Specialty Group, AmerisourceBergen Specialty Group, and AmerisourceBergen Corporation as
defendants. The Intervention Complaint was filed to intervene in a pending civil case against the
defendants filed under the qui tam provisions of the federal and various state civil False Claims
Acts (the Original Qui Tam Complaint). The qui tam provisions permit a private person, known as
a relator (i.e. whistleblower), to file civil actions under these statutes on behalf of the
federal and state governments. The relator in the Original Complaint is a former Amgen employee.
The Office of the New York Attorney General is leading the intervention on behalf of the state
governments.
The Original Qui Tam Complaint was initially filed under seal. On January 21, 2009, the
Company learned that the United States Attorney for the Eastern District of New York (the DOJ)
was investigating allegations in a sealed civil complaint filed in the Federal District Court under
the qui tam provisions of the federal civil False Claims Act. In February 2009, the Company
received a redacted copy of the then current version of the Original Qui Tam Complaint, pursuant to
a court order. However, the Company was never served with the Original Qui Tam Complaint. Based
upon the disclosed portions of the redacted complaint, it appears that the relator initially filed
the action on or about June 5, 2006 and a first amendment thereto on or about July 2, 2007. On May
18, 2009, the Federal District Court extended the time period for federal and state government
authorities to conduct their respective
investigations and to decide whether to intervene in the civil action. On September 1, 2009,
fourteen states and the District of Columbia filed notices of their intent to intervene. The
fourteen states and the District of Columbia were given leave by the Federal District Court to file
a complaint within sixty days, or by October 30, 2009. The DOJ filed a notice that it was not
intervening as of September 1, 2009, but stated that its investigation is continuing. The Company
has received subpoenas for records issued by the DOJ in connection with its investigation. The
Company has been cooperating with the DOJ and is producing records in response to the subpoenas.
65
Both the Intervention Complaint and the Original Qui Tam Complaint, as amended on October 30,
2009, allege that from 2002 through 2009, Amgen offered remuneration to medical providers in
violation of federal and state health laws to increase purchases and prescriptions of Amgens
anemia drug, Aranesp. Specifically with regard to the Companys business units, the complaints
allege that ASD Specialty Healthcare, Inc., which is a distributor of pharmaceuticals to physician
practices (ASD), and International Nephrology Network, which was a business name for one of the
Companys subsidiaries and a group purchasing organization for nephrologists and nephrology
practices (INN), conspired with Amgen to promote Aranesp in violation of federal and state health
laws. The complaints further allege that the defendants caused medical providers to submit to
state Medicaid programs false certifications and false claims for payment for Aranesp. According
to the complaints, the latter conduct allegedly violated state civil False Claims Acts and
constituted fraud and unjust enrichment. The Original Qui Tam Complaint, as amended, also alleges
that the defendants caused medical providers to submit to other federal health programs, including
Medicare, false certifications and false claims for payment for Aranesp. The Company intends to
defend itself vigorously against the allegations contained in the Intervention Complaint and the
Original Qui Tam Complaint, as amended. The Company cannot predict the outcome of either the civil
action or the DOJ investigation.
Note 14. Litigation Settlements
Antitrust Settlements
During the last several years, numerous class action lawsuits have been filed against certain
brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with
others, took improper actions to delay or prevent generic drugs from entering the market. The
Company has not been a named plaintiff in any of these class actions, but has been a member of the
direct purchasers class (i.e., those purchasers who purchase directly from these pharmaceutical
manufacturers). None of the class actions has gone to trial, but some have settled in the past with
the Company receiving proceeds from the settlement funds. Currently, there are several such class
actions pending in which the Company is a class member. During the fiscal years ended September 30,
2008 and 2007, the Company recognized gains of $3.5 million and $35.8 million, respectively,
relating to the above-mentioned class action lawsuits. These gains, which are net of attorney fees
and estimated payments due to other parties, were recorded as reductions to cost of goods sold in
the Companys consolidated statements of operations.
Other Settlements
During the fiscal year ended September 30, 2009, the Company recognized a gain of $1.8 million
resulting from a favorable litigation settlement with a former customer. During the fiscal year
ended September 30, 2008, the Company recognized a gain of $13.2 million resulting from favorable
litigation settlements with a former customer (an independent retail group purchasing organization)
and a major competitor. The above gains in fiscal 2009 and 2008 were recorded as a reduction to
cost of goods sold in the Companys consolidated statements of operations.
Note 15. Business Segment Information
The Company is organized based upon the products and services it provides to its customers.
The Companys operations as of September 30, 2009 are comprised of one reportable segment,
Pharmaceutical Distribution. The Pharmaceutical Distribution reportable segment is comprised of
three operating segments, which include the operations of AmerisourceBergen Drug Corporation
(ABDC), the AmerisourceBergen Specialty Group (ABSG), and the AmerisourceBergen Packaging Group
(ABPG). The Other reportable segment included the operating results of Long-Term Care, through
the July 31, 2007 spin-off date. The operating results of PMSI, which was sold in October 2008,
were reclassified to discontinued operations.
The Company has aggregated the operating segments of ABDC, ABSG, and ABPG into one reportable
segment, the Pharmaceutical Distribution segment. Its ability to aggregate these three operating
segments into one reportable segment was based on the following:
|
|
|
the objective and basic principles of ASC 280; |
|
|
|
the aggregation criteria as noted in ASC 280; and |
|
|
|
the fact that ABDC, ABSG, and ABPG have similar economic characteristics. |
66
The chief operating decision maker for the Pharmaceutical Distribution segment was the
President and Chief Executive Officer of the Company whose function was to allocate resources to,
and assess the performance of, the ABDC, ABSG, and ABPG operating segments. ABDC, ABSG, and ABPG
each have an executive who functions as an operating segment manager whose role includes reporting
directly to the President and Chief Executive Officer of the Company on their respective operating
segments business activities, financial results and operating plans.
The businesses of the Pharmaceutical Distribution operating segments are similar in that they
service both healthcare providers and pharmaceutical manufacturers in the pharmaceutical supply
channel. The distribution of pharmaceutical drugs has historically represented more than 95% of the
Companys total revenues. ABDC and ABSG each operate in a high volume and low margin environment
and, as a result, their economic characteristics are similar. Each operating segment warehouses and
distributes products in a similar manner. Additionally, each operating segment is subject, in whole
or in part, to the same extensive regulatory environment under which the pharmaceutical
distribution industry operates.
ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals,
over-the-counter healthcare products, home healthcare supplies and equipment, and related services
to a wide variety of healthcare providers, including acute care hospitals and health systems,
independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and
other alternate site pharmacies and other customers. ABDC also provides pharmacy management,
staffing and other consulting services; scalable automated pharmacy dispensing equipment;
medication and supply dispensing cabinets; and supply management software to a variety of retail
and institutional healthcare providers.
ABSG, through a number of individual operating businesses, provides distribution and other
services primarily to physicians who specialize in a variety of disease states, especially
oncology, and to other alternate healthcare providers, including dialysis clinics. ABSG also
distributes vaccines, other injectables, and plasma and other blood products. In addition, through
its specialty services businesses, ABSG provides a number of commercialization services, third
party logistics, nursing services, and other services for biotech and other pharmaceutical
manufacturers, as well as reimbursement consulting, data analytics, outcomes research, practice
management, group purchasing services for physician practices, and physician education.
ABPG consists of American Health Packaging, Anderson Packaging (Anderson), and Brecon.
American Health Packaging delivers unit dose, punch card, unit-of-use, compliance and other
packaging solutions to institutional and retail healthcare providers. American Health Packagings
largest customer is ABDC, and, as a result, its operations are closely aligned with the operations
of ABDC. Anderson is a leading provider of contracted packaging services for pharmaceutical
manufacturers. Brecon is a United Kingdom-based provider of contract packaging and clinical trial
materials services for pharmaceutical manufacturers.
Prior to its divestiture, Long-Term Care was a leading national dispenser of pharmaceutical
products and services to patients in long-term care and alternate site settings, including skilled
nursing facilities, assisted living facilities and residential living communities. Long-Term Cares
institutional pharmacy business involved the purchase of prescription and nonprescription
pharmaceuticals, principally from our Pharmaceutical Distribution segment, and the dispensing of
those products to residents in long-term care and alternate site facilities.
The following tables present reportable segment information for the periods indicated (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pharmaceutical Distribution |
|
$ |
71,759,990 |
|
|
$ |
70,189,733 |
|
|
$ |
65,340,623 |
|
Other |
|
|
|
|
|
|
|
|
|
|
1,045,663 |
|
Intersegment eliminations |
|
|
|
|
|
|
|
|
|
|
(714,214 |
) |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
71,759,990 |
|
|
$ |
70,189,733 |
|
|
$ |
65,672,072 |
|
|
|
|
|
|
|
|
|
|
|
Management evaluates segment performance based on total revenue including bulk deliveries
to customer warehouses. Intersegment eliminations represent the elimination of the Pharmaceutical
Distribution segments sales to the Other segment. ABDC was the principal supplier of
pharmaceuticals to the Other segment.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pharmaceutical Distribution |
|
$ |
889,155 |
|
|
$ |
836,747 |
|
|
$ |
729,978 |
|
Other |
|
|
|
|
|
|
|
|
|
|
24,994 |
|
Facility consolidations, employee severance and other |
|
|
(5,406 |
) |
|
|
(12,377 |
) |
|
|
(2,072 |
) |
Gain on antitrust litigation settlements |
|
|
|
|
|
|
3,491 |
|
|
|
35,837 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
883,749 |
|
|
|
827,861 |
|
|
|
788,737 |
|
Other loss |
|
|
1,368 |
|
|
|
2,027 |
|
|
|
3,004 |
|
Interest expense, net |
|
|
58,307 |
|
|
|
64,496 |
|
|
|
32,244 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
824,074 |
|
|
$ |
761,338 |
|
|
$ |
753,489 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income is evaluated before other loss; interest expense, net; facility
consolidations, employee severance and other; and gain on antitrust litigation settlements.
Corporate office expenses are allocated to each reportable segment.
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
At September 30, |
|
2009 |
|
|
2008 |
|
Pharmaceutical Distribution |
|
$ |
13,572,740 |
|
|
$ |
12,174,095 |
|
Assets held for sale |
|
|
|
|
|
|
43,691 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,572,740 |
|
|
$ |
12,217,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization |
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pharmaceutical Distribution |
|
$ |
78,908 |
|
|
$ |
82,081 |
|
|
$ |
72,640 |
|
Other |
|
|
|
|
|
|
|
|
|
|
12,035 |
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
78,908 |
|
|
$ |
82,081 |
|
|
$ |
84,675 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization includes depreciation and amortization of property and
equipment and intangible assets, but excludes amortization of deferred financing costs and other
debt-related items, which is included in interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
Fiscal year ended September 30, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pharmaceutical Distribution |
|
$ |
145,837 |
|
|
$ |
137,309 |
|
|
$ |
104,360 |
|
Other |
|
|
|
|
|
|
|
|
|
|
6,918 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
145,837 |
|
|
$ |
137,309 |
|
|
$ |
111,278 |
|
|
|
|
|
|
|
|
|
|
|
Note 16. Disclosure About Fair Value of Financial Instruments
The recorded amounts of the Companys cash and cash equivalents, accounts receivable and
accounts payable at September 30, 2009 and 2008 approximate fair value. The fair values of the
Companys debt instruments are estimated based on market prices. The recorded amount of debt (see
Note 7) and the corresponding fair value as of September 30, 2009 were $1,178.0 million and
$1,246.4 million, respectively. The recorded amount of debt and the corresponding fair value as of
September 30, 2008 were $1,189.1 million and $1,162.4 million, respectively.
68
Note 17. Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, 2009 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Fiscal |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Year |
|
|
|
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
17,338,377 |
|
|
$ |
17,311,651 |
|
|
$ |
18,393,899 |
|
|
$ |
18,716,063 |
|
|
$ |
71,759,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (a) |
|
$ |
489,848 |
|
|
$ |
552,471 |
|
|
$ |
519,223 |
|
|
$ |
538,533 |
|
|
$ |
2,100,075 |
|
Distribution, selling and administrative expenses,
depreciation and
amortization (b) |
|
|
290,935 |
|
|
|
298,643 |
|
|
|
297,123 |
|
|
|
312,447 |
|
|
|
1,199,148 |
|
Facility consolidations, employee severance and other |
|
|
1,029 |
|
|
|
4,262 |
|
|
|
213 |
|
|
|
(98 |
) |
|
|
5,406 |
|
Intangible asset impairments |
|
|
|
|
|
|
1,300 |
|
|
|
8,900 |
|
|
|
1,572 |
|
|
|
11,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
197,884 |
|
|
$ |
248,266 |
|
|
$ |
212,987 |
|
|
$ |
224,612 |
|
|
$ |
883,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
112,529 |
|
|
$ |
144,042 |
|
|
$ |
125,134 |
|
|
$ |
130,147 |
|
|
$ |
511,852 |
|
Loss from discontinued operations, net of tax |
|
|
(1,473 |
) |
|
|
(655 |
) |
|
|
(6,327 |
) |
|
|
|
|
|
|
(8,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
111,056 |
|
|
$ |
143,387 |
|
|
$ |
118,807 |
|
|
$ |
130,147 |
|
|
$ |
503,397 |
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.36 |
|
|
$ |
0.48 |
|
|
$ |
0.42 |
|
|
$ |
0.44 |
|
|
$ |
1.70 |
|
Diluted |
|
$ |
0.36 |
|
|
$ |
0.47 |
|
|
$ |
0.42 |
|
|
$ |
0.44 |
|
|
$ |
1.69 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.36 |
|
|
$ |
0.47 |
|
|
$ |
0.40 |
|
|
$ |
0.44 |
|
|
$ |
1.67 |
|
Diluted |
|
$ |
0.36 |
|
|
$ |
0.47 |
|
|
$ |
0.40 |
|
|
$ |
0.44 |
|
|
$ |
1.66 |
|
|
|
|
(a) |
|
The first quarter of fiscal 2009 includes $10.2 million of fees relating to prior period
sales due to the execution of new agreements in the first quarter and a $15.5 million
write-down of influenza vaccine inventory. |
|
(b) |
|
The second quarter of fiscal 2009 includes a charge of $2.8 million relating to the
write-down of software. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30, 2008 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Fiscal |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Year |
|
|
|
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
17,279,383 |
|
|
$ |
17,755,838 |
|
|
$ |
17,996,666 |
|
|
$ |
17,157,846 |
|
|
$ |
70,189,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (a)(b)(d)(f) |
|
$ |
484,216 |
|
|
$ |
537,288 |
|
|
$ |
498,045 |
|
|
$ |
527,453 |
|
|
$ |
2,047,002 |
|
Distribution, selling and administrative expenses,
depreciation and
amortization (c) |
|
|
291,396 |
|
|
|
300,903 |
|
|
|
292,655 |
|
|
|
316,520 |
|
|
|
1,201,474 |
|
Facility consolidations, employee severance and other |
|
|
177 |
|
|
|
1,384 |
|
|
|
7,865 |
|
|
|
2,951 |
|
|
|
12,377 |
|
Intangible asset impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,290 |
|
|
|
5,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
192,643 |
|
|
$ |
235,001 |
|
|
$ |
197,525 |
|
|
$ |
202,692 |
|
|
$ |
827,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
108,409 |
|
|
$ |
132,828 |
|
|
$ |
112,765 |
|
|
$ |
115,062 |
|
|
$ |
469,064 |
|
Income (loss) from discontinued operations, net of tax (e) |
|
|
1,411 |
|
|
|
1,024 |
|
|
|
(220,785 |
) |
|
|
(155 |
) |
|
|
(218,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
109,820 |
|
|
$ |
133,852 |
|
|
$ |
(108,020 |
) |
|
$ |
114,907 |
|
|
$ |
250,559 |
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.33 |
|
|
$ |
0.41 |
|
|
$ |
0.35 |
|
|
$ |
0.37 |
|
|
$ |
1.46 |
|
Diluted |
|
$ |
0.32 |
|
|
$ |
0.41 |
|
|
$ |
0.35 |
|
|
$ |
0.36 |
|
|
$ |
1.44 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.33 |
|
|
$ |
0.42 |
|
|
$ |
(0.34 |
) |
|
$ |
0.37 |
|
|
$ |
0.78 |
|
Diluted |
|
$ |
0.33 |
|
|
$ |
0.41 |
|
|
$ |
(0.34 |
) |
|
$ |
0.36 |
|
|
$ |
0.77 |
|
|
|
|
(a) |
|
The first and fourth quarters of fiscal 2008 include gains of $1.6 million and $1.9 million,
respectively, from antitrust litigation settlements. |
|
(b) |
|
The first and second quarters of fiscal 2008 include gains of $10.0 million and $3.2 million,
respectively, relating to litigation settlements with a competitor and a former customer. |
|
(c) |
|
The second, third, and fourth quarters of fiscal 2008 include various other charges of $4.7
million, $0.8 million, and $5.3 million, respectively, relating to the write-down of
capitalized equipment and software. |
|
(d) |
|
The third quarter of fiscal 2008 includes an $8.4 million inventory write-down of certain pharmacy dispensing equipment. |
|
(e) |
|
The third and fourth quarters of fiscal 2008 include a combined charge of $225.8 million to reduce the carrying value of PMSI. |
|
(f) |
|
The fourth quarter of fiscal 2008 includes a gain of $8.6 million resulting from a vendor settlement. |
69
Note 18. Subsequent Event
Issuance of $400 Million of 4 7/8% Senior Notes Due 2019
In November 2009, the Company issued
$400 million of 4 7/8% senior notes due November 15, 2019
(the 2019 Notes). The 2019 Notes were sold at 99.174% of the principal amount and have an
effective yield of 4.98%. The Interest on the 2019 Notes is payable semiannually, in arrears,
commencing May 15, 2010. The 2019 Notes rank pari passu to the Multi-Currency Revolving Credit
Facility and the 2012 Notes and the 2015 Notes. The Company used the net proceeds of the 2019
Notes to repay substantially all amounts outstanding under its Multi-Currency Revolving Credit
Facility and the remaining net proceeds will be used for general corporate purposes. Costs
incurred in connection with the issuance of the 2019 Notes will be deferred and amortized over the
10-year term of the notes.
Note 19. Selected Consolidating Financial Statements of Parent, Guarantors and Non-Guarantors
The
Companys 2012 Notes, the 2015 Notes and beginning in November
2009, the 2019 Notes (together, the Notes) each are fully and
unconditionally guaranteed on a joint and several basis by certain of the Companys subsidiaries
(the subsidiaries of the Company that are guarantors of the Notes being referred to collectively as
the Guarantor Subsidiaries). The total assets, stockholders equity, revenues, earnings and cash
flows from operating activities of the Guarantor Subsidiaries
reflects the majority of the
consolidated total of such items as of or for the periods reported. The only consolidated
subsidiaries of the Company that are not guarantors of the Notes (the Non-Guarantor Subsidiaries)
are: (a) the receivables securitization special purpose entity described in Note 7, (b) the foreign
operating subsidiaries and (c) certain smaller operating subsidiaries. The following tables present
condensed consolidating financial statements including AmerisourceBergen Corporation (the
Parent), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial
statements include balance sheets as of September 30, 2009 and 2008 and the related statements of
operations and cash flows for each of the three years in the period ended September 30, 2009.
In fiscal 2009, the Company reclassified the initial contribution of accounts receivable made
by ABDC (a guarantor subsidiary), to the receivables special purpose entity (a non-guarantor
subsidiary), from a note payable to capital on the books of the receivable special purpose entity.
Additionally, the Company revised its fiscal 2008 intercompany interest charge from the Parent to
one of the Guarantor Subsidiaries. As a result of the above, the Company has revised intercompany
interest amounts and balances for all prior periods reported herein. These intercompany
reclassifications had no impact on the Companys consolidated financial statements.
70
SUMMARY CONSOLIDATING BALANCE SHEETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
927,049 |
|
|
$ |
58,900 |
|
|
$ |
23,419 |
|
|
$ |
|
|
|
$ |
1,009,368 |
|
Accounts receivable, net |
|
|
66 |
|
|
|
1,292,822 |
|
|
|
2,623,621 |
|
|
|
|
|
|
|
3,916,509 |
|
Merchandise inventories |
|
|
|
|
|
|
4,856,637 |
|
|
|
116,183 |
|
|
|
|
|
|
|
4,972,820 |
|
Prepaid expenses and other |
|
|
67 |
|
|
|
52,816 |
|
|
|
2,173 |
|
|
|
|
|
|
|
55,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
927,182 |
|
|
|
6,261,175 |
|
|
|
2,765,396 |
|
|
|
|
|
|
|
9,953,753 |
|
Property and equipment, net |
|
|
|
|
|
|
589,838 |
|
|
|
29,400 |
|
|
|
|
|
|
|
619,238 |
|
Goodwill and other intangible assets |
|
|
|
|
|
|
2,719,324 |
|
|
|
139,740 |
|
|
|
|
|
|
|
2,859,064 |
|
Other assets |
|
|
9,645 |
|
|
|
129,817 |
|
|
|
1,223 |
|
|
|
|
|
|
|
140,685 |
|
Intercompany investments and advances |
|
|
2,405,087 |
|
|
|
1,938,742 |
|
|
|
(152,302 |
) |
|
|
(4,191,527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,341,914 |
|
|
$ |
11,638,896 |
|
|
$ |
2,783,457 |
|
|
$ |
(4,191,527 |
) |
|
$ |
13,572,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
8,360,776 |
|
|
$ |
156,386 |
|
|
$ |
|
|
|
$ |
8,517,162 |
|
Accrued expenses and other |
|
|
(271,952 |
) |
|
|
581,354 |
|
|
|
6,255 |
|
|
|
|
|
|
|
315,657 |
|
Current portion of long-term debt |
|
|
|
|
|
|
346 |
|
|
|
722 |
|
|
|
|
|
|
|
1,068 |
|
Deferred income taxes |
|
|
|
|
|
|
645,723 |
|
|
|
|
|
|
|
|
|
|
|
645,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(271,952 |
) |
|
|
9,588,199 |
|
|
|
163,363 |
|
|
|
|
|
|
|
9,479,610 |
|
Long-term debt, net of current portion |
|
|
897,397 |
|
|
|
412 |
|
|
|
279,124 |
|
|
|
|
|
|
|
1,176,933 |
|
Other liabilities |
|
|
|
|
|
|
197,496 |
|
|
|
2,232 |
|
|
|
|
|
|
|
199,728 |
|
Total stockholders equity |
|
|
2,716,469 |
|
|
|
1,852,789 |
|
|
|
2,338,738 |
|
|
|
(4,191,527 |
) |
|
|
2,716,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
3,341,914 |
|
|
$ |
11,638,896 |
|
|
$ |
2,783,457 |
|
|
$ |
(4,191,527 |
) |
|
$ |
13,572,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
SUMMARY CONSOLIDATING BALANCE SHEETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
719,570 |
|
|
$ |
100,623 |
|
|
$ |
57,921 |
|
|
$ |
|
|
|
$ |
878,114 |
|
Accounts receivable, net |
|
|
1,276 |
|
|
|
1,280,346 |
|
|
|
2,198,645 |
|
|
|
|
|
|
|
3,480,267 |
|
Merchandise inventories |
|
|
|
|
|
|
4,076,697 |
|
|
|
135,078 |
|
|
|
|
|
|
|
4,211,775 |
|
Prepaid expenses and other |
|
|
47 |
|
|
|
53,418 |
|
|
|
2,449 |
|
|
|
|
|
|
|
55,914 |
|
Assets held for sale |
|
|
|
|
|
|
43,691 |
|
|
|
|
|
|
|
|
|
|
|
43,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
720,893 |
|
|
|
5,554,775 |
|
|
|
2,394,093 |
|
|
|
|
|
|
|
8,669,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
525,444 |
|
|
|
26,715 |
|
|
|
|
|
|
|
552,159 |
|
Goodwill and other intangible assets |
|
|
|
|
|
|
2,738,998 |
|
|
|
136,368 |
|
|
|
|
|
|
|
2,875,366 |
|
Other assets |
|
|
12,302 |
|
|
|
106,627 |
|
|
|
1,571 |
|
|
|
|
|
|
|
120,500 |
|
Intercompany investments and advances |
|
|
2,540,391 |
|
|
|
3,077,109 |
|
|
|
403,388 |
|
|
|
(6,020,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,273,586 |
|
|
$ |
12,002,953 |
|
|
$ |
2,962,135 |
|
|
$ |
(6,020,888 |
) |
|
$ |
12,217,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
7,164,839 |
|
|
$ |
161,741 |
|
|
$ |
|
|
|
$ |
7,326,580 |
|
Accrued expenses and other |
|
|
(333,344 |
) |
|
|
593,403 |
|
|
|
10,764 |
|
|
|
|
|
|
|
270,823 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
1,719 |
|
|
|
|
|
|
|
1,719 |
|
Deferred income taxes |
|
|
|
|
|
|
551,984 |
|
|
|
(1,276 |
) |
|
|
|
|
|
|
550,708 |
|
Liabilities held for sale |
|
|
|
|
|
|
17,759 |
|
|
|
|
|
|
|
|
|
|
|
17,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(333,344 |
) |
|
|
8,327,985 |
|
|
|
172,948 |
|
|
|
|
|
|
|
8,167,589 |
|
Long-term debt, net of current portion |
|
|
896,885 |
|
|
|
|
|
|
|
290,527 |
|
|
|
|
|
|
|
1,187,412 |
|
Other liabilities |
|
|
|
|
|
|
147,052 |
|
|
|
5,688 |
|
|
|
|
|
|
|
152,740 |
|
Total stockholders equity |
|
|
2,710,045 |
|
|
|
3,527,916 |
|
|
|
2,492,972 |
|
|
|
(6,020,888 |
) |
|
|
2,710,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
3,273,586 |
|
|
$ |
12,002,953 |
|
|
$ |
2,962,135 |
|
|
$ |
(6,020,888 |
) |
|
$ |
12,217,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended September 30, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Operating revenue |
|
$ |
|
|
|
$ |
68,574,365 |
|
|
$ |
1,477,641 |
|
|
$ |
|
|
|
$ |
70,052,006 |
|
Bulk deliveries to customer warehouses |
|
|
|
|
|
|
1,707,984 |
|
|
|
|
|
|
|
|
|
|
|
1,707,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
70,282,349 |
|
|
|
1,477,641 |
|
|
|
|
|
|
|
71,759,990 |
|
Cost of goods sold |
|
|
|
|
|
|
68,248,235 |
|
|
|
1,411,680 |
|
|
|
|
|
|
|
69,659,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
2,034,114 |
|
|
|
65,961 |
|
|
|
|
|
|
|
2,100,075 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution, selling and administrative |
|
|
|
|
|
|
1,173,009 |
|
|
|
(52,769 |
) |
|
|
|
|
|
|
1,120,240 |
|
Depreciation |
|
|
|
|
|
|
60,552 |
|
|
|
2,936 |
|
|
|
|
|
|
|
63,488 |
|
Amortization |
|
|
|
|
|
|
12,422 |
|
|
|
2,998 |
|
|
|
|
|
|
|
15,420 |
|
Facility consolidations, employee severance
and other |
|
|
|
|
|
|
3,996 |
|
|
|
1,410 |
|
|
|
|
|
|
|
5,406 |
|
Intangible asset impairments |
|
|
|
|
|
|
10,200 |
|
|
|
1,572 |
|
|
|
|
|
|
|
11,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
773,935 |
|
|
|
109,814 |
|
|
|
|
|
|
|
883,749 |
|
Other loss |
|
|
|
|
|
|
1,305 |
|
|
|
63 |
|
|
|
|
|
|
|
1,368 |
|
Interest (income) expense, net |
|
|
(3,040 |
) |
|
|
48,207 |
|
|
|
13,140 |
|
|
|
|
|
|
|
58,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and equity in earnings of
subsidiaries |
|
|
3,040 |
|
|
|
724,423 |
|
|
|
96,611 |
|
|
|
|
|
|
|
824,074 |
|
Income taxes |
|
|
1,064 |
|
|
|
276,979 |
|
|
|
34,179 |
|
|
|
|
|
|
|
312,222 |
|
Equity in earnings of subsidiaries |
|
|
501,421 |
|
|
|
|
|
|
|
|
|
|
|
(501,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
503,397 |
|
|
|
447,444 |
|
|
|
62,432 |
|
|
|
(501,421 |
) |
|
|
511,852 |
|
Loss from discontinued operations |
|
|
|
|
|
|
(8,455 |
) |
|
|
|
|
|
|
|
|
|
|
(8,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
503,397 |
|
|
$ |
438,989 |
|
|
$ |
62,432 |
|
|
$ |
(501,421 |
) |
|
$ |
503,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended September 30, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Operating revenue |
|
$ |
|
|
|
$ |
65,713,066 |
|
|
$ |
1,805,867 |
|
|
$ |
|
|
|
$ |
67,518,933 |
|
Bulk deliveries to customer warehouses |
|
|
|
|
|
|
2,670,794 |
|
|
|
6 |
|
|
|
|
|
|
|
2,670,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
68,383,860 |
|
|
|
1,805,873 |
|
|
|
|
|
|
|
70,189,733 |
|
Cost of goods sold |
|
|
|
|
|
|
66,427,143 |
|
|
|
1,715,588 |
|
|
|
|
|
|
|
68,142,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
1,956,717 |
|
|
|
90,285 |
|
|
|
|
|
|
|
2,047,002 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution, selling and administrative |
|
|
|
|
|
|
1,165,604 |
|
|
|
(46,211 |
) |
|
|
|
|
|
|
1,119,393 |
|
Depreciation |
|
|
|
|
|
|
62,227 |
|
|
|
2,727 |
|
|
|
|
|
|
|
64,954 |
|
Amortization |
|
|
|
|
|
|
13,665 |
|
|
|
3,462 |
|
|
|
|
|
|
|
17,127 |
|
Facility consolidations, employee
severance
and other |
|
|
|
|
|
|
12,377 |
|
|
|
|
|
|
|
|
|
|
|
12,377 |
|
Intangible asset impairments |
|
|
|
|
|
|
3,130 |
|
|
|
2,160 |
|
|
|
|
|
|
|
5,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
699,714 |
|
|
|
128,147 |
|
|
|
|
|
|
|
827,861 |
|
Other loss |
|
|
|
|
|
|
1,991 |
|
|
|
36 |
|
|
|
|
|
|
|
2,027 |
|
Interest (income) expense, net |
|
|
(17,630 |
) |
|
|
60,314 |
|
|
|
21,812 |
|
|
|
|
|
|
|
64,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and equity in earnings of
subsidiaries |
|
|
17,630 |
|
|
|
637,409 |
|
|
|
106,299 |
|
|
|
|
|
|
|
761,338 |
|
Income taxes |
|
|
6,170 |
|
|
|
247,559 |
|
|
|
38,545 |
|
|
|
|
|
|
|
292,274 |
|
Equity in earnings of subsidiaries |
|
|
239,099 |
|
|
|
|
|
|
|
|
|
|
|
(239,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
250,559 |
|
|
|
389,850 |
|
|
|
67,754 |
|
|
|
(239,099 |
) |
|
|
469,064 |
|
Loss from discontinued operations |
|
|
|
|
|
|
(218,505 |
) |
|
|
|
|
|
|
|
|
|
|
(218,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
250,559 |
|
|
$ |
171,345 |
|
|
$ |
67,754 |
|
|
$ |
(239,099 |
) |
|
$ |
250,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended September 30, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Operating revenue |
|
$ |
|
|
|
$ |
59,497,985 |
|
|
$ |
1,768,807 |
|
|
$ |
|
|
|
$ |
61,266,792 |
|
Bulk deliveries to customer warehouses |
|
|
|
|
|
|
4,405,264 |
|
|
|
16 |
|
|
|
|
|
|
|
4,405,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
63,903,249 |
|
|
|
1,768,823 |
|
|
|
|
|
|
|
65,672,072 |
|
Cost of goods sold |
|
|
|
|
|
|
61,767,751 |
|
|
|
1,685,262 |
|
|
|
|
|
|
|
63,453,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
2,135,498 |
|
|
|
83,561 |
|
|
|
|
|
|
|
2,219,059 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution, selling and administrative |
|
|
|
|
|
|
1,368,510 |
|
|
|
(28,625 |
) |
|
|
|
|
|
|
1,339,885 |
|
Depreciation |
|
|
|
|
|
|
66,104 |
|
|
|
2,123 |
|
|
|
|
|
|
|
68,227 |
|
Amortization |
|
|
|
|
|
|
13,186 |
|
|
|
3,262 |
|
|
|
|
|
|
|
16,448 |
|
Facility consolidations, employee severance
and other |
|
|
|
|
|
|
2,072 |
|
|
|
|
|
|
|
|
|
|
|
2,072 |
|
Intangible asset impairments |
|
|
|
|
|
|
3,690 |
|
|
|
|
|
|
|
|
|
|
|
3,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
681,936 |
|
|
|
106,801 |
|
|
|
|
|
|
|
788,737 |
|
Other loss |
|
|
|
|
|
|
3,003 |
|
|
|
1 |
|
|
|
|
|
|
|
3,004 |
|
Interest
expense (income), net |
|
|
73,001 |
|
|
|
(60,744 |
) |
|
|
19,987 |
|
|
|
|
|
|
|
32,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and equity in earnings of
subsidiaries |
|
|
(73,001 |
) |
|
|
739,677 |
|
|
|
86,813 |
|
|
|
|
|
|
|
753,489 |
|
Income taxes |
|
|
(25,550 |
) |
|
|
273,482 |
|
|
|
30,754 |
|
|
|
|
|
|
|
278,686 |
|
Equity in earnings of subsidiaries |
|
|
516,618 |
|
|
|
|
|
|
|
|
|
|
|
(516,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
469,167 |
|
|
|
466,195 |
|
|
|
56,059 |
|
|
|
(516,618 |
) |
|
|
474,803 |
|
Loss from discontinued operations |
|
|
|
|
|
|
(5,636 |
) |
|
|
|
|
|
|
|
|
|
|
(5,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
469,167 |
|
|
$ |
460,559 |
|
|
$ |
56,059 |
|
|
$ |
(516,618 |
) |
|
$ |
469,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended September 30, 2009 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net income |
|
$ |
503,397 |
|
|
$ |
438,989 |
|
|
$ |
62,432 |
|
|
$ |
(501,421 |
) |
|
$ |
503,397 |
|
Loss from discontinued operations |
|
|
|
|
|
|
8,455 |
|
|
|
|
|
|
|
|
|
|
|
8,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
503,397 |
|
|
|
447,444 |
|
|
|
62,432 |
|
|
|
(501,421 |
) |
|
|
511,852 |
|
Adjustments to reconcile income from
continuing operations to net cash provided
by (used in) operating activities |
|
|
(436,182 |
) |
|
|
625,614 |
|
|
|
(411,709 |
) |
|
|
501,421 |
|
|
|
279,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities continuing operations |
|
|
67,215 |
|
|
|
1,073,058 |
|
|
|
(349,277 |
) |
|
|
|
|
|
|
790,996 |
|
Net cash used in operating activities
discontinued operations |
|
|
|
|
|
|
(7,233 |
) |
|
|
|
|
|
|
|
|
|
|
(7,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
67,215 |
|
|
|
1,065,825 |
|
|
|
(349,277 |
) |
|
|
|
|
|
|
783,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(138,865 |
) |
|
|
(6,972 |
) |
|
|
|
|
|
|
(145,837 |
) |
Cost of
acquired company, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(13,422 |
) |
|
|
|
|
|
|
(13,422 |
) |
Proceeds from the sale of PMSI |
|
|
|
|
|
|
11,940 |
|
|
|
|
|
|
|
|
|
|
|
11,940 |
|
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
73 |
|
|
|
35 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities continuing operations |
|
|
|
|
|
|
(126,852 |
) |
|
|
(20,359 |
) |
|
|
|
|
|
|
(147,211 |
) |
Net cash used in investing activities
discontinued operations |
|
|
|
|
|
|
(1,138 |
) |
|
|
|
|
|
|
|
|
|
|
(1,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
|
|
|
|
|
(127,990 |
) |
|
|
(20,359 |
) |
|
|
|
|
|
|
(148,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments under revolving and
securitization credit facilities |
|
|
|
|
|
|
|
|
|
|
(8,838 |
) |
|
|
|
|
|
|
(8,838 |
) |
Other |
|
|
(3,506 |
) |
|
|
273 |
|
|
|
(1,109 |
) |
|
|
|
|
|
|
(4,342 |
) |
Purchases of common stock |
|
|
(450,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450,350 |
) |
Exercise of stock options, including excess tax
benefit |
|
|
22,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,066 |
|
Cash dividends on common stock |
|
|
(62,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,696 |
) |
Intercompany financing and advances |
|
|
634,750 |
|
|
|
(979,831 |
) |
|
|
345,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing
activities continuing operations |
|
|
140,264 |
|
|
|
(979,558 |
) |
|
|
335,134 |
|
|
|
|
|
|
|
(504,160 |
) |
Net cash
provided by financing activities
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing
activities |
|
|
140,264 |
|
|
|
(979,558 |
) |
|
|
335,134 |
|
|
|
|
|
|
|
(504,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
207,479 |
|
|
|
(41,723 |
) |
|
|
(34,502 |
) |
|
|
|
|
|
|
131,254 |
|
Cash and cash equivalents at beginning
of period |
|
|
719,570 |
|
|
|
100,623 |
|
|
|
57,921 |
|
|
|
|
|
|
|
878,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
927,049 |
|
|
$ |
58,900 |
|
|
$ |
23,419 |
|
|
$ |
|
|
|
$ |
1,009,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended September 30, 2008 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net income |
|
$ |
250,559 |
|
|
$ |
171,345 |
|
|
$ |
67,754 |
|
|
$ |
(239,099 |
) |
|
$ |
250,559 |
|
Loss from discontinued operations |
|
|
|
|
|
|
218,505 |
|
|
|
|
|
|
|
|
|
|
|
218,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
250,559 |
|
|
|
389,850 |
|
|
|
67,754 |
|
|
|
(239,099 |
) |
|
|
469,064 |
|
Adjustments to reconcile income from
continuing operations to net cash (used in) provided
by operating activities |
|
|
(290,515 |
) |
|
|
190,561 |
|
|
|
111,415 |
|
|
|
239,099 |
|
|
|
250,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided
by operating
activities continuing operations |
|
|
(39,956 |
) |
|
|
580,411 |
|
|
|
179,169 |
|
|
|
|
|
|
|
719,624 |
|
Net cash
provided by operating activities
discontinued operations |
|
|
|
|
|
|
17,445 |
|
|
|
|
|
|
|
|
|
|
|
17,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided
by operating
activities |
|
|
(39,956 |
) |
|
|
597,856 |
|
|
|
179,169 |
|
|
|
|
|
|
|
737,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(128,214 |
) |
|
|
(9,095 |
) |
|
|
|
|
|
|
(137,309 |
) |
Cost of
acquired company, net of cash acquired |
|
|
|
|
|
|
(169,230 |
) |
|
|
|
|
|
|
|
|
|
|
(169,230 |
) |
Proceeds
from sales of investment securities available-for-sale |
|
|
467,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467,419 |
|
Proceeds
from the sales of other assets |
|
|
|
|
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
|
1,878 |
|
Proceeds
from the sales of property and equipment |
|
|
|
|
|
|
2,964 |
|
|
|
56 |
|
|
|
|
|
|
|
3,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) investing
activities continuing operations |
|
|
467,419 |
|
|
|
(292,602 |
) |
|
|
(9,039 |
) |
|
|
|
|
|
|
165,778 |
|
Net cash
used in investing activities
discontinued operations |
|
|
|
|
|
|
(2,357 |
) |
|
|
|
|
|
|
|
|
|
|
(2,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
467,419 |
|
|
|
(294,959 |
) |
|
|
(9,039 |
) |
|
|
|
|
|
|
163,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments under revolving and
securitization credit facilities |
|
|
|
|
|
|
|
|
|
|
(16,396 |
) |
|
|
|
|
|
|
(16,396 |
) |
Other |
|
|
(932 |
) |
|
|
(602 |
) |
|
|
(523 |
) |
|
|
|
|
|
|
(2,057 |
) |
Purchases of common stock |
|
|
(679,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(679,684 |
) |
Exercise of stock options, including excess tax
benefit |
|
|
84,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,394 |
|
Cash dividends on common stock |
|
|
(48,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,674 |
) |
Intercompany financing and advances |
|
|
436,757 |
|
|
|
(259,768 |
) |
|
|
(176,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities continuing operations |
|
|
(208,139 |
) |
|
|
(260,370 |
) |
|
|
(193,908 |
) |
|
|
|
|
|
|
(662,417 |
) |
Net cash used in financing activities
discontinued operations |
|
|
|
|
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities |
|
|
(208,139 |
) |
|
|
(260,533 |
) |
|
|
(193,908 |
) |
|
|
|
|
|
|
(662,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
219,324 |
|
|
|
42,364 |
|
|
|
(23,778 |
) |
|
|
|
|
|
|
237,910 |
|
Cash and cash equivalents at beginning
of period |
|
|
500,246 |
|
|
|
58,259 |
|
|
|
81,699 |
|
|
|
|
|
|
|
640,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
719,570 |
|
|
$ |
100,623 |
|
|
$ |
57,921 |
|
|
$ |
|
|
|
$ |
878,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended September 30, 2007 |
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
(in thousands) |
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net income |
|
$ |
469,167 |
|
|
$ |
460,559 |
|
|
$ |
56,059 |
|
|
$ |
(516,618 |
) |
|
$ |
469,167 |
|
Loss from discontinued operations |
|
|
|
|
|
|
5,636 |
|
|
|
|
|
|
|
|
|
|
|
5,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
469,167 |
|
|
|
466,195 |
|
|
|
56,059 |
|
|
|
(516,618 |
) |
|
|
474,803 |
|
Adjustments to reconcile income from
continuing operations to net cash (used in) provided
by operating activities |
|
|
(568,227 |
) |
|
|
829,712 |
|
|
|
(45,191 |
) |
|
|
516,618 |
|
|
|
732,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided
by operating
activities continuing operations |
|
|
(99,060 |
) |
|
|
1,295,907 |
|
|
|
10,868 |
|
|
|
|
|
|
|
1,207,715 |
|
Net cash
provided by operating activities
discontinued operations |
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided
by operating
activities |
|
|
(99,060 |
) |
|
|
1,296,096 |
|
|
|
10,868 |
|
|
|
|
|
|
|
1,207,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(109,186 |
) |
|
|
(2,092 |
) |
|
|
|
|
|
|
(111,278 |
) |
Cost of
acquired companies, net of cash acquired |
|
|
|
|
|
|
(72,854 |
) |
|
|
(13,412 |
) |
|
|
|
|
|
|
(86,266 |
) |
Purchases of investment securities available for sale |
|
|
(399,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(399,579 |
) |
Proceeds from the sale of other assets |
|
|
|
|
|
|
5,205 |
|
|
|
|
|
|
|
|
|
|
|
5,205 |
|
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
8,062 |
|
|
|
15 |
|
|
|
|
|
|
|
8,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities continuing operations |
|
|
(399,579 |
) |
|
|
(168,773 |
) |
|
|
(15,489 |
) |
|
|
|
|
|
|
(583,841 |
) |
Net cash used in investing activities
discontinued operations |
|
|
|
|
|
|
(90,596 |
) |
|
|
|
|
|
|
|
|
|
|
(90,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
|
(399,579 |
) |
|
|
(259,369 |
) |
|
|
(15,489 |
) |
|
|
|
|
|
|
(674,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under revolving and
securitization credit facilities |
|
|
|
|
|
|
|
|
|
|
101,753 |
|
|
|
|
|
|
|
101,753 |
|
Proceeds
from borrowings related to PharMerica Long-Term Care distribution |
|
|
|
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
Other |
|
|
(2,849 |
) |
|
|
(1,421 |
) |
|
|
|
|
|
|
|
|
|
|
(4,270 |
) |
Purchases of common stock |
|
|
(1,434,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,434,385 |
) |
Exercise of stock options, including excess tax
benefit |
|
|
94,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,620 |
|
Cash dividends on common stock |
|
|
(37,249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,249 |
) |
Intercompany financing and advances |
|
|
1,253,461 |
|
|
|
(1,145,488 |
) |
|
|
(107,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities continuing operations |
|
|
(126,402 |
) |
|
|
(1,021,909 |
) |
|
|
(6,220 |
) |
|
|
|
|
|
|
(1,154,531 |
) |
Net cash used in financing activities
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities |
|
|
(126,402 |
) |
|
|
(1,021,909 |
) |
|
|
(6,220 |
) |
|
|
|
|
|
|
(1,154,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash
equivalents |
|
|
(625,041 |
) |
|
|
14,818 |
|
|
|
(10,841 |
) |
|
|
|
|
|
|
(621,064 |
) |
Cash and cash equivalents at beginning
of period |
|
|
1,125,287 |
|
|
|
43,441 |
|
|
|
92,540 |
|
|
|
|
|
|
|
1,261,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
500,246 |
|
|
$ |
58,259 |
|
|
$ |
81,699 |
|
|
$ |
|
|
|
$ |
640,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are intended to ensure that
information required to be disclosed in the Companys reports submitted under the Securities
Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC. These controls and
procedures also are intended to ensure that information required to be disclosed in such reports is
accumulated and communicated to management to allow timely decisions regarding required
disclosures.
The Companys Chief Executive Officer and Chief Financial Officer, with the participation of
other members of the Companys management, have evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a 15(e) and 15d 15(e)
under the Exchange Act) and have concluded that the Companys disclosure controls and procedures
were effective for their intended purposes as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes during the fiscal quarter ended September 30, 2009 in the Companys
internal control over financial reporting that materially affected, or are reasonably likely to
materially affect, those controls.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of AmerisourceBergen Corporation (AmerisourceBergen or the Company) is
responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
AmerisourceBergens internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. The
Companys internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a material
effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
AmerisourceBergens management assessed the effectiveness of AmerisourceBergens internal
control over financial reporting as of September 30, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on managements assessment and those
criteria, management has concluded that AmerisourceBergens internal control over financial
reporting was effective as of September 30, 2009. AmerisourceBergens independent registered public
accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of
AmerisourceBergens internal control over financial reporting. This report is set forth on the next
page.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of AmerisourceBergen Corporation
We have audited internal control over financial reporting of AmerisourceBergen Corporation and
subsidiaries as of September 30, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). AmerisourceBergen Corporations management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express
an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AmerisourceBergen Corporation and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of September 30, 2009, based on
the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of AmerisourceBergen Corporation
and subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders equity, and cash flows for each of the three years in the
period ended September 30, 2009 and our report dated November 25, 2009 expressed an unqualified
opinion thereon.
Philadelphia, Pennsylvania
November 25, 2009
80
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information appearing in our Notice of Annual Meeting of Stockholders and Proxy Statement for
the 2010 annual meeting of stockholders (the 2010 Proxy Statement) including information under
Election of Directors, Additional Information about the Directors, the Board and the Board
Committees, Codes of Ethics, Audit Matters, and Section 16 (a) Beneficial Reporting
Compliance, is incorporated herein by reference. We will file the 2010 Proxy Statement with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of
the fiscal year.
Information with respect to Executive Officers of the Company appears in Part I of this
report.
We adopted a Code of Ethics for Designated Senior Officers that applies to our Chief Executive
Officer, Chief Financial Officer and Corporate Controller. A copy of this Code of Ethics is filed
as an exhibit to this report and is posted on our Internet website, which is
www.amerisourcebergen.com. Any amendment to, or waiver from, any provision of this Code of Ethics
will be posted as well on our Internet website.
As required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company
Manual, our President and Chief Executive Officer, R. David Yost, certified to the NYSE within 30
days after our 2009 Annual Meeting of Stockholders that he was not aware of any violation by us of
the NYSE Corporate Governance Listing Standards.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
Information contained in the 2010 Proxy Statement, including information appearing under
Compensation Matters and Executive Compensation in the 2010 Proxy Statement, is incorporated
herein by reference.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Information contained in the 2010 Proxy Statement, including information appearing under
Beneficial Ownership of Common Stock and Equity Compensation Plan Information in the 2010 Proxy
Statement, is incorporated herein by reference.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information contained in the 2010 Proxy Statement, including information appearing under
Additional Information about the Directors, the Board, and the Board Committees, Corporate
Governance, Agreements with Employees and Certain Transactions in the 2010 Proxy Statement, is
incorporated herein by reference.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information contained in the 2010 Proxy Statement, including information appearing under
Audit Matters in the 2010 Proxy Statement, is incorporated herein by reference.
81
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) (1) and (2) List of Financial Statements and Schedules.
Financial Statements: The following consolidated financial statements are submitted in response
to Item 15(a)(1):
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
Financial Statement Schedule: The following financial statement schedule is submitted in response to Item 15(a)(2): |
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
All other schedules for which provision is made in the applicable accounting regulations of
the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
82
(a) (3) List of Exhibits.*
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
2 |
|
|
Agreement and Plan of Merger dated as of March 16, 2001 by
and among AABB Corporation, AmeriSource Health Corporation,
Bergen Brunswig Corporation, A-Sub Acquisition Corp. and
B-Sub Acquisition Corp. (incorporated by reference to
Exhibit 2.1 to the Registrants Registration Statement No.
333-71942 on Form S-4, dated October 19, 2001). |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation, as
amended, of the Registrant (incorporated by reference to
Annex J to the joint proxy statement-prospectus forming a
part of the Registrants Registration Statement on Form
S-4/A, Registration No. 333-61440, filed July 5, 2001). |
|
|
|
|
|
|
3.2 |
|
|
Amendment to Amended and Restated Certificate of
Incorporation, as amended, of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registrants Registration
Statement on Form S-4, Registration No. 333-132017, filed
February 23, 2006). |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3(ii) to the Registrants Current
Report on Form 8-K filed on November 13, 2007). |
|
|
|
|
|
|
4.2 |
|
|
Grant of Registration Rights by the Registrant to US
Bioservices Corporation stockholders, dated December 13,
2002 (incorporated by reference to Exhibit 4.4 to the
Registrants Registration Statement on Form S-3,
Registration No. 333-102090, filed December 20, 2002). |
|
|
|
|
|
|
4.3 |
|
|
Registration Rights Agreement, dated as of May 21, 2003, by
and among the Registrant, the stockholders of Anderson
Packaging, Inc. and John R. Anderson (incorporated by
reference to Exhibit 4.4 to the Registrants Registration
Statement on Form S-3, Registration No. 333-105743, filed
May 30, 2003). |
|
|
|
|
|
|
4.4 |
|
|
Purchase Agreement, dated September 8, 2005, by and among
the Registrant, the Subsidiary Guarantors named therein,
Lehman Brothers Inc., Banc of America Securities LLC, J.P.
Morgan Securities Inc., Scotia Capital (USA) Inc., Wachovia
Securities, Inc. and Wells Fargo Securities, LLC
(incorporated by reference to Exhibit 4.4 to the
Registrants Annual Report on Form 10-K for the fiscal year
ended September 30, 2005). |
|
|
|
|
|
|
4.5 |
|
|
Indenture, dated as of September 14, 2005, among the
Registrant, certain of the Registrants subsidiaries as
guarantors thereto and J.P. Morgan Trust Company, National
Association, as trustee, related to the Registrants
5 5/8% Senior Notes due
2012 and 5 7/8% Senior
Notes due 2015 (incorporated by reference to Exhibit 4.5 to
the Registrants Annual Report on Form 10-K for the fiscal
year ended September 30, 2005). |
|
|
|
|
|
|
4.6 |
|
|
Form of 5 5/8% Senior Notes
due 2012 (incorporated by reference to Exhibit 4.6 to the
Registrants Annual Report on Form 10-K for the fiscal year
ended September 30, 2005). |
|
|
|
|
|
|
4.7 |
|
|
Form of 5 7/8% Senior Notes
due 2015 (incorporated by reference to Exhibit 4.7 to the
Registrants Annual Report on Form 10-K for the fiscal year
ended September 30, 2005). |
|
|
|
|
|
|
4.8 |
|
|
Exchange and Registration Rights Agreement, dated September
14, 2005, by and among the Registrant, the Subsidiary
Guarantors named therein, and Lehman Brothers Inc. on behalf
of the Initial Purchasers under the Purchase Agreement dated
September 8, 2005 (incorporated by reference to Exhibit 4.8
to the Registrants Annual Report on Form 10-K for the
fiscal year ended September 30, 2005). |
|
|
|
|
|
|
4.9 |
|
|
Underwriting Agreement, dated November 16, 2009, between the
Registrant and J.P. Morgan Securities Inc. and Banc of
Am |