UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-16671
AMERISOURCEBERGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
|
23-3079390 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
|
|
|
1300 Morris Drive, Chesterbrook, PA |
|
19087-5594 |
(Address of principal executive offices) |
|
(Zip Code) |
(610) 727-7000
(Registrants telephone number, including area code)
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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 Exchange Act).
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of common stock of AmerisourceBergen Corporation outstanding as of July 31, 2012 was 251,636,854.
AMERISOURCEBERGEN CORPORATION
ITEM I. Financial Statements (Unaudited)
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
|
|
June 30, |
|
September 30, |
| ||
(in thousands, except share and per share data) |
|
2012 |
|
2011 |
| ||
|
|
(Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
1,655,748 |
|
$ |
1,825,990 |
|
Accounts receivable, less allowances for returns and doubtful accounts: |
|
|
|
|
| ||
$349,660 at June 30, 2012 and $351,382 at September 30, 2011 |
|
3,943,347 |
|
3,837,203 |
| ||
Merchandise inventories |
|
5,447,126 |
|
5,466,534 |
| ||
Prepaid expenses and other |
|
124,201 |
|
87,896 |
| ||
Total current assets |
|
11,170,422 |
|
11,217,623 |
| ||
|
|
|
|
|
| ||
Property and equipment, at cost: |
|
|
|
|
| ||
Land |
|
36,012 |
|
35,998 |
| ||
Buildings and improvements |
|
383,151 |
|
316,199 |
| ||
Machinery, equipment and other |
|
1,067,411 |
|
977,320 |
| ||
Total property and equipment |
|
1,486,574 |
|
1,329,517 |
| ||
Less accumulated depreciation |
|
(621,528 |
) |
(556,601 |
) | ||
Property and equipment, net |
|
865,046 |
|
772,916 |
| ||
|
|
|
|
|
| ||
Goodwill and other intangible assets |
|
3,586,651 |
|
2,863,084 |
| ||
Other assets |
|
125,473 |
|
129,048 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
15,747,592 |
|
$ |
14,982,671 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
9,170,863 |
|
$ |
9,202,115 |
|
Accrued expenses and other |
|
482,240 |
|
422,917 |
| ||
Current portion of long-term debt |
|
392,246 |
|
392,089 |
| ||
Deferred income taxes |
|
906,014 |
|
837,999 |
| ||
Total current liabilities |
|
10,951,363 |
|
10,855,120 |
| ||
|
|
|
|
|
| ||
Long-term debt, net of current portion |
|
1,483,726 |
|
972,863 |
| ||
Other liabilities |
|
382,788 |
|
287,830 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, $0.01 par value - authorized: 600,000,000 shares; issued and outstanding: 261,574,776 shares and 251,196,264 shares at June 30, 2012, respectively, and 496,522,288 shares and 260,991,439 shares at September 30, 2011, respectively |
|
2,616 |
|
4,965 |
| ||
Additional paid-in capital |
|
2,220,775 |
|
4,082,978 |
| ||
Retained earnings |
|
1,139,608 |
|
4,055,664 |
| ||
Accumulated other comprehensive loss |
|
(43,253 |
) |
(50,868 |
) | ||
|
|
3,319,746 |
|
8,092,739 |
| ||
Treasury stock, at cost: 10,378,512 shares at June 30, 2012 and 235,530,849 shares at September 30, 2011 |
|
(390,031 |
) |
(5,225,881 |
) | ||
Total stockholders equity |
|
2,929,715 |
|
2,866,858 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
15,747,592 |
|
$ |
14,982,671 |
|
See notes to consolidated financial statements.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands, except per share data) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
$ |
19,769,384 |
|
$ |
20,161,022 |
|
$ |
60,201,300 |
|
$ |
59,809,888 |
|
Cost of goods sold |
|
19,080,234 |
|
19,507,441 |
|
58,223,932 |
|
57,888,739 |
| ||||
Gross profit |
|
689,150 |
|
653,581 |
|
1,977,368 |
|
1,921,149 |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Distribution, selling, and administrative |
|
332,307 |
|
308,806 |
|
890,810 |
|
882,971 |
| ||||
Depreciation |
|
31,370 |
|
23,578 |
|
84,957 |
|
66,758 |
| ||||
Amortization |
|
6,934 |
|
4,038 |
|
17,461 |
|
12,246 |
| ||||
Employee severance, litigation and other |
|
4,844 |
|
|
|
17,430 |
|
|
| ||||
Operating income |
|
313,695 |
|
317,159 |
|
966,710 |
|
959,174 |
| ||||
Other (income) loss |
|
(4,785 |
) |
62 |
|
(4,917 |
) |
(1,747 |
) | ||||
Interest expense, net |
|
24,686 |
|
18,605 |
|
71,183 |
|
56,805 |
| ||||
Income before income taxes |
|
293,794 |
|
298,492 |
|
900,444 |
|
904,116 |
| ||||
Income taxes |
|
112,523 |
|
114,073 |
|
344,952 |
|
344,816 |
| ||||
Net income |
|
$ |
181,271 |
|
$ |
184,419 |
|
$ |
555,492 |
|
$ |
559,300 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.72 |
|
$ |
0.67 |
|
$ |
2.17 |
|
$ |
2.04 |
|
Diluted |
|
$ |
0.71 |
|
$ |
0.66 |
|
$ |
2.13 |
|
$ |
2.00 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
252,116 |
|
273,492 |
|
256,260 |
|
274,484 |
| ||||
Diluted |
|
255,725 |
|
279,015 |
|
260,404 |
|
279,837 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends declared per share of common stock |
|
$ |
0.13 |
|
$ |
0.115 |
|
$ |
0.39 |
|
$ |
0.315 |
|
See notes to consolidated financial statements.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine months ended June 30, |
| ||||
(in thousands) |
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
OPERATING ACTIVITIES |
|
|
|
|
| ||
Net income |
|
$ |
555,492 |
|
$ |
559,300 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation, including amounts charged to cost of goods sold |
|
94,831 |
|
76,397 |
| ||
Amortization, including amounts charged to interest expense |
|
21,494 |
|
15,865 |
| ||
Provision for doubtful accounts |
|
23,724 |
|
27,729 |
| ||
Provision for deferred income taxes |
|
37,949 |
|
122,233 |
| ||
Share-based compensation |
|
18,943 |
|
21,608 |
| ||
Loss on disposal of property and equipment |
|
|
|
584 |
| ||
Other |
|
(3,858 |
) |
3,747 |
| ||
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
| ||
Accounts receivable |
|
100,821 |
|
(93,630 |
) | ||
Merchandise inventories |
|
53,428 |
|
55,899 |
| ||
Prepaid expenses and other assets |
|
14,038 |
|
(2,431 |
) | ||
Accounts payable, accrued expenses, and income taxes |
|
(144,773 |
) |
26,593 |
| ||
Other liabilities |
|
(12,034 |
) |
(6,049 |
) | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
760,055 |
|
807,845 |
| ||
|
|
|
|
|
| ||
INVESTING ACTIVITIES |
|
|
|
|
| ||
Capital expenditures |
|
(127,603 |
) |
(127,473 |
) | ||
Cost of acquired companies, net of cash acquired |
|
(778,755 |
) |
|
| ||
Other |
|
33 |
|
876 |
| ||
NET CASH USED IN INVESTING ACTIVITIES |
|
(906,325 |
) |
(126,597 |
) | ||
|
|
|
|
|
| ||
FINANCING ACTIVITIES |
|
|
|
|
| ||
Long-term debt borrowings |
|
499,290 |
|
|
| ||
Long-term debt repayments |
|
(55,000 |
) |
|
| ||
Borrowings under revolving and securitization credit facilities |
|
740,412 |
|
684,306 |
| ||
Repayments under revolving and securitization credit facilities |
|
(674,899 |
) |
(667,105 |
) | ||
Purchases of common stock |
|
(514,258 |
) |
(400,253 |
) | ||
Exercises of stock options, including excess tax benefits of $21,490 and $34,585 in fiscal 2012 and 2011, respectively |
|
91,092 |
|
138,130 |
| ||
Cash dividends on common stock |
|
(100,081 |
) |
(86,920 |
) | ||
Debt issuance costs and other |
|
(10,528 |
) |
(7,135 |
) | ||
NET CASH USED IN FINANCING ACTIVITIES |
|
(23,972 |
) |
(338,977 |
) | ||
|
|
|
|
|
| ||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
(170,242 |
) |
342,271 |
| ||
Cash and cash equivalents at beginning of period |
|
1,825,990 |
|
1,658,182 |
| ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
1,655,748 |
|
$ |
2,000,453 |
|
See notes to consolidated financial statements.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations and cash flows of AmerisourceBergen Corporation and its wholly owned subsidiaries (the Company) as of the dates and for the periods indicated. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals, except as otherwise disclosed herein) considered necessary to present fairly the financial position as of June 30, 2012 and the results of operations and cash flows for the interim periods ended June 30, 2012 and 2011 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2011.
The preparation of financial statements in conformity with U.S. GAAP 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.
In connection with the acquisition of World Courier Group, Inc. (World Courier) during the third quarter of fiscal 2012 (see Note 2 below), the Company concluded that World Courier, a separate operating segment, does not meet the criteria to be aggregated with the AmerisourceBergen Drug Corporation (ABDC), AmerisourceBergen Specialty Group (ABSG), and AmerisourceBergen Consulting Services (ABCS) operating segments due to the nature of its operations and its different revenue growth rates and operating income margins. As a result and beginning with this quarterly reporting period, the Company will report the results of its ABDC and ABSG operating segments in the Pharmaceutical Distribution reportable segment. The results of operations of the World Courier and ABCS operating segments are not significant enough to require separate reportable segment disclosure, and therefore have been included in Other for the purpose of reportable segment presentation. All historical reportable segment information provided in this Form 10-Q has been retroactively adjusted to conform to the current presentation.
Note 2. Acquisitions
TheraCom, LLC
On November 1, 2011, the Company acquired TheraCom, LLC (TheraCom), a subsidiary of CVS Caremark Corporation, for a purchase price of $257.2 million, net of a working capital adjustment. TheraCom is a leading provider of commercialization support services to the biotechnology and pharmaceutical industry, specifically providing reimbursement and patient support services. TheraComs capabilities complement those of the Lash Group, a business unit within ABCS, and significantly increase the size and scope of its consulting services. TheraComs annualized revenues are approximately $700 million, the majority of which are provided by the specialized distribution component of the integrated reimbursement support services for certain unique prescription products. During the three and nine months ended June 30, 2012, TheraCom sales to ABDC were $40.2 million and $86.1 million, respectively, which were eliminated from the Companys consolidated financial statements.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 $179.8 million, which was allocated to goodwill. The fair values of significant tangible assets acquired and liabilities assumed were as follows: accounts receivable of $119.6 million, merchandise inventories of $41.7 million and accounts payable of $153.2 million. The fair value of intangible assets acquired of $68.8 million consists of customer relationships of $57.1 million, software technology of $7.9 million, and trade names of $3.8 million. The Company is amortizing the fair values of the acquired customer relationships over their remaining useful lives of 15 years, and amortizing the fair values of software technology and trade names over their remaining useful lives of 5 years. Goodwill resulting from the acquisition is expected to be deductible for income tax purposes.
World Courier
On April 30, 2012, the Company acquired World Courier for a purchase price of $520 million, subject to a working capital adjustment. World Courier is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. World Courier further strengthens the Companys service offerings to global pharmaceutical manufacturers and provides an established platform for the introduction of our specialty services outside North America. It operates in over 50 countries and has approximately 2,500 employees. World Couriers revenues are estimated to be approximately $500 million in calendar 2012.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The purchase price currently exceeds the estimated fair value of the net tangible and intangible assets acquired by $236.3 million, which was allocated to goodwill. The Company is in the process of finalizing its fair value estimates for all of the World Courier assets acquired and liabilities assumed, including those related to income taxes. The estimated fair value of intangible assets acquired of $250.0 million consists of a trade name of $110.5 million, customer relationships of $130.5 million, and software technology of $9.0 million. The trade name has been determined to have an indefinite life. The Company is amortizing the estimated fair values of the acquired customer relationships and software technology over the remaining estimated useful lives of 16 years and 5 years, respectively. Goodwill resulting from the acquisition is not expected to be deductible for income tax purposes.
Pro forma results of operations for the aforementioned acquisitions have not been presented because the effects of revenue and earnings were not material to the consolidated financial statements.
Note 3. Income Taxes
The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. As of June 30, 2012, 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 $47.4 million ($32.1 million, net of federal benefit). If recognized, these tax benefits would reduce income tax expense and the effective tax rate. Included in this amount is $10.9 million of interest and penalties, which the Company records in income tax expense. During the nine months ended June 30, 2012, unrecognized tax benefits increased by $1.7 million. During the next 12 months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $2.9 million.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. Goodwill and Other Intangible Assets
Following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the nine months ended June 30, 2012 (in thousands):
|
|
Pharmaceutical |
|
Other |
|
Total |
| |||
Goodwill at September 30, 2011 |
|
$ |
2,447,425 |
|
$ |
117,802 |
|
$ |
2,565,227 |
|
Goodwill recognized in connection with acquisitions (See Note 2) |
|
|
|
416,159 |
|
416,159 |
| |||
Foreign currency translation and other |
|
2,696 |
|
899 |
|
3,595 |
| |||
Goodwill at June 30, 2012 |
|
$ |
2,450,121 |
|
$ |
534,860 |
|
$ |
2,984,981 |
|
Following is a summary of other intangible assets (in thousands):
|
|
June 30, 2012 |
|
September 30, 2011 |
| ||||||||||||||
|
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
| ||||||
Indefinite-lived intangibles-trade names |
|
$ |
348,322 |
|
$ |
|
|
$ |
348,322 |
|
$ |
237,711 |
|
$ |
|
|
$ |
237,711 |
|
Finite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Customer relationships |
|
305,771 |
|
(86,754 |
) |
219,017 |
|
117,540 |
|
(73,987 |
) |
43,553 |
| ||||||
Other |
|
69,906 |
|
(35,575 |
) |
34,331 |
|
47,304 |
|
(30,711 |
) |
16,593 |
| ||||||
Total other intangible assets |
|
$ |
723,999 |
|
$ |
(122,329 |
) |
$ |
601,670 |
|
$ |
402,555 |
|
$ |
(104,698 |
) |
$ |
297,857 |
|
Amortization expense for other intangible assets was $17.5 million and $12.2 million in the nine months ended June 30, 2012 and 2011, respectively. Amortization expense for other intangible assets is estimated to be $25.2 million in fiscal 2012, $29.5 million in fiscal 2013, $26.9 million in fiscal 2014, $22.7 million in fiscal 2015, $21.9 million in fiscal 2016, and $144.6 million thereafter.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Debt
Debt consisted of the following (in thousands):
|
|
June 30, |
|
September 30, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Blanco revolving credit facility |
|
$ |
|
|
$ |
55,000 |
|
Receivables securitization facility due 2014 |
|
|
|
|
| ||
Multi-currency revolving credit facility at 2.29% and 2.48%, respectively, due 2016 |
|
87,940 |
|
21,851 |
| ||
$392,326, 5 5/8% senior notes due 2012 |
|
392,246 |
|
392,000 |
| ||
$500,000, 5 7/8% senior notes due 2015 |
|
499,035 |
|
498,822 |
| ||
$400,000, 4 7/8% senior notes due 2019 |
|
397,414 |
|
397,190 |
| ||
$500,000, 3 1/2% senior notes due 2021 |
|
499,337 |
|
|
| ||
Other |
|
|
|
89 |
| ||
Total debt |
|
1,875,972 |
|
1,364,952 |
| ||
Less current portion |
|
392,246 |
|
392,089 |
| ||
Total, net of current portion |
|
$ |
1,483,726 |
|
$ |
972,863 |
|
In February 2012, the Company repaid the borrowings under the Blanco Credit Facility, which was terminated.
The Company has a multi-currency senior unsecured revolving credit facility for $700 million, which was scheduled to expire in March 2015 (the Multi-Currency Revolving Credit Facility), with a syndicate of lenders. In October 2011, the Company entered into an amendment with the syndicate of lenders to extend the maturity date of the Multi-Currency Revolving Credit Facility to October 2016. The amendment also reduced the Companys borrowing rates and facility fees. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on the Companys debt rating and ranges from 68 basis points to 155 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (90 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at June 30, 2012). 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 facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on its debt rating, ranging from 7 basis points to 20 basis points, annually, of the total commitment (10 basis points at June 30, 2012). 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.
On October 31, 2011, the Company established a commercial paper program whereby it may from time to time issue short-term promissory notes in an aggregate amount of up to $700 million at any one time. Amounts available under the program may be borrowed, repaid, and re-borrowed from time to time. The maturities on the notes will vary, but may not exceed 365 days from the date of issuance. The notes will bear interest rates, if interest bearing, or will be sold at a discount from their face amounts. The commercial paper program does not increase the Companys borrowing capacity as it is fully backed by the Companys Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under the commercial paper program at June 30, 2012.
The Company has a $700 million receivables securitization facility (Receivables Securitization Facility), which was scheduled to expire in April 2014. In October 2011, the Company entered into an amendment to the Receivables Securitization Facility to extend the maturity date to October 2014. The amendment also reduced the Companys borrowing rates. The Company has 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 or LIBOR plus a program fee of 75 basis points. The Company pays an unused fee of 37.5 basis points, annually, to maintain the availability under the Receivables Securitization Facility. At June 30, 2012,
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
there were no borrowings outstanding under the Receivables Securitization Facility. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility.
In November 2011, the Company issued $500 million of 3½% senior notes due November 15, 2021 (the 2021 Notes). The 2021 Notes were sold at 99.858% of the principal amount and have an effective yield of 3.52%. The interest on the 2021 Notes is payable semiannually, in arrears, commencing May 15, 2012. The 2021 Notes rank pari passu to the Multi-Currency Revolving Credit Facility, the 5 5/8% senior notes due 2012, the 5 7/8% senior notes due 2015, and the 4 7/8% senior notes due 2019. The Company used the net proceeds of the 2021 Notes for general corporate purposes. Costs incurred in connection with the issuance of the 2021 Notes were deferred and are being amortized over the 10 year term of the notes.
All of the senior notes and the Multi-Currency Revolving Credit Facility were previously guaranteed on a joint and several basis by certain of the Companys subsidiaries, which were known as the guarantor subsidiaries. On June 29, 2012, in accordance with the terms of the documents governing the underlying obligations, each of the guarantor subsidiaries was released from its obligations under its guarantee of the senior notes and the Multi-Currency Revolving Credit Facility. As a result, beginning with this quarterly reporting period, the Company no longer discloses selected consolidating financial statements of its parent and its guarantor and non-guarantor subsidiaries.
Note 6. Stockholders Equity and Earnings per Share
The following table illustrates comprehensive income for the three and nine months ended June 30, 2012 and 2011 (in thousands):
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Net income |
|
$ |
181,271 |
|
$ |
184,419 |
|
$ |
555,492 |
|
$ |
559,300 |
|
Foreign currency translation adjustments and other |
|
(5,891 |
) |
4,219 |
|
7,615 |
|
20,048 |
| ||||
Comprehensive income |
|
$ |
175,380 |
|
$ |
188,638 |
|
$ |
563,107 |
|
$ |
579,348 |
|
In November 2010, the Companys board of directors increased the quarterly cash dividend by 25% from $0.08 to $0.10 per share. In May 2011, the Companys board of directors increased the quarterly cash dividend by 15% to $0.115 per share. In November 2011, the Companys board of directors increased the quarterly cash dividend again by 13% to $0.13 per share.
In November 2009, 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 three months ended December 31, 2010, the Company purchased 3.2 million shares for $98.1 million to complete its authorization under this program.
In September 2010, 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 nine months ended June 30, 2011, the Company purchased 8.2 million shares for $301.9 million under this program.
In August 2011, the Companys board of directors authorized a program allowing the Company to purchase up to $750 million of its outstanding shares of common stock, subject to market conditions. During the nine months ended June 30, 2012, the Company purchased 13.4 million shares for $500.0 million to complete its authorization under this program.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In May 2012, the Companys board of directors authorized a new program allowing the Company to purchase up to $750 million of its outstanding shares of common stock, subject to market conditions. During the three months ended June 30, 2012, the Company purchased 0.2 million shares for $5.9 million under this new program.
On December 30, 2011, the Company retired 238.8 million shares of its treasury stock.
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 presented plus the dilutive effect of stock options, restricted stock, and restricted stock units.
|
|
Three months ended |
|
Nine months ended |
| ||||
|
|
June 30, |
|
June 30, |
| ||||
(in thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Weighted average common shares outstanding - basic |
|
252,116 |
|
273,492 |
|
256,260 |
|
274,484 |
|
Effect of dilutive securities: stock options, restricted stock, and restricted stock units |
|
3,609 |
|
5,523 |
|
4,144 |
|
5,353 |
|
Weighted average common shares outstanding - diluted |
|
255,725 |
|
279,015 |
|
260,404 |
|
279,837 |
|
The potentially dilutive stock options that were antidilutive for the three months ended June 30, 2012 and 2011 were 6.4 million and 3.3 million, respectively, and for the nine months ended June 30, 2012 and 2011 were 4.6 million and 1.6 million, respectively.
Note 7. 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.
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. The Company has met several times, including most recently in April 2011, with representatives of OMH to present its position on the Rebate Payment Order and continues to engage in discussions with OMH to seek resolution of this matter. Although the Company believes that ABCC has not violated the relevant statutes and regulations and has conducted its business consistent with widespread
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
industry practices, the Company cannot predict the outcome of these matters.
Qui Tam Matter
On October 24, 2011, the Company announced that it had reached a preliminary agreement for a civil settlement (the Preliminary Settlement) with the United States Attorneys Office for the Eastern District of New York (USAO), the plaintiff states and the relator (collectively, the Plaintiffs) of claims against two of the Companys business units, ASD Specialty Healthcare, Inc. (ASD) and International Nephrology Network (INN), who were named, along with Amgen Inc., in a civil case filed under the qui tam provisions of the federal and various state civil False Claims Acts. The civil case was administratively closed after the Preliminary Settlement was reached. The Preliminary Settlement is subject to completion and approval of an executed written settlement agreement with the Plaintiffs, which the Company expects to finalize in 2012. The Company does not expect INN or ASD to admit any liability in connection with the settlement. The Company recorded a $16 million charge in the fiscal year ended September 30, 2011 in connection with the Preliminary Settlement.
The qui tam provisions of False Claims Acts permit a private person, known as a relator, to file civil actions under these statutes on behalf of the federal and state governments. The qui tam complaint against Amgen, ASD and INN was initially filed under seal by a former Amgen employee in the United States District Court for the District of Massachusetts (the District of Massachusetts case). The Company first learned of the matter on January 21, 2009 when it received notice that the United States Attorney for the Eastern District of New York was investigating allegations in the sealed civil complaint. On October 30, 2009, 14 states filed a complaint to intervene in the case. However, following the resolution of a number of motions, including a motion to dismiss, filed in the United States District Court for the District of Massachusetts and appeals filed in the United States Court of Appeals for the First Circuit in connection with the matter, only six states (California, Illinois, Indiana, Massachusetts, New Mexico and New York) and the relator were permitted to proceed with their complaints until the case was administratively closed in connection with the Preliminary Settlement. The allegations in the closed case related to the distribution and sale of Amgens anemia drug, Aranesp. ASD is a distributor of pharmaceuticals to physician practices and INN is a group purchasing organization for nephrologists and nephrology practices. The plaintiff states and/or the relator alleged that from 2002 through 2009 Amgen, ASD and INN offered remuneration to medical providers in violation of federal and state health laws to increase purchases and prescriptions of Aranesp and that these violations caused medical providers to submit false certifications and false claims for payment in violation of the federal and state civil False Claims Acts. Amgen, ASD and INN were also alleged to have caused healthcare providers to bill federal and state healthcare programs for Aranesp that was either not administered or administered, but medically unnecessary.
The Company has learned that there are prior and subsequent filings in one or more federal district courts, including a complaint filed by one of its former employees, that are under seal and involve allegations against the Company (and/or subsidiaries or businesses of the Company, including its group purchasing organization for oncologists and its oncology distribution business) similar to those raised in the District of Massachusetts case. ABSG has also received a subpoena from the USAO requesting production of documents and information relating to ABSGs Oncology Supply distribution center and pharmacy in Dothan, Alabama, which the Company believes could be related to a qui tam action that remains under seal. The Company is in the process of responding to the subpoena and is cooperating fully with the USAO. The Preliminary Settlement encompasses resolution of one of these other filings. The Company cannot predict the outcome of any other pending action in which any AmerisourceBergen entity is or may become a defendant.
Subpoena from the United States Attorneys Office in New Jersey
On May 4, 2012, the Companys subsidiary, ABDC, received a subpoena from the United States Attorneys Office in New Jersey (the USAO) in connection with a grand jury proceeding requesting documents concerning ABDCs program for controlling and monitoring diversion of controlled substances into channels other than for legitimate medical, scientific, and industrial purposes. ABDC also received a subpoena from the Drug Enforcement Administration (DEA) in connection with the matter. In addition to requesting information on ABDCs diversion control program generally, the subpoenas also request documents concerning specific customers purchases of controlled substances. ABDC is in the process of responding to the subpoenas and is cooperating fully with the USAO and the DEA. The Company cannot predict the outcome of this matter.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
West Virginia Complaint
On June 26, 2012, the Attorney General of the State of West Virginia (West Virginia) filed a complaint (the Complaint) in the Circuit Court of Boone County, West Virginia, against a number of pharmaceutical wholesale distributors, including the Companys subsidiary, ABDC, alleging, among other things, that that the distributors failed to provide effective controls and procedures to guard against diversion of controlled substances for illegitimate purposes in West Virginia. The Complaint also alleges that the distributors acted negligently by distributing controlled substances to pharmacies that serve individuals who abuse prescription pain medication and were unjustly enriched by such conduct, violated consumer credit and protection laws, created a public nuisance, and violated state antitrust laws in connection with the distribution of controlled substances. West Virginia is seeking injunctive relief to enjoin alleged violations of state regulations requiring suspicious order monitoring and reporting and to require defendants to fund a medical monitoring treatment program. The Complaint also seeks a jury trial to determine any losses and damages sustained by West Virginia as a result of the defendants alleged conduct. On July 26, 2012, one of the defendants, J.M. Smith Corporation d/b/a Smith Drug Company, filed a Notice of Removal from the Circuit Court of Boone County, West Virginia to the United States District Court for the Southern District of West Virginia, and ABDC and all other defendants filed Consents to Removal. The Company cannot predict the outcome of this matter.
Note 8. Fair Value of Financial Instruments
The recorded amounts of the Companys cash and cash equivalents, accounts receivable and accounts payable at June 30, 2012 and September 30, 2011 approximate fair value based upon the relatively short-term nature of these financial instruments. Within cash and cash equivalents, the Company had $684.0 million and $491.1 million of investments in money market accounts as of June 30, 2012 and September 30, 2011, respectively. The fair values of the money market accounts were determined based on unadjusted quoted prices in active markets for identical assets, otherwise known as Level 1 inputs. The recorded amount of debt (see Note 5) and the corresponding fair value as of June 30, 2012 were $1,876.0 million and $2,042.6 million, respectively. The recorded amount of debt and the corresponding fair value as of September 30, 2011 were $1,365.0 million and $1,507.0 million, respectively. The fair values of debt were determined based on quoted market prices, otherwise known as Level 2 inputs.
Note 9. Business Segment Information
The Company is organized based upon the products and services it provides to its customers. The Companys operations are comprised of the Pharmaceutical Distribution reportable segment and Other. The Pharmaceutical Distribution reportable segment consists of the ABDC and ABSG operating segments. Other consists of the ABCS and World Courier operating segments.
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables illustrate reportable segment information for the three and nine months ended June 30, 2012 and 2011 (in thousands):
|
|
Revenue |
| ||||||||||
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Pharmaceutical Distribution |
|
$ |
19,372,722 |
|
$ |
20,036,062 |
|
$ |
59,263,983 |
|
$ |
59,466,510 |
|
Other |
|
453,701 |
|
140,100 |
|
1,069,457 |
|
383,018 |
| ||||
Intersegment eliminations |
|
(57,039 |
) |
(15,140 |
) |
(132,140 |
) |
(39,640 |
) | ||||
Revenue |
|
$ |
19,769,384 |
|
$ |
20,161,022 |
|
$ |
60,201,300 |
|
$ |
59,809,888 |
|
Intersegment eliminations primarily represent the elimination of certain ABCS sales to the Pharmaceutical Distribution reportable segment.
|
|
Operating Income |
| ||||||||||
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Pharmaceutical Distribution |
|
$ |
295,296 |
|
$ |
304,877 |
|
$ |
921,704 |
|
$ |
919,920 |
|
Other |
|
23,243 |
|
12,282 |
|
62,436 |
|
39,254 |
| ||||
Employee severance, litigation and other |
|
(4,844 |
) |
|
|
(17,430 |
) |
|
| ||||
Operating income |
|
313,695 |
|
317,159 |
|
966,710 |
|
959,174 |
| ||||
Other (income) loss |
|
(4,785 |
) |
62 |
|
(4,917 |
) |
(1,747 |
) | ||||
Interest expense, net |
|
24,686 |
|
18,605 |
|
71,183 |
|
56,805 |
| ||||
Income before income taxes |
|
$ |
293,794 |
|
$ |
298,492 |
|
$ |
900,444 |
|
$ |
904,116 |
|
Segment operating income is evaluated before employee severance, litigation and other; other (income) loss; and interest expense, net. All corporate office expenses are allocated to the Pharmaceutical Distribution segment and Other.
Total assets of the Pharmaceutical Distribution segment and Other as of June 30, 2012 were $14,247.2 million and $1,500.4 million, respectively. Total assets of the Pharmaceutical Distribution segment and Other as of September 30, 2011 were $14,365.8 million and $616.9 million, respectively.
ITEM 2. 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 and in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011.
We are a pharmaceutical services company serving the United States, Canada, and selected global markets. We provide drug distribution and related healthcare services and solutions to our pharmacy, physician, and manufacturer customers. We are organized based upon the products and services that we provide to our customers.
On November 1, 2011, we acquired TheraCom, LLC (TheraCom), a subsidiary of CVS Caremark Corporation, for a purchase price of $257.2 million, net of a working capital adjustment. TheraCom is a leading provider of commercialization support services to the biotechnology and pharmaceutical industry, specifically providing reimbursement and patient access support services. TheraComs capabilities complement those of the Lash Group, a business unit within AmerisourceBergen Consulting Services, and significantly increase the size and scope of its consulting services. TheraComs annualized revenues are approximately $700 million, the majority of which are provided by the specialized distribution component of the integrated reimbursement support services for certain unique prescription products. During the quarter and nine months ended June 30, 2012, TheraCom sales to AmerisourceBergen Drug Corporation were $40.2 million and $86.1 million, respectively, which were eliminated from our consolidated financial statements.
On April 30, 2012, we acquired World Courier Group, Inc. (World Courier) for a purchase price of $520 million, subject to a working capital adjustment. World Courier is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. World Courier further strengthens our service offerings to global pharmaceutical manufacturers and provides an established platform for the introduction of our specialty services outside North America. It operates in over 50 countries and has approximately 2,500 employees. World Couriers revenues are estimated to be approximately $500 million in calendar 2012.
In connection with the acquisition of World Courier, we concluded that World Courier, a separate operating segment, does not meet the criteria to be aggregated with our AmerisourceBergen Drug Corporation (ABDC), AmerisourceBergen Specialty Group (ABSG), and AmerisourceBergen Consulting Services (ABCS) operating segments due to the nature of its operations and its different revenue growth rates and operating income margins. As a result and beginning with this quarterly reporting period, we will report the results of our ABDC and ABSG operating segments in the Pharmaceutical Distribution reportable segment. The results of operations of our World Courier and ABCS operating segments are not significant enough to require separate reportable segment disclosure, and therefore have been included in Other for the purpose of our reportable segment presentation. All historical reportable segment information provided herein has been retroactively adjusted to conform to our current presentation. Prior to this quarterly reporting period, the Pharmaceutical Distribution reportable segment represented the operating results of the Company and was comprised of ABDC, ABSG and ABCS.
Additionally, prior to fiscal 2012, the operations of American Health Packaging, Anderson Packaging (Anderson) and Brecon Pharmaceuticals Limited (Brecon) were included within what was known as the AmerisourceBergen Packaging Group operating segment. Beginning in fiscal 2012, to increase our operating efficiencies and to better align our operations, the operations of American Health Packaging were combined with the ABDC operating segment and the operations of Anderson and Brecon (now currently referred to as AndersonBrecon) were combined with the ABCS operating segment.
Pharmaceutical Distribution Segment
The Pharmaceutical Distribution reportable segment is comprised of two operating segments, which include the operations of ABDC and ABSG. Servicing healthcare providers 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 pharmaceuticals (including specialty pharmaceutical products) 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. Additionally, American Health Packaging delivers packaging solutions to institutional and retail healthcare providers.
ABSG, through a number of 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 plasma and other blood products, injectible pharmaceuticals and vaccines. Additionally, ABSG provides third party logistics and outcomes research, and other services for biotechnology and other pharmaceutical manufacturers.
Our use of the terms specialty and specialty pharmaceutical products refers to drugs used to treat complex diseases, such as cancer, diabetes and multiple sclerosis. Specialty pharmaceutical products are part of complex treatment regimens for serious conditions and diseases that generally require ongoing clinical monitoring. We believe the terms specialty and specialty pharmaceutical products are used consistently by industry participants and our competitors. However, we cannot be certain that other distributors of specialty products define these and other similar terms in exactly the same manner as we do.
Other
ABCS, through a number of operating businesses, provides commercialization support services including reimbursement support programs, outcomes research, contract field staffing, patient assistance and copay assistance programs, adherence programs, risk mitigation services, other market access programs to pharmaceutical and biotechnology manufacturers, and provides contract packaging and clinical trials services for pharmaceutical manufacturers. World Courier, which operates in over 50 countries, is a leading global specialty transportation and logistics provider for the biopharmaceutical industry.
Results of Operations
Revenue
|
|
Three months ended |
|
|
|
Nine months ended |
|
|
| ||||||||
|
|
June 30, |
|
|
|
June 30, |
|
|
| ||||||||
(dollars in thousands) |
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||
Pharmaceutical Distribution |
|
$ |
19,372,722 |
|
$ |
20,036,062 |
|
-3.3 |
% |
$ |
59,263,983 |
|
$ |
59,466,510 |
|
-0.3 |
% |
Other |
|
453,701 |
|
140,100 |
|
223.8 |
% |
1,069,457 |
|
383,018 |
|
179.2 |
% | ||||
Intersegment eliminations |
|
(57,039 |
) |
(15,140 |
) |
276.7 |
% |
(132,140 |
) |
(39,640 |
) |
233.4 |
% | ||||
Revenue |
|
$ |
19,769,384 |
|
$ |
20,161,022 |
|
-1.9 |
% |
$ |
60,201,300 |
|
$ |
59,809,888 |
|
0.7 |
% |
Revenue of $19.8 billion in the quarter ended June 30, 2012 decreased 1.9% from the prior year quarter. The decrease in revenue was due to the 5% revenue decline of ABDC offset, in part, by an 8% increase in ABSGs revenue. Revenue of $60.2 billion in the nine months ended June 30, 2012 increased 0.7% from the prior year period as ABSGs revenue grew 6% and was offset by the 1% revenue decline of ABDC. Additionally, our recent acquisitions, with TheraCom being the largest contributor, added 1.5% and 1.1% to our revenue growth in the quarter and nine months ended June 30, 2012, respectively.
Pharmaceutical Distribution Segment
ABDCs revenue decreased 5% and 1% from the prior quarter and nine month period, respectively. The decline in ABDCs revenue was primarily due to the increase in use of lower priced generics, including lower sales to its largest customer, and a reduction in chain customer revenue primarily due to the previously announced loss of one of our larger retail customers, the former Longs Drugs, which was acquired by a customer of one of our competitors and did not renew its contract prior to September 30, 2011.
ABSGs revenue of $4.2 billion and $12.2 billion in the quarter and nine months ended June 30, 2012 increased 8% and 6%, respectively, from the prior year periods primarily due to the growth in its third-party logistics business and growth in its vaccine and physician office distribution business, which has benefited from sales of a new ophthalmology drug. Additionally, ABSGs revenue growth, particularly in the quarter ended June 30, 2012, was partially offset by a decline in sales of certain specialty oncology drugs. The majority of ABSGs revenue is generated from the distribution of pharmaceuticals to physicians who specialize in a variety of disease states, especially oncology. ABSGs business may be adversely impacted in the future by changes in medical guidelines and the Medicare reimbursement rates for certain pharmaceuticals, especially 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 growth or reduced revenues.
We continue to expect our revenue growth in fiscal 2012 to be relatively flat or to grow modestly in comparison to fiscal 2011. We have experienced and continue to expect a significant number of brand to generic drug conversions in fiscal 2012 and, as mentioned above, one of our larger retail customers was acquired by a customer of one of our competitors and did not renew its contract. Our expected growth rate reflects U.S. pharmaceutical industry conditions, including changes 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 also may be impacted, among other things, by industry competition and changes in customer mix. In early April 2012, our largest customer, Medco Health Solutions, Inc. (Medco) merged with Express Scripts, Inc. (Express Scripts), which is the surviving corporation. Medco accounted for 19% of our revenue in fiscal 2011 and contributed approximately 5% of our earnings. We recently signed a three year agreement, effective October 1, 2012, to supply primarily brand pharmaceuticals to Express Scripts. Annual sales to Express Scripts in fiscal 2013 are estimated to be $18.5 billion and we expect the new agreement will contribute approximately 3% to our earnings. 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-name pharmaceutical 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 government and other third party reimbursement rates to our customers, and changes in Federal government rules and regulations.
Other
Other revenue increased $313.6 million from the prior year quarter primarily due to the $304.2 million contribution from our TheraCom and World Courier acquisitions. Other revenue increased $686.4 million from the prior year nine month period primarily due to the $544.9 million contribution from our TheraCom acquisition.
Gross Profit
|
|
Three months ended |
|
|
|
Nine months ended |
|
|
| ||||||||
|
|
June 30, |
|
|
|
June 30, |
|
|
| ||||||||
(dollars in thousands) |
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||
Gross profit |
|
$ |
689,150 |
|
$ |
653,581 |
|
5.4 |
% |
$ |
1,977,368 |
|
$ |
1,921,149 |
|
2.9 |
% |
Gross profit in the quarter ended June 30, 2012 increased $35.6 million from the prior year quarter due to the contributions made by our recent acquisitions (primarily World Courier), the solid growth and profitability of our non-specialty generic programs, and brand price increases, all of which were offset in part by the reduced contribution from the sales of certain specialty oncology drugs, as further described below, the decline in revenue, and by competitive pressures on customer margins. Gross profit in the nine months ended June 30, 2012 increased $56.2 million from the prior year period due to the contributions made by our recent acquisitions (primarily World Courier and TheraCom), the solid growth and profitability of our non-specialty generic programs, and brand price increases, all of which were offset in part by the reduced contribution from the sales of certain specialty oncology drugs, and by competitive pressures on customer margins. In the quarter and nine months ended June 30, 2012, the gross profit contributions from the sales of Oxaliplatin, Gemcitabine and Docetaxel (all generic oncology drugs) were approximately $55.8 million and $111.4 million lower than the prior year periods, respectively. We had no sales of Oxaliplatin in our current quarter ended June 30, 2012. Quantities of Oxaliplatin are not expected to be available until the product is re-launched in mid-August 2012. Gross profit margins for Oxaliplatin upon the re-launch are expected to be significantly lower than the margin levels in fiscal 2011. The gross profit contributions from the sales of Oxaliplatin, Gemcitabine and Docetaxel will be significantly lower in fiscal 2012 in comparison to fiscal 2011. In fiscal 2012, the gross profit decline from the above-mentioned three specialty generic products will be partially offset by the gross profit contribution from over 30 ABDC brand to generic product conversions. However, there are unique circumstances surrounding the launch of each generic product and the actual gross profit from these launches can differ materially from what we expect. Additionally, in the nine months ended June 30, 2011, our gross profit was impacted by a non-recurring $12 million benefit in connection with a customer being acquired by a third party.
As a percentage of revenue, our gross profit margin of 3.49% in the quarter ended June 30, 2012 increased by 25 basis points from the prior year quarter. As a percentage of revenue, our gross profit margin of 3.28% in the nine months ended June 30, 2012 increased by 7 basis points from the prior year period. The gross profit margin increases were due to the gross profit contributions from our recent acquisitions, primarily World Courier and TheraCom, and the solid growth and profitability of our non-specialty generic programs, both of which were offset by the decline in gross profit relating to the above-mentioned three specialty generic products.
Our cost of goods sold for interim periods includes a last-in, first-out (LIFO) provision that is based on our estimated annual LIFO provision. We recorded a LIFO charge of $4.7 million and $11.4 million in the quarters ended June 30, 2012 and 2011, respectively. Our LIFO charge was $11.4 million and $34.8 million in the nine months ended June 30, 2012 and 2011, respectively. Our estimated LIFO charge in fiscal 2012 is expected to be lower than the prior fiscal year charge due to expected greater generic price deflation, as the exclusivity period for certain large volume generic drugs expire. The annual LIFO provision is affected by changes in inventory quantities, product mix, and manufacturer pricing practices, which may be impacted by market and other external influences.
Operating Expenses
|
|
Three months ended |
|
|
|
Nine months ended |
|
|
| ||||||||
|
|
June 30, |
|
|
|
June 30, |
|
|
| ||||||||
(dollars in thousands) |
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||
Distribution, selling and administrative |
|
$ |
332,307 |
|
$ |
308,806 |
|
7.6 |
% |
$ |
890,810 |
|
$ |
882,971 |
|
0.9 |
% |
Depreciation and amortization |
|
38,304 |
|
27,616 |
|
38.7 |
% |
102,418 |
|
79,004 |
|
29.6 |
% | ||||
Employee severance, litigation and other |
|
4,844 |
|
|
|
|
|
17,430 |
|
|
|
|
| ||||
Total operating expenses |
|
$ |
375,455 |
|
$ |
336,422 |
|
11.6 |
% |
$ |
1,010,658 |
|
$ |
961,975 |
|
5.1 |
% |
Distribution, selling and administrative expenses in the quarter ended June 30, 2012 increased 7.6% due to approximately $45 million of operating costs related to our recently acquired companies and was partially offset by a reduction in employee compensation and benefit costs and a decrease in consulting expenses within our Pharmaceutical Distribution segment. Distribution, selling and administrative expenses in the nine months ended June 30, 2012 increased 0.9% due to the operating costs relating to our recently acquired companies and was substantially offset by a reduction in employee compensation and benefit costs and a decrease in consulting expenses within our Pharmaceutical Distribution segment.
Depreciation expense increased from the prior year periods primarily due to the implementation of our new ERP system. Amortization expense increased from the prior year periods primarily due to the newly acquired intangible assets resulting from the TheraCom and World Courier acquisitions.
Employee severance, litigation and other for the quarter ended June 30, 2012 included $0.7 million of employee severance costs and $4.1 million of acquisition costs related to business combinations. Employee severance, litigation and other for the nine months ended June 30, 2012 included $6.8 million of employee severance costs and $10.6 million of acquisition costs related to business combinations.
As a percentage of revenue, operating expenses were 1.90% in the quarter ended June 30, 2012, an increase of 23 basis points from the prior year quarter. This increase was primarily due to our recent acquisitions. For the Pharmaceutical Distribution segment, as a percentage of revenue, operating expenses were down 3 basis points from the prior year quarter. As a percentage of revenue, operating expenses were 1.68% in the nine months ended June 30, 2012, up 7 basis points from the prior nine month period. For the Pharmaceutical Distribution segment, as a percentage of revenue, operating expenses were down 6 basis points from the prior nine month period.
Operating Income
|
|
Three months ended |
|
|
|
Nine months ended |
|
|
| ||||||||
|
|
June 30, |
|
|
|
June 30, |
|
|
| ||||||||
(dollars in thousands) |
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||
Pharmaceutical Distribution |
|
$ |
295,296 |
|
$ |
304,877 |
|
-3.1 |
% |
$ |
921,704 |
|
$ |
919,920 |
|
0.2 |
% |
Other |
|
23,243 |
|
12,282 |
|
89.2 |
% |
62,436 |
|
39,254 |
|
59.1 |
% | ||||
Employee severance, litigation and other |
|
(4,844 |
) |
|
|
|
|
(17,430 |
) |
|
|
|
| ||||
Operating income |
|
$ |
313,695 |
|
$ |
317,159 |
|
-1.1 |
% |
$ |
966,710 |
|
$ |
959,174 |
|
0.8 |
% |
Segment operating income is evaluated before employee severance, litigation and other.
Pharmaceutical Distribution operating income decreased $9.6 million from the prior year quarter due to the decrease in its gross profit, offset in part by a decrease in its operating expenses. Other operating income increased $11.0 million and $23.2 million from the prior year quarter and nine month periods due to the contributions made by our recent acquisitions, primarily TheraCom and World Courier. Excluding acquisition-related costs, TheraCom and World Courier collectively contributed $7.5 million and $15.1 million to Other operating income for the quarter and nine months ended June 30, 2012, respectively.
Other income of $4.8 million and $4.9 million in the quarter and nine months ended June 30, 2012, respectively, included a $5.3 million gain relating to amounts accrued on a note receivable in connection with a prior business disposition. Other income of $1.7 million in the nine months ended June 30, 2011 included a $1.9 million gain resulting from payments received in excess of amounts accrued on a note receivable relating to a prior business disposition.
Interest expense, interest income, and the respective weighted average interest rates in the quarters ended June 30, 2012 and 2011 were as follows (in thousands):
|
|
2012 |
|
2011 |
| ||||||
|
|
Amount |
|
Weighted Average |
|
Amount |
|
Weighted Average |
| ||
Interest expense |
|
$ |
25,232 |
|
4.73 |
% |
$ |
19,355 |
|
5.31 |
% |
Interest income |
|
(546 |
) |
0.22 |
% |
(750 |
) |
0.17 |
% | ||
Interest expense, net |
|
$ |
24,686 |
|
|
|
$ |
18,605 |
|
|
|
Interest expense increased from the prior year quarter due to an increase of $586.8 million in average borrowings, primarily due to the November 2011 issuance of our new $500 million 3½% senior notes due 2021, as described further within Liquidity and Capital Resources. In addition, interest costs capitalized relating to our Business Transformation project (which involves the implementation of our new enterprise resource planning platform) of $1.1 million in the quarter ended June 30, 2011, had the effect of reducing interest expense for that period.
Interest expense, interest income, and the respective weighted average interest rates in the nine months ended June 30, 2012 and 2011 were as follows (in thousands):
|
|
2012 |
|
2011 |
| ||||||
|
|
Amount |
|
Weighted Average |
|
Amount |
|
Weighted Average |
| ||
Interest expense |
|
$ |
72,605 |
|
4.82 |
% |
$ |
58,718 |
|
5.33 |
% |
Interest income |
|
(1,422 |
) |
0.21 |
% |
(1,913 |
) |
0.19 |
% | ||
Interest expense, net |
|
$ |
71,183 |
|
|
|
$ |
56,805 |
|
|
|
Interest expense increased from the prior nine-month period due to an increase of $473.8 million in average borrowings, primarily due to the November 2011 issuance of our new $500 million 3 ½% senior notes due 2021. In addition, interest costs capitalized relating to our Business Transformation project of $0.5 million and $3.1 million in the nine months ended June 30, 2012 and 2011, respectively, had the effect of reducing interest expense for those periods. Our average invested cash was $1.7 billion and $1.3 billion during the nine months ended June 30, 2012 and 2011, respectively. Despite the increase in our average invested cash, interest income was lower in our current year period due to an increase in the amount of cash held in non-interest bearing cash accounts. Cash held in these accounts partially offset bank fees. As previously disclosed, we expect our interest expense to be significantly higher in fiscal 2012 than fiscal 2011 due to the issuance of the above mentioned notes.
Income taxes in the quarter ended June 30, 2012 reflect an effective income tax rate of 38.3%, compared to 38.2% in the prior year quarter. Income taxes in the nine months ended June 30, 2012 reflect an effective income tax rate of 38.3%, compared to 38.1% in the prior year period. We continue to expect that our ongoing effective tax rate will be approximately 38.4%.
Net income of $181.3 million in the quarter ended June 30, 2012 decreased 2% from the prior year quarter. Diluted earnings per share of $0.71 in the quarter ended June 30, 2012 increased 8% from $0.66 per share in the prior year quarter. Net income of $555.5 million in the nine months ended June 30, 2012 decreased 1% from the prior year period. Diluted earnings per share of $2.13 in the nine months ended June 30, 2012 increased 7% from $2.00 in the prior year period. The differences between diluted earnings per share growth and the changes in net income for the quarter and nine months ended June 30, 2012 were due to the 8% and 7% reduction, respectively, in weighted average common shares outstanding, primarily from purchases of our common stock, net of the impact of stock option exercises.
Liquidity and Capital Resources
The following table illustrates our debt structure at June 30, 2012, including availability under the multi-currency revolving credit facility and the receivables securitization facility (in thousands):
|
|
Outstanding |
|
Additional |
| ||
Fixed-Rate Debt: |
|
|
|
|
| ||
$392,326, 5 5/8% senior notes due 2012 |
|
$ |
392,246 |
|
$ |
|
|
$500,000, 5 7/8% senior notes due 2015 |
|
499,035 |
|
|
| ||
$400,000, 4 7/8% senior notes due 2019 |
|
397,414 |
|
|
| ||
$500,000, 3 1/2% senior notes due 2021 |
|
499,337 |
|
|
| ||
Total fixed-rate debt |
|
1,788,032 |
|
|
| ||
|
|
|
|
|
| ||
Variable-Rate Debt: |
|
|
|
|
| ||
Multi-currency revolving credit facility due 2016 |
|
87,940 |
|
601,191 |
| ||
Receivables securitization facility due 2014 |
|
|
|
700,000 |
| ||
Other |
|
|
|
1,571 |
| ||
Total variable-rate debt |
|
87,940 |
|
1,302,762 |
| ||
Total debt, including current portion |
|
$ |
1,875,972 |
|
$ |
1,302,762 |
|
Along with our cash balances, our aggregate availability under our multi-currency revolving credit facility and our receivables securitization facility provides us sufficient sources of capital to fund our working capital requirements.
In February 2012, we repaid the borrowings under the $55 million Blanco revolving credit facility, which was terminated.
In November 2011, we issued $500 million of 3 1/2% senior notes due November 15, 2021 (the 2021 Notes). The 2021 Notes were sold at 99.858% of the principal amount and have an effective yield of 3.52%. Interest on the 2021 Notes is payable semiannually, in arrears, commencing May 15, 2012. The 2021 Notes rank pari passu to the Multi-Currency Revolving Credit Facility and the 2012 Notes, the 2015 Notes, and the 2019 Notes (all defined below). We used the net proceeds of the 2021 Notes for general corporate purposes. Costs incurred in connection with the issuance of the 2021 Notes were deferred and are being amortized over the ten-year term of the notes.
We have a $700 million multi-currency senior unsecured revolving credit facility, which was scheduled to expire in March 2015, (the Multi-Currency Revolving Credit Facility) with a syndicate of lenders. In October 2011, we entered into an amendment with the syndicate of lenders to extend the maturity date of the Multi-Currency Revolving Credit Facility to October 2016. The amendment also reduced our borrowing rates and facility fees. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on our debt rating and ranges from 68 basis points to 155 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (90 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at June 30, 2012). Additionally, interest on borrowings denominated in Canadian dollars may accrue at the greater of the Canadian prime rate or the CDOR rate. We pay facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on our debt rating, ranging from 7 basis points to 20 basis points, annually, of the total commitment (10 basis points at June 30, 2012). 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.
On October 31, 2011, we established a commercial paper program whereby we may from time to time issue short-term promissory notes in an aggregate amount of up to $700 million at any one time. Amounts available under the program may be borrowed, repaid, and re-borrowed from time to time. The maturities on the notes will vary, but may not exceed 365 days from the date of issuance. The notes will bear interest rates, if interest bearing, or will be sold at a discount from their face amounts. The commercial paper program does not increase our borrowing capacity as it is fully backed by our Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under our commercial paper program at June 30, 2012.
We have a $700 million receivables securitization facility (Receivables Securitization Facility), which was scheduled to expire in April 2014. In October 2011, we entered into an amendment to the Receivables Securitization Facility to extend the maturity date to October 2014. The amendment also reduced our borrowing rates. We have available to us 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 currently based on prevailing market rates for short-term commercial paper or LIBOR plus a program fee of 75 basis points. We currently pay an unused fee of 37.5 basis points, annually, to maintain the availability under the Receivables Securitization Facility. At June 30, 2012, there were no borrowings outstanding under the Receivables Securitization Facility. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility.
We have $392.3 million of 5 5/8% senior notes due September 15, 2012 (the 2012 Notes), $500 million of 5 7/8% senior notes due September 15, 2015 (the 2015 Notes), and $400 million of 4 7/8% senior notes due November 15, 2019 (the 2019 Notes). Interest on the 2012 Notes, the 2015 Notes, and the 2019 Notes is payable semiannually in arrears. All of the senior notes rank pari passu to the Multi-Currency Revolving Credit Facility. All of the senior notes and the Multi-Currency Revolving Credit Facility were previously guaranteed on a joint and several basis by certain of the Companys subsidiaries, which were known as the guarantor subsidiaries. On June 29, 2012, in accordance with the terms of the documents governing the underlying obligations, each of the guarantor subsidiaries was released from its obligations under its guarantee of the senior notes and the Multi-Currency Revolving Credit Facility.
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.
Our primary ongoing cash requirements will be to finance working capital, fund the repayment of debt, fund the payment of interest on debt, fund repurchases of our common stock, fund the payment of dividends, finance acquisitions, and fund capital expenditures and routine growth and expansion through new business opportunities. In August 2011, our board of directors approved a program allowing us to purchase up to $750 million of our outstanding shares of common stock, subject to market conditions. During the nine months ended June 30, 2012, we purchased $500.0 million of our common stock to complete our availability remaining on the $750 million share repurchase program. Additionally, we paid $8.0 million in October 2011 to settle purchases of our common stock made on September 29, 2011. On May 10, 2012, our board of directors approved a new program allowing us to purchase up to $750 million shares of our common stock, subject to market conditions. During the quarter ended June 30, 2012, we purchased $5.9 million of our common stock under the new $750 million share repurchase program. As of June 30, 2012, we had $744.1 million of availability remaining on the $750 million share repurchase program. Future cash flows from operations and borrowings are expected to be sufficient to fund our ongoing cash requirements.
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, could 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.
We have market risk exposure to interest rate fluctuations relating to our debt. We manage interest rate risk by using a combination of fixed-rate and variable-rate debt. At June 30, 2012, we had $87.9 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 in the combinations we want and on terms acceptable to us. There were no such financial instruments in effect at June 30, 2012.
We also have market risk exposure to interest rate fluctuations relating to our cash and cash equivalents. We had $1.7 billion in cash and cash equivalents at June 30, 2012, of which $0.7 billion was invested in money market accounts at financial institutions. 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.
At any point in time, a portion of our cash invested in money market accounts at financial institutions may hold short-term fixed income investments issued by non-United States companies and/or foreign governments. Our investments in these accounts could be impacted by market fluctuations, if any, caused by a sovereign debt default.
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, the U.K. Pound Sterling, and the Euro. 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 June 30, 2012. We may use derivative instruments to hedge our foreign currency exposure, but not for speculative or trading purposes.
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 June 30, 2012 (in thousands):
|
|
Payments Due by Period |
| |||||||||||||
|
|
Total |
|
Within 1 |
|
1-3 Years |
|
4-5 Years |
|
After 5 |
| |||||
Debt, including interest payments |
|
$ |
2,317,706 |
|
$ |
472,300 |
|
$ |
137,880 |
|
$ |
680,026 |
|
$ |
1,027,500 |
|
Operating leases |
|
322,335 |
|
54,813 |
|
98,413 |
|
71,067 |
|
98,042 |
| |||||
Other commitments |
|
233,142 |
|
162,042 |
|
70,092 |
|
1,008 |
|
|
| |||||
Total |
|
$ |
2,873,183 |
|
$ |
689,155 |
|
$ |
306,385 |
|
$ |
752,101 |
|
$ |
1,125,542 |
|
We have commitments to purchase product from influenza vaccine manufacturers for the 2012/2013 flu season. We are required to purchase doses at prices that we believe will represent market prices. We currently estimate our remaining purchase commitment under these agreements will be approximately $58.6 million as of June 30, 2012. These influenza vaccine commitments are included in Other commitments in the above table.
We have commitments to purchase blood plasma 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 $59.4 million as of June 30, 2012. 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, including assistance with the implementation of our new enterprise resource planning (ERP) system. The remaining commitment under our 10-year arrangement, as amended, which expires in June 2015, is approximately $98.2 million as of June 30, 2012, of which $36.3 million represents our commitment over the next twelve months, and is included in Other commitments in the above contractual obligations table.
Our liability for uncertain tax positions was $47.4 million (including interest and penalties) as of June 30, 2012. 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 above contractual obligations table.
During the nine months ended June 30, 2012, our operating activities provided $760.1 million of cash in comparison to cash provided of $807.8 million in the prior year period. Cash provided by operations during the nine months ended June 30, 2012 was principally the result of net income of $555.5 million, non-cash items of $193.1 million, a decrease in accounts receivable of $100.8 million, and a decrease in merchandise inventories of $53.4 million, offset, in part, by a decrease in accounts payable, accrued expenses and income taxes of $144.8 million. Non-cash items included the provision for deferred income taxes of $37.9 million, which represented an $84.3 million decline from the prior year period. Deferred income taxes were significantly higher in the prior year period due to the larger income tax deductions associated with merchandise inventories and tax bonus depreciation resulting from our Business Transformation capital expenditures. Accounts receivable declined from September 30, 2011, reflecting timing of customer purchases and payments as of June 30, 2012. Merchandise inventories decreased from the September 30, 2011 balance even though the average number of inventory days on hand in the nine months ended June 30, 2012 increased approximately one day from the prior year period. The decrease in accounts payable, accrued expenses and income taxes was primarily driven by the timing of inventory purchases made and the related payments to our suppliers.
We use days sales outstanding, days inventory on hand, and days payable outstanding to evaluate our working capital performance.
|
|
Quarter ended June 30, |
|
Nine months ended June 30, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Days sales outstanding |
|
18.5 |
|
17.0 |
|
18.1 |
|
17.2 |
|
Days inventory on hand |
|
26.2 |
|
24.2 |
|
25.8 |
|
24.6 |
|
Days payable outstanding |
|
43.1 |
|
40.1 |
|
42.1 |
|
39.0 |
|
Our cash flow from operating activities can vary significantly from period to period based on fluctuations in our period end working capital. Currently, we expect cash from operating activities in fiscal 2012 to be between $1.0 billion and $1.1 billion. Operating cash uses during the nine months ended June 30, 2012 included $57.3 million of interest payments and $216.1 million of income tax payments, net of refunds.
During the nine months ended June 30, 2011, our operating activities provided $807.8 million of cash. Cash provided by operations during the nine months ended June 30, 2011 was principally the result of net income of $559.3 million, non-cash items of $268.2 million, a decrease in merchandise inventories of $55.9 million, and an increase in accounts payable, accrued expenses and income taxes of $26.6 million, offset, in part, by an increase in accounts receivable of $93.6 million. Non-cash items included the provision for deferred income taxes of $122.2 million, which represented an increase of $61.5 million from the prior year nine-month period and was primarily attributable to tax bonus depreciation resulting from our Business Transformation capital expenditures. Merchandise inventories decreased slightly from the September 30, 2010 balance while the average number of inventory days on hand in the nine months ended June 30, 2011 decreased approximately one-half of one day from the prior year period. The average number of days payable outstanding in the nine months ended June 30, 2011 decreased approximately one-half of one day from the prior year period. Although accounts receivable increased from September 30, 2010, the average number of days sales outstanding during the quarter and nine months ended June 30, 2011 was relatively consistent to the prior year periods. Operating cash uses during the nine months ended June 30, 2011 included $47.5 million of interest payments and $184.9 million of income tax payments, net of refunds.
Capital expenditures for the nine months ended June 30, 2012 and 2011 were $127.6 million and $127.5 million, respectively. Significant capital expenditures in the nine months ended June 30, 2012 and 2011 related to our Business Transformation project, which includes a new ERP system for our corporate office and for our ABDC operations, ABDC purchases of machinery and equipment, which were previously sold to financial institutions and leased back by us, and other technology initiatives.
Significant capital expenditures in the nine months ended June 30, 2012 also included investments to expand our infrastructure in Canada, and other ABDC and ABCS facility expansions and improvements. We expect to spend approximately $200 million for capital expenditures during fiscal 2012.
On April 30 2012, we acquired World Courier for a purchase price of $520 million, subject to a working capital adjustment. In November 2011, we acquired TheraCom for a purchase price of $257.2 million, net of a working capital adjustment. Additionally, we finalized working capital adjustments relating to our September 2011 acquisitions of IntrinsiQ, LLC and Premier Source totaling $0.5 million, net.
In November 2011, we issued our 2021 Notes for net proceeds of $494.8 million. We used the net proceeds of the 2021 Notes for general corporate purposes. In February 2012, we repaid the $55 million of borrowings under our Blanco revolving credit facility, which was due to expire in April 2012.
During the nine months ended June 30, 2012 and 2011, we paid $514.3 million and $400.3 million, respectively, for purchases of our common stock shares.
In November 2010, our board of directors increased the quarterly cash dividend by 25% from $0.08 per share to $0.10 per share. In May 2011, our board of directors increased the quarterly cash dividend by 15% from $0.10 per share to $0.115 per share. In November 2011, our board of directors increased the quarterly cash dividend again by 13% from $0.115 per share to $0.13 per share. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remains within the discretion of our board of directors and will depend upon our future earnings, financial condition, capital requirements, and other factors.
Forward-Looking Statements
Certain of the statements contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations 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, as amended (the Exchange Act). These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those described in any forward-looking statements: 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 fraud and abuse laws and regulations and/or any other laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services and any related litigation, including shareholder derivative lawsuits; changes in federal and state 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; greater or less than anticipated benefit from launches of the generic versions of previously patented pharmaceutical products; significant breakdown or interruption of our information technology systems; our inability to continue to implement an enterprise resource planning (ERP) system to handle business and financial processes and transactions (including processes and transactions related to our customers and suppliers) of AmerisourceBergen Drug Corporation operations as intended without functional problems, unanticipated delays and/or cost overruns; success of integration, restructuring or systems initiatives; interest rate and foreign currency exchange rate fluctuations; risks associated with international business operations, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws and economic sanctions and import laws and regulations; economic, business, competitive and/or regulatory developments outside of the United States; changes and/or 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 and 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 laws or legislative initiatives that could adversely affect our tax positions and/or our tax liabilities 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 (i) elsewhere in this report, (ii) in Item 1A (Risk Factors) in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2011 and elsewhere in that report and (iii) in other reports filed by the Company pursuant to the Exchange Act.
ITEM 3. 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 the discussion under Liquidity and Capital Resources in Item 2 on page 22.
ITEM 4. 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 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 June 30, 2012 in the Companys internal control over financial reporting that materially affected, or are reasonably likely to materially affect, those controls.
See Note 7 (Legal Matters and Contingencies) of the Notes to the Consolidated Financial Statements set forth under Item 1 of Part I of this report for the Companys current description of legal proceedings.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
The following table sets forth the 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 quarter ended June 30, 2012.
Period |
|
Total |
|
Average Price |
|
Total Number of |
|
Approximate Dollar |
| ||
April 1 to April 30 |
|
2,659,261 |
|
$ |
37.84 |
|
2,654,293 |
|
$ |
79,070,531 |
|
May 1 to May 31 |
|
2,228,666 |
|
$ |
36.35 |
|
2,228,666 |
|
$ |
748,048,936 |
|
June 1 to June 30 |
|
110,470 |
|
$ |
36.18 |
|
110,470 |
|
$ |
744,051,656 |
|
Total |
|
4,998,397 |
|
|
|
4,993,429 |
|
|
|
a) In August 2011, the Company announced a new program to purchase up to $750 million of its outstanding shares of common stock, subject to market conditions. During the nine months ended June 30, 2012, the Company purchased 13.4 million shares under this program for $500.0 million.
b) In May 2012, the Company announced a new program to purchase up to $750 million of its outstanding shares of common stock, subject to market conditions. During the three months ended June 30, 2012, the Company purchased 0.2 million shares under this program for $5.9 million.
(a) Exhibits:
10.1 |
|
Separation and General Release Agreement, dated April 2, 2012, between the Registrant and Michael D. DiCandilo |
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32 |
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |
|
|
|
101 |
|
Financial statements from the Quarterly Report on Form 10-Q of AmerisourceBergen Corporation for the quarter ended June 30, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Statements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
AMERISOURCEBERGEN CORPORATION |
|
|
|
August 9, 2012 |
|
/s/ Steven H. Collis |
|
|
Steven H. Collis |
|
|
President and Chief Executive Officer |
|
|
|
August 9, 2012 |
|
/s/ Tim G. Guttman |
|
|
Tim G. Guttman |
|
|
Senior Vice President |
|
|
and Chief Financial Officer |
EXHIBIT INDEX
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.1 |
|
Separation and General Release Agreement, dated April 2, 2012, between the Registrant and Michael D. DiCandilo |
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32 |
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |
|
|
|
101 |
|
Financial statements from the Quarterly Report on Form 10-Q of AmerisourceBergen Corporation for the quarter ended June 30, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Statements. |
Exhibit 10.1
SEPARATION AND GENERAL RELEASE AGREEMENT
THIS SEPARATION AND GENERAL RELEASE AGREEMENT (the Agreement) is made as of the date set forth on the signature page below, by and between AmerisourceBergen Corporation (the Company) and Michael D. DiCandilo (the Executive).
WHEREAS, Executive formerly was employed as the Executive Vice President and Chief Financial Officer of the Company;
WHEREAS, Executive and Company entered into an Amended and Restated Employment Agreement, dated November 24, 2008, as amended by letter agreement dated January 7, 2009 (the Employment Agreement) which provides for certain severance benefits in the event that Executives employment is terminated on account of a reason set forth in the Employment Agreement;
WHEREAS, Executive and the Company mutually desire to terminate Executives employment on an amicable basis, such termination to be effective March 30, 2012 (the Date of Termination); and
WHEREAS, in connection with the termination of Executives employment, the parties have agreed to a separation package and the resolution of any and all disputes between them.
NOW, THEREFORE, IT IS HEREBY AGREED by and between Executive and the Company as follows:
1. (a) Executive, for and in consideration of the commitments of the Company as set forth in Paragraph 6 of this Agreement, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Company, its affiliates, subsidiaries and parents, and its officers, directors, employees, and agents, and its and their respective successors and assigns, heirs, executors, and administrators (each, a Releasee and collectively, Releasees) from all causes of action, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now has, or hereafter may have, whether known or unknown, or which Executives heirs, executors, or administrators may have, by reason of any matter, cause or thing whatsoever, from the beginning of Executives employment to the date of this Agreement, and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executives employment relationship with the Company and/or its predecessors, subsidiaries or affiliates, the terms and conditions of that employment relationship, and the termination of that employment relationship, including, but not limited to, any claims arising under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act (OWBPA), Title VII of The Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, the Pennsylvania Human Relations Act, and any other claims under any federal, state or local common law, statutory, or regulatory provision, now or hereafter recognized, and any claims for attorneys fees and costs. This Agreement is effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, implied or express contract or discrimination of any sort.
(b) To the fullest extent permitted by law, and subject to the provisions of Paragraph 1(c) below, Executive represents and affirms that (i) Executive has not filed or caused to be filed on Executives behalf any claim for relief against the Company or any Releasee and, to the best of Executives knowledge and belief, no outstanding claims for relief have been filed or asserted against the Company or any Releasee on Executives behalf; (ii) Executive has not reported any improper, unethical or illegal conduct or activities to any supervisor, manager, department head, human resources representative, agent
or other representative of the Company, to any member of the Companys legal or compliance departments, or to the ethics hotline, and has no knowledge of any such improper, unethical or illegal conduct or activities; and (iii) Executive will not file, commence, prosecute or participate in any judicial or arbitral action or proceeding against the Company or any Releasee based upon or arising out of any act, omission, transaction, occurrence, contract, claim or event existing or occurring on or before the date of this Agreement.
(c) Nothing in this Agreement will be deemed to release the Company from (i) claims solely to enforce this Agreement, (ii) claims for indemnification under the Companys By-Laws, or (iii) claims for payment or reimbursement pursuant to any employee benefit plan, policy or arrangement of the Company. Furthermore, nothing in this Agreement prevents or prohibits Executive from (i) making a disclosure required by law, (ii) filing a claim with a government agency that is responsible for enforcing a law, or (iii) cooperating, participating or assisting in any government or regulatory entity investigations or proceedings (except as set forth in Paragraph 1(d) below).
(d) To the extent allowed by applicable law, Executive also waives and/or releases any right to benefit from, profit from, voluntarily participate in, help or assist, either directly or indirectly, accept or obtain any relief from, or assign any right to any claim or action brought under the qui tam provisions of the Federal or any State False Claims Act. Executive also acknowledges that he has not commenced such a claim or action or made a disclosure to any government agency under the qui tam provisions of the Federal or any State False Claims Act. Executive further agrees and acknowledges that he is not aware of any violation of the Companys legal obligations, including but not limited to any violation of the Sarbanes-Oxley Act, Federal or State False Claims Act, or any other legal obligation and he is satisfied that the Company did not violate any of its legal obligations.
2. In consideration of the Companys agreements as set forth in Paragraph 6 herein, Executive agrees to continue to be bound by the terms of Section 9 of the Employment Agreement and the provisions of Section 15 of the Companys Equity Incentive Plan.
3. Executive agrees and recognizes that Executive has permanently and irrevocably severed Executives employment relationship with the Company, that Executive shall not seek employment with the Company or any affiliated entity at any time in the future, and that the Company has no obligation to employ Executive in the future.
4. Executive further agrees that Executive will not disparage or subvert the Company, or make any statement reflecting negatively on the Company, its affiliated corporations or entities, or any of their officers, directors, employees, agents or representatives, including, but not limited to, any matters relating to the operation or management of the Company, Executives employment and the termination of Executives employment, irrespective of the truthfulness or falsity of such statement. The Company agrees that none of its officers, directors, employees, agents or representatives will disparage or subvert the Executive, or make any statement reflecting negatively on the Executive, including, but not limited to, any matters relating to the Executives performance or the termination of Executives employment, irrespective of the truthfulness or falsity of such statement.
5. Not later than thirty (30) days following the Date of Termination, the Company shall pay to Executive his accrued base salary and accrued but unpaid vacation time through the Date of Termination that has not yet been paid and any unreimbursed employee business expenses incurred prior to the Date of Termination to the extent Executive has submitted a claim for such expenses not later than the fifteenth day following the Date of Termination. Except as otherwise provided specifically in this Agreement, Executive acknowledges and agrees that: (i) any equity awards, including any options or restricted share or
restricted share unit awards, made to the Executive by the Company shall be forfeited to the extent that any such award has not vested prior to the Date of Termination; and (ii) following the Date of Termination, he shall no longer be eligible to participate in and will not have any right to receive any benefit under any benefit plan, policy or program of the Company other than vested accrued benefits under the retirement plans and deferred compensation plans sponsored by the Company of which the Executive is a participant.
6. Subject to Executives execution of this Agreement within 21 days after the Termination Date and non-revocation of this Agreement, and in consideration for Executives agreement as set forth herein (including, without limitation, the execution and non-revocation of this Agreement), and in full satisfaction of any and all obligations of the Company including, without limitation, under the Employment Agreement, the Company hereby agrees to make the following separation payments in connection with the Executives separation from service:
(a) the Company shall continue to pay the Executive his current base salary (at the annual rate of $724,500.00) for the two year period commencing on the Date of Termination, which amounts shall be paid in installments over such two-year period pursuant to the Companys normal payroll policy;
(b) at the time that the Company pays annual bonuses for the fiscal year ending September 30, 2012 to associates of the Company (but in no event later than December 31, 2012), the Company shall make a lump sum payment to the Executive in the amount of $381,404.59, less all applicable tax withholding, which represents the pro-rata portion of 100% of the Executives target bonus for the Companys fiscal year ending September 30, 2012;
(c) for both the fiscal year ending September 30, 2012 and the fiscal year ending September 30, 2013, the Company shall make a lump sum payment to Executive in the amount of $899,610.67, less all applicable tax withholding, which represents the average of the annual bonuses paid by the Company to the Executive with respect to the Companys 2009, 2010 and 2011 fiscal years, paid at the time that the Company pays annual bonuses for the fiscal years ending September 30, 2012 and September 30, 2013 to associates of the Company (but in no event later than December 31, 2012 and December 31, 2013, respectively);
(d) for the 18-month period immediately following the Date of Termination (subject to earlier termination as described below), if the Executive elects to receive continuation coverage under the Companys group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Executive shall be entitled to: (i) waiver by the Company of the COBRA premium costs of medical, prescription, dental and vision coverage, if any, under the Companys group health plans (as in effect from time to time) for the Executive and, to the extent permitted under COBRA, the Executives spouse and eligible dependents, if any, for the first two calendar months of the eighteen month continuation period; and (ii) following the initial two-month period, the Executive shall be entitled to reimbursement from the Company for the COBRA premium costs of medical, prescription, dental and vision coverage, if any, under the Companys group health plans for the Executive and, to the extent permitted under COBRA, the Executives spouse and eligible dependents, if any, with such reimbursement not to exceed the COBRA rates for such coverage; provided, however, that the Executive shall be required to submit to the Company reasonable evidence of payment of any such COBRA premiums in order to obtain reimbursement from the Company and the Executive may not submit any requests for reimbursement of such payments more than once per calendar month; and provided, further, that entitlement to reimbursement of any such payments shall immediately terminate upon the Executive becoming ineligible for coverage under COBRA for any reason prior to the end of such 18-month period. If the Executive remains on COBRA coverage for the entire 18-month period in which he is entitled to
reimbursement for the premiums associated with such coverage, the Company will make monthly payments to the Executive for the 6-month period immediately following the expiration of the 18-month COBRA period equal to the amount of premiums that the Company would have reimbursed the Executive had he been eligible to continued coverage under COBRA following the expiration of the 18-month COBRA period. Notwithstanding anything to the contrary set forth above, the Company, in its sole discretion, may discontinue any coverage contemplated hereunder in the event that such continuation is not permitted under or would adversely affect the tax status of the plan or plans of the Company pursuant to which the coverage is provided, in which case the Company shall make supplemental severance payments to the Executive in monthly amounts equal to the amounts to which the Executive otherwise would have been entitled to reimbursement hereunder in respect of such coverage for the remainder of the period that the Company otherwise would have been obligated to make reimbursements hereunder to him;
(e) the Executive shall receive reimbursement for executive level outplacement assistance up to $10,000; provided that any reimbursable expense must be incurred by the Executive no later than December 31, 2013; and
(f) the Executive shall receive a lump sum payment of $11,500 (representing payment for tax and financial planning services), less applicable tax withholding, which amount shall be paid as soon as reasonably practicable following the date that this Agreement becomes irrevocable.
Notwithstanding anything herein to the contrary or otherwise, to the extent compliance with the requirements of Treas. Reg. § 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Internal Revenue Code to payments due to the Executive upon or following the Date of Termination, then notwithstanding any other provision of this Agreement (or any otherwise applicable plan, policy, agreement or arrangement), any such payments that are otherwise due within six months following the Date of Termination will be deferred (without interest) and paid to the Executive in a lump sum immediately following that six month period. This provision shall not be construed as preventing payments pursuant to this Paragraph 6 equal to an amount up to 2 times the lesser of (a) the Executives annualized compensation for the calendar year prior to the Date of Termination, and (b) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code, being paid to the Executive in the first six months following the Date of Termination.
7. Executive understands and agrees that the payments, benefits and agreements provided in this Agreement are being provided to Executive in consideration for Executives acceptance and execution of, and in reliance upon Executives representations in, this Agreement.
8. Executive acknowledges and agrees that the Company has satisfied, or pursuant to this Agreement hereby does satisfy, any and all obligations owed to Executive under the Employment Agreement and any other employment-related agreement or offer letter the Executive has with the Company and, further, that any and all prior agreements or understandings, whether written or oral, between the parties shall remain in full force and effect to the extent not inconsistent with this Agreement, and further, that, except as set forth expressly herein, no promises or representations have been made to Executive in connection with the termination of Executives employment or the terms of this Agreement.
9. Executive agrees not to disclose the terms of this Agreement to anyone, except Executives spouse, attorney and, as necessary, tax/financial advisor. Likewise, the Company agrees that the terms of this Agreement will not be disclosed except as may be necessary to obtain approval or authorization to fulfill its obligations hereunder or as required by law. It is expressly understood that any violation of the confidentiality obligation imposed hereunder constitutes a material breach of this
Agreement.
10. Subject to Paragraph 1(d), nothing in this Agreement shall prohibit or restrict Executive from: (i) making any disclosure of information required by law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Companys General Counsel; or (iii) filing, testifying, participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud, or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization.
11. Executive represents that Executive does not presently have in Executives possession any records and business documents, whether on computer or hard copy, and other materials (including but not limited to computer disks and tapes, computer programs and software, office keys, correspondence, files, customer lists, technical information, customer information, pricing information, business strategies and plans, sales records and all copies thereof) (collectively, the Corporate Records) provided by the Company and/or its predecessors, subsidiaries or affiliates or obtained as a result of Executives prior employment with the Company and/or its predecessors, subsidiaries or affiliates, or created by Executive while employed by or rendering services to the Company and/or its predecessors, subsidiaries or affiliates. Executive acknowledges that all such Corporate Records are the property of the Company. In addition, Executive shall promptly return in good condition any and all beepers, credit cards, cellular telephone equipment, business cards and computers. As of the Date of Termination, the Company will make arrangements to remove, terminate or transfer any and all business communication lines including network access, cellular phone, fax line and other business numbers.
12. The parties agree and acknowledge that the agreement by the Company described herein, and the settlement and termination of any asserted or unasserted claims against the Releasees, are not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation, or of any duty owed by any of the Releasees to Executive.
13. Executive agrees and recognizes that should Executive breach any of the obligations or covenants set forth in this Agreement, the Company will have no further obligation to provide Executive with the consideration set forth herein, and will have the right to seek repayment of all consideration paid up to the time of any such breach. Further, Executive acknowledges in the event of a breach of this Agreement, Releasees may seek any and all appropriate relief for any such breach, including equitable relief and/or money damages, attorneys fees and costs.
14. Executive further agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as to an equitable accounting of all earnings, profits and other benefits arising from any violations of this Agreement, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled.
15. This Agreement and the obligations of the parties hereunder shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania.
16. Executive certifies and acknowledges as follows:
(a) That Executive has read the terms of this Agreement, and that Executive understands its terms and effects, including the fact that Executive has agreed to RELEASE AND FOREVER DISCHARGE the Company and each and every one of its affiliated entities from any legal action arising out of Executives employment relationship with the Company and the termination of that
employment relationship;
(b) That Executive has signed this Agreement voluntarily and knowingly in exchange for the consideration described herein, which Executive acknowledges is adequate and satisfactory to Executive and which Executive acknowledges is in addition to any other benefits to which Executive is otherwise entitled;
(c) That Executive has been and is hereby advised in writing to consult with an attorney prior to signing this Agreement;
(d) That Executive does not waive rights or claims that may arise after the date this Agreement is executed;
(e) That the Company has provided Executive with a period of twenty-one (21) days within which to consider this Agreement, and that Executive has signed on the date indicated below after concluding that this Agreement is satisfactory to Executive; and
(f) Executive acknowledges that this Agreement may be revoked by Executive within seven (7) days after execution, and it shall not become effective until the expiration of such seven day revocation period. In the event of a timely revocation by Executive, this Agreement will be deemed null and void and the Company will have no obligations hereunder.
[SIGNATURE PAGE FOLLOWS]
Intending to be legally bound hereby, Executive and the Company executed the foregoing Separation of Employment Agreement and General Release this 2nd day of April, 2012.
/s/ Michael D. DiCandilo |
|
| |
MICHAEL D. DiCANDILO |
|
| |
|
|
| |
|
|
| |
AMERISOURCEBERGEN CORPORATION |
|
| |
|
|
| |
By: |
/s/ Steven H. Collis |
|
|
|
|
|
|
Name: |
Steven H. Collis |
|
|
|
|
|
|
Title: |
President and Chief Executive Officer |
|
|
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
I, Steven H. Collis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (the Report) of AmerisourceBergen Corporation (the Registrant);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4. The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d) Disclosed in this Report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and
5. The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of Registrants board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.
Date: August 9, 2012 |
|
|
|
/s/ Steven H. Collis |
|
Steven H. Collis |
|
President and Chief Executive Officer |
|
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
I, Tim G. Guttman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (the Report) of AmerisourceBergen Corporation (the Registrant);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4. The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d) Disclosed in this Report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and
5. The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of Registrants board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.
Date: August 9, 2012 |
|
|
|
/s/ Tim G. Guttman |
|
Tim G. Guttman |
|
Senior Vice President and Chief Financial Officer |
|
Exhibit 32
Section 1350 Certification of Chief Executive Officer
In connection with the Quarterly Report of AmerisourceBergen Corporation (the Company) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Steven H. Collis, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Steven H. Collis |
|
Steven H. Collis |
|
President and Chief Executive Officer |
|
|
|
August 9, 2012 |
|
Section 1350 Certification of Chief Financial Officer
In connection with the Quarterly Report of AmerisourceBergen Corporation (the Company) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Tim G. Guttman, Vice President, Corporate Controller and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Tim G. Guttman |
|
Tim G. Guttman |
|
Senior Vice President and Chief Financial Officer |
|
|
|
August 9, 2012 |
|
Stockholders' Equity and Earnings per Share (Details) (USD $)
|
1 Months Ended | 3 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2011
|
Nov. 30, 2010
|
Jun. 30, 2012
|
Dec. 30, 2011
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Nov. 30, 2009
November 2009 Share Repurchase Program Member [Member]
|
Jun. 30, 2011
November 2009 Share Repurchase Program Member [Member]
|
Sep. 30, 2010
September 2010 Share Repurchase Program [Member]
|
Jun. 30, 2011
September 2010 Share Repurchase Program [Member]
|
Aug. 31, 2011
August 2011 Share Repurchase Program [Member]
|
Jun. 30, 2012
August 2011 Share Repurchase Program [Member]
|
May 31, 2012
May 2012 Share Repurchase Program [Member]
|
Jun. 30, 2012
May 2012 Share Repurchase Program [Member]
|
|
Stockholders' Equity and Earnings per Share (Details) [Abstract] | |||||||||||||||
Net income | $ 181,271,000 | $ 184,419,000 | $ 555,492,000 | $ 559,300,000 | |||||||||||
Other Comprehensive Income (Loss), Net of Tax | (5,891,000) | 4,219,000 | 7,615,000 | 20,048,000 | |||||||||||
Comprehensive Income | 175,380,000 | 188,638,000 | 563,107,000 | 579,348,000 | |||||||||||
Dividend Increase Percentage | 15.00% | 25.00% | 13.00% | ||||||||||||
Dividends Declared | 0.115 | 0.10 | 0.13 | ||||||||||||
Basic | 252,116,000 | 273,492,000 | 256,260,000 | 274,484,000 | |||||||||||
Incremental Common Shares Attributable To Share Based Payment Arrangements | 3,609,000 | 5,523,000 | 4,144,000 | 5,353,000 | |||||||||||
Diluted | 255,725,000 | 279,015,000 | 260,404,000 | 279,837,000 | |||||||||||
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount | 6,400,000 | 3,300,000 | 4,600,000 | 1,600,000 | |||||||||||
Treasury Stock Purchase Programs [Line Items] | |||||||||||||||
Stock Repurchase Program, Authorized Amount | 500,000,000 | 500,000,000 | 750,000,000 | 750,000,000 | |||||||||||
Treasury Stock Value Acquired Cost Method | $ 98,100,000 | $ 301,900,000 | $ 500,000,000 | $ 5,900,000 | |||||||||||
Treasury Stock, Shares, Acquired | 3,200,000 | 8,200,000 | 13,400,000 | 200,000 | |||||||||||
Treasury Stock, Shares, Retired | 238,800,000 |
Income Taxes
|
9 Months Ended |
---|---|
Jun. 30, 2012
|
|
Income Taxes [Abstract] | |
Income Taxes | Note 3. Income Taxes The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. As of June 30, 2012, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company's financial statements, of $47.4 million ($32.1 million, net of federal benefit). If recognized, these tax benefits would reduce income tax expense and the effective tax rate. Included in this amount is $10.9 million of interest and penalties, which the Company records in income tax expense. During the nine months ended June 30, 2012, unrecognized tax benefits increased by $1.7 million. During the next 12 months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $2.9 million. |