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 subsidiaries, including less-than-wholly-owned subsidiaries in which AmerisourceBergen Corporation has a controlling financial interest (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, 2020 and the results of operations and cash flows for the interim periods ended June 30, 2020 and 2019 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 Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
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. Certain reclassifications have been made to prior-period amounts in order to conform to the current year presentation.
In March 2020, the World Health Organization ("WHO") declared a global pandemic attributable to the outbreak and continued spread of COVID-19. In connection with the mitigation and containment procedures recommended by the WHO and imposed by federal, state, and local governmental authorities, the Company implemented measures designed to keep its employees safe and address business continuity issues at its distribution centers and other locations. The Company continues to evaluate and plan for the potential effects of a prolonged disruption and the related impacts on its revenue, results of operations, and cash flows. These items include, but are not limited to, the financial condition of its customers and the realization of accounts receivable, decreased availability and demand for its products and services, and delays related to current and future projects. While the Company's operational and financial performance may be significantly impacted by COVID-19, it is not possible for the Company to predict the duration or magnitude of the outbreak and whether it could have a material adverse impact on the Company's financial position, results of operations, or cash flows. See Part II. Other Information-Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for additional information.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02" or "ASC 842"). ASU 2016-02 aims to increase transparency and comparability across organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet as well as key information to be disclosed regarding lease arrangements. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years.
The Company adopted ASC 842 as of October 1, 2019 and adopted it using the modified retrospective approach. The Company elected the transition package of practical expedients provided within the amended guidance, which eliminated the requirements to reassess lease identification, lease classification, and initial direct costs for leases that commenced before the effective date. The Company also elected to combine lease and non-lease components and to exclude short-term leases from its consolidated balance sheets. The Company did not elect the hindsight practical expedient in determining the lease term.
In connection with the adoption of ASC 842, the Company recognized operating lease liabilities of $562.1 million, right-of-use ("ROU") assets of $526.3 million, and a $35.1 million, net of tax of $9.6 million, cumulative adjustment to retained earnings. The Company's lease liabilities were based on the present value of the remaining minimum lease commitments using the Company's incremental borrowing rates as of October 1, 2019, and the Company's ROU assets were based upon the operating lease liabilities adjusted for prepaid and deferred rents. The cumulative adjustment to retained earnings was primarily the result of derecognizing assets of $266.0 million in Property and Equipment, Net and $324.8 million of financing obligations in Long-Term Financing Obligation and Accrued Expenses and Other, all of which was associated with leased assets where the Company was deemed the owner of the leased assets for accounting purposes. The Company finalized the impact that the amended lease guidance had on its systems, processes, and internal controls. The adoption of ASC 842 did not and will not have a material impact on its results of operations or cash flows.
For the Company's lease accounting policy and other required disclosures, refer to Note 2.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact of adopting this new accounting guidance.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles in ASC 740 in order to reduce the cost and complexity of its application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, including interim periods within those fiscal years, with certain amendments applied on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, and others prospectively. Early adoption of this guidance is permitted, including the adoption in any interim period for public companies for periods for which financial statements have not yet been issued. The Company is currently evaluating the impact of adopting this new accounting guidance.
As of June 30, 2020, there were no other recently-issued accounting standards that may have a material impact on the Company’s financial position, results of operations, or cash flows upon their adoption.
Note 2. Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. At the lease commencement date, operating and finance lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and, as such, the Company uses its incremental borrowing rate to discount the lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as incentives received. The Company does not recognize on the balance sheet leases with terms of one year or less.
The Company has operating leases that are primarily comprised of buildings, office equipment, distribution center equipment, and vehicles. Some of the Company's leases include options to extend or early terminate the lease, which are included in the lease term when it is reasonably certain to exercise and there is a significant economic incentive to exercise that option. Certain lease agreements contain provisions for future rent increases. Lease payments included in the measurement of the lease liability comprise fixed payments. The Company combines lease and non-lease components as a single component. Operating lease cost is recognized over the expected lease term on a straight-line basis. Variable lease payments, which are primarily comprised of maintenance, taxes, and other payments based on usage, are recognized when the expense is incurred. The Company's leases do not contain residual value guarantees.
The following illustrates the components of lease cost for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three months ended June 30, 2020
|
|
Nine months ended June 30, 2020
|
|
Operating lease cost
|
$
|
28,725
|
|
|
$
|
89,432
|
|
|
Short-term lease cost
|
1,051
|
|
|
3,842
|
|
|
Variable lease cost
|
4,297
|
|
|
12,841
|
|
|
Total lease cost
|
$
|
34,073
|
|
|
$
|
106,115
|
|
The Company recorded rental expense of $27.7 million and $81.5 million in the three and nine months ended June 30, 2019, respectively.
The following summarizes balance sheet information related to operating leases:
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for lease term and discount rate)
|
|
June 30, 2020
|
|
Right of use assets
|
|
|
|
Other assets
|
|
$
|
479,704
|
|
|
|
|
|
|
Lease liabilities
|
|
|
|
Accrued expenses and other
|
|
$
|
97,147
|
|
|
Other long-term liabilities
|
|
424,348
|
|
|
Total lease liabilities
|
|
$
|
521,495
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
6.84 years
|
|
Weighted-average discount rate
|
|
3.68%
|
Other cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Nine months ended June 30, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating lease cash payments
|
|
$
|
87,128
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
|
|
New operating leases
|
|
$
|
50,765
|
|
|
Leases recognized upon adoption of ASC 842
|
|
$
|
526,281
|
|
Future minimum rental payments under noncancellable operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year (in thousands)
|
|
As of June 30, 2020
|
|
2020
|
|
$
|
31,000
|
|
|
2021
|
|
117,929
|
|
|
2022
|
|
113,148
|
|
|
2023
|
|
102,772
|
|
|
2024
|
|
94,333
|
|
|
Thereafter
|
|
469,165
|
|
|
Total future undiscounted lease payments
|
|
928,347
|
|
|
Less: Future payments for leases that have not yet commenced 1
|
|
(301,756)
|
|
|
Less: Imputed interest
|
|
(105,096)
|
|
|
Total lease liabilities
|
|
$
|
521,495
|
|
|
|
|
|
|
1 The Company has certain leases that it has executed for which it does not control the underlying assets; therefore, lease liabilities and ROU assets were not recorded on the Company's Consolidated Balance Sheet as of June 30, 2020. These future commitments primarily relate to the Company's new general corporate and administrative office.
|
|
|
As previously disclosed in the Company's fiscal 2019 Annual Report on Form 10-K under the prior accounting guidance, the future minimum rental payments under noncancellable operating leases and financing obligations as of September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year (in thousands)
|
|
Operating
Leases
|
|
Financing Obligations 1
|
|
Total
|
|
2020
|
|
$
|
94,958
|
|
|
$
|
22,468
|
|
|
$
|
117,426
|
|
|
2021
|
|
84,002
|
|
|
29,790
|
|
|
113,792
|
|
|
2022
|
|
72,224
|
|
|
36,914
|
|
|
109,138
|
|
|
2023
|
|
63,507
|
|
|
35,950
|
|
|
99,457
|
|
|
2024
|
|
56,377
|
|
|
35,276
|
|
|
91,653
|
|
|
Thereafter
|
|
177,267
|
|
|
270,410
|
|
|
447,677
|
|
|
Total minimum lease payments
|
|
$
|
548,335
|
|
|
$
|
430,808
|
|
|
$
|
979,143
|
|
|
|
|
|
|
|
|
|
|
1 Represents the portion of future minimum lease payments related to facility leases where the Company was determined to be the accounting owner (see Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a more detailed description of the Company's accounting for leases prior to the adoption of ASC 842). These payments were recognized as reductions to the financing obligation and as interest expense and excluded the future non-cash termination of the financing obligation.
|
|
|
|
|
|
|
Note 3. Variable Interest Entity
The Company has substantial governance rights over Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), which allow it to direct the activities that significantly impact Profarma’s economic performance. As such, the Company consolidates the operating results of Profarma in its consolidated financial statements. The Company is not obligated to provide future financial support to Profarma.
The following assets and liabilities of Profarma are included in the Company's Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
September 30,
2019
|
|
Cash and cash equivalents
|
|
$
|
25,383
|
|
|
$
|
9,431
|
|
|
Accounts receivables, net
|
|
125,702
|
|
|
154,491
|
|
|
Inventories
|
|
138,477
|
|
|
185,602
|
|
|
Prepaid expenses and other
|
|
53,170
|
|
|
64,119
|
|
|
Property and equipment, net
|
|
23,806
|
|
|
30,961
|
|
|
Goodwill
|
|
82,309
|
|
|
82,309
|
|
|
Other intangible assets
|
|
74,598
|
|
|
74,429
|
|
|
Other long-term assets
|
|
53,004
|
|
|
9,169
|
|
|
Total assets
|
|
$
|
576,449
|
|
|
$
|
610,511
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
119,012
|
|
|
$
|
165,053
|
|
|
Accrued expenses and other
|
|
34,043
|
|
|
49,191
|
|
|
Short-term debt
|
|
116,829
|
|
|
106,439
|
|
|
Long-term debt
|
|
47,119
|
|
|
60,973
|
|
|
Deferred income taxes
|
|
39,360
|
|
|
42,371
|
|
|
Other long-term liabilities
|
|
40,494
|
|
|
5,303
|
|
|
Total liabilities
|
|
$
|
396,857
|
|
|
$
|
429,330
|
|
Profarma's assets can only be used to settle its obligations, and its creditors do not have recourse to the general credit of the Company.
Note 4. Income Taxes
The Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act became law on March 27, 2020. The CARES Act was a response to the market volatility and instability resulting from the coronavirus pandemic and includes provisions to support businesses in the form of loans, grants, and tax changes, among other types of relief that were not previously available under the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act"). As it relates to the Company, the CARES Act provides relief through adjustments to net operating loss rules and the acceleration of available refunds for alternative minimum tax credit carryforwards.
PharMEDium
As discussed in Note 5, the Company decided in January 2020 to shut down and permanently exit the PharMEDium Healthcare Holdings LLC ("PharMEDium") compounding business. Following the decision to exit PharMEDium and in connection with the permanent shutdown of this business, PharMEDium underwent a voluntary change in tax status, which resulted in the Company recognizing a worthless stock ordinary income tax deduction of approximately $2.5 billion and, in turn, yielded a tax benefit of approximately $675 million. The estimated tax benefit is higher than it would have been prior to the enactment of the CARES Act as the net operating losses resulting from the worthless stock deduction can now be carried back to years with higher statutory tax rates.
In addition to the PharMEDium worthless stock deduction, the Company recognized other discrete tax benefits primarily resulting from the CARES Act. In the aggregate, the Company recognized discrete tax benefits of $741.0 million in the nine months ended June 30, 2020.
The Company's June 30, 2020 Consolidated Balance Sheet has a net current income tax receivable balance of $596.0 million primarily resulting from the recognition of the above discrete tax benefits.
Other Information
The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. As of June 30, 2020, 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 $112.8 million ($83.5 million, net of
federal benefit). If recognized, $65.3 million of these tax benefits would have reduced income tax expense and the effective tax rate. Included in this amount is $17.8 million of interest and penalties, which the Company records in Income Tax Expense in the Company's Consolidated Statements of Operations. In the nine months ended June 30, 2020, unrecognized tax benefits decreased by $11.5 million. Over the next 12 months, it is reasonably possible that tax authority audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits of approximately $14.2 million.
The Company's effective tax rates were 16.5% and (70.1)% for the three and nine months ended June 30, 2020, respectively. The Company's effective tax rates were 18.6% and 12.2% for the three and nine months ended June 30, 2019, respectively. The effective tax rates in the three months ended June 30, 2020 and 2019 were favorably impacted by the Company's international businesses in Switzerland and Ireland, which have lower income tax rates. The effective tax rate in the nine months ended June 30, 2020 was lower than the U.S. statutory rate due to the tax benefits associated with the discrete items described above and due to a higher mix of foreign earnings at lower tax rates in Switzerland and Ireland since U.S. earnings were lower principally due to the impairment of PharMEDium's assets (see Note 5) in the nine months ended June 30, 2020. The effective tax rate in the nine months ended June 30, 2019 was lower than the U.S. statutory rate due to a higher mix of foreign earnings at lower tax rates in Switzerland and Ireland since U.S. earnings were lower principally due to the $570.0 million impairment of PharMEDium's assets. The effective tax rate in the nine months ended June 30, 2019 also benefited from a $37.0 million decrease to the Company's finalization of the estimated transition tax liability related to the 2017 Tax Act.
Note 5. Goodwill and Other Intangible Assets
The following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the nine months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pharmaceutical
Distribution
Services
|
|
Other
|
|
Total
|
|
Goodwill as of September 30, 2019
|
|
$
|
4,852,775
|
|
|
$
|
1,852,732
|
|
|
$
|
6,705,507
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
—
|
|
|
(377)
|
|
|
(377)
|
|
|
Goodwill as of June 30, 2020
|
|
$
|
4,852,775
|
|
|
$
|
1,852,355
|
|
|
$
|
6,705,130
|
|
The following is a summary of other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
(in thousands)
|
|
Weighted Average Remaining Useful Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Indefinite-lived trade names
|
|
|
|
$
|
685,271
|
|
|
$
|
—
|
|
|
$
|
685,271
|
|
|
$
|
685,324
|
|
|
$
|
—
|
|
|
$
|
685,324
|
|
|
Finite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
13 years
|
|
1,670,783
|
|
|
(542,655)
|
|
|
1,128,128
|
|
|
1,931,212
|
|
|
(489,471)
|
|
|
1,441,741
|
|
|
Trade names and other
|
|
14 years
|
|
209,787
|
|
|
(112,639)
|
|
|
97,148
|
|
|
271,521
|
|
|
(103,750)
|
|
|
167,771
|
|
|
Total other intangible assets
|
|
|
|
$
|
2,565,841
|
|
|
$
|
(655,294)
|
|
|
$
|
1,910,547
|
|
|
$
|
2,888,057
|
|
|
$
|
(593,221)
|
|
|
$
|
2,294,836
|
|
Amortization expense for finite-lived intangible assets was $25.8 million and $35.9 million in the three months ended June 30, 2020 and 2019, respectively. Amortization expense for finite-lived intangible assets was $85.1 million and $131.6 million in the nine months ended June 30, 2020 and 2019, respectively. Amortization expense for finite-lived intangible assets is estimated to be $111.0 million in fiscal 2020, $101.7 million in fiscal 2021, $100.1 million in fiscal 2022, $98.5 million in fiscal 2023, $97.3 million in fiscal 2024, and $801.8 million thereafter.
As a result of the continued suspension of the production activities at PharMEDium's compounding facility located in Memphis, Tennessee, certain regulatory matters, ongoing operational challenges, and lower-than-expected operating results, the Company updated its recoverability assessment of PharMEDium’s long-lived assets as of December 31, 2019. The recoverability assessment was based upon comparing PharMEDium's forecasted undiscounted cash flows to the carrying value of its asset group. The PharMEDium asset group is included in the Pharmaceutical Distribution Services reportable segment. Using forecasted undiscounted cash flows that were based on the weighted average of multiple strategic alternatives, the Company concluded that the carrying value of the PharMEDium long-lived asset group was not recoverable as of December 31, 2019. The forecasted undiscounted cash flows as of December 31, 2019 were lower than the forecasted undiscounted cash flows as of September 30, 2019 due to a change in weighting of multiple strategic alternatives and lower operating results in the three months ended December 31, 2019 compared to expectations. The Company then performed an impairment test by
comparing the PharMEDium asset group's fair value of $145 million to its carrying value, which resulted in a $138.0 million impairment loss in the three months ended December 31, 2019. Significant assumptions used in estimating the fair value of PharMEDium's asset group included (i) a 17% discount rate, which contemplated a higher risk at PharMEDium; (ii) the period in which PharMEDium will resume production at or near capacity; and (iii) the estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) margins when considering the likelihood of higher operating and compliance costs. The Company believed that its fair value assumptions were representative of market participant assumptions; however, the forecasted cash flows used to estimate fair value and measure the related impairment were inherently uncertain and included assumptions that differed from actual results in future periods (see below). This represented a Level 3 nonrecurring fair value measurement. The Company allocated $123.2 million of the impairment to finite-lived intangibles, $11.6 million of the impairment to property and equipment, and $3.2 million to ROU assets.
In January 2020, the Company decided to permanently exit the PharMEDium compounding business, and, as a result, the Company has ceased all commercial operations and will cease all administrative operations related to this business in fiscal 2020. The decision to permanently exit the PharMEDium business was due to a number of factors including, but not limited to, ongoing operational, regulatory, and commercial challenges, such as PharMEDium's decision in January 2020 to suspend production at the compounding facility in New Jersey pending facility upgrades related to the air handling and filtration systems. In connection with the decision to exit the PharMEDium business, the Company recorded an impairment of PharMEDium's assets of $223.7 million in the three months ended March 31, 2020, which included impairments of the remaining finite-lived intangible assets and the majority of the remaining tangible assets.
Note 6. Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2020
|
|
September 30,
2019
|
|
Revolving credit note
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Term loan due in 2020
|
|
399,928
|
|
|
399,778
|
|
|
Overdraft facility due 2021 (£30,000)
|
|
—
|
|
|
32,573
|
|
|
Receivables securitization facility due 2022
|
|
350,000
|
|
|
350,000
|
|
|
Multi-currency revolving credit facility due 2024
|
|
—
|
|
|
—
|
|
|
$500,000, 3.50% senior notes due 2021
|
|
—
|
|
|
498,908
|
|
|
$500,000, 3.40% senior notes due 2024
|
|
498,110
|
|
|
497,744
|
|
|
$500,000, 3.25% senior notes due 2025
|
|
496,819
|
|
|
496,311
|
|
|
$750,000, 3.45% senior notes due 2027
|
|
743,730
|
|
|
743,099
|
|
|
$500,000, 2.80% senior notes due 2030
|
|
493,983
|
|
|
—
|
|
|
$500,000, 4.25% senior notes due 2045
|
|
494,676
|
|
|
494,514
|
|
|
$500,000, 4.30% senior notes due 2047
|
|
492,688
|
|
|
492,488
|
|
|
Nonrecourse debt
|
|
170,417
|
|
|
167,477
|
|
|
Total debt
|
|
4,140,351
|
|
|
4,172,892
|
|
|
Less AmerisourceBergen Corporation current portion
|
|
399,928
|
|
|
32,573
|
|
|
Less nonrecourse current portion
|
|
119,782
|
|
|
106,439
|
|
|
Total, net of current portion
|
|
$
|
3,620,641
|
|
|
$
|
4,033,880
|
|
Senior Notes
In May 2020, the Company issued $500 million of 2.80% senior notes due May 15, 2030 (the "2030 Notes"). The 2030 Notes were sold at 99.71% of the principal amount and have an effective yield of 2.81%. Interest on the 2030 Notes is payable semi-annually in arrears, commencing on November 15, 2020. The 2030 Notes rank pari passu to the Company's other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Term Loan.
The Company used the proceeds from the 2030 Notes to finance the early retirement of the $500 million of 3.50% senior notes that were due in 2021 and made a $21.4 million prepayment premium in connection with this early retirement.
Multi-Currency Revolving Credit Facility
The Company has a $1.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which is scheduled to expire in September 2024, with a syndicate of lenders. Interest on borrowings under the
Multi-Currency Revolving Credit Facility accrues at specified rates based on the Company’s debt rating and ranges from 70 basis points to 112.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (91 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of June 30, 2020) and from 0 basis points to 12.5 basis points over the alternate base rate and Canadian prime rate, as applicable. 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 5 basis points to 12.5 basis points, annually, of the total commitment (9 basis points as of June 30, 2020). 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 subsidiaries and asset sales, with which the Company was compliant as of June 30, 2020.
Commercial Paper Program
The Company has a commercial paper program whereby it may from time to time issue short-term promissory notes in an aggregate amount of up to $1.4 billion 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, if interest bearing, or will be sold at a discount from their face amounts. The commercial paper program does not increase the Company’s borrowing capacity as it is fully backed by the Company’s Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under the commercial paper program as of June 30, 2020.
Receivables Securitization Facility
The Company has a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which is scheduled to expire in September 2022. 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. The Company pays a customary unused fee at prevailing market rates, annually, to maintain the availability under the Receivables Securitization Facility. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of June 30, 2020.
Revolving Credit Note and Overdraft Facility
The Company has an uncommitted, unsecured line of credit available to it pursuant to a revolving credit note ("Revolving Credit Note"). The Revolving Credit Note provides the Company with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $75 million. The Revolving Credit Note may be decreased or terminated by the bank or the Company at any time without prior notice. The Company also has a £30 million uncommitted U.K. overdraft facility ("Overdraft Facility"), which expires in February 2021, to fund short-term normal trading cycle fluctuations related to its MWI business.
Nonrecourse Debt
Nonrecourse debt is comprised of short-term and long-term debt belonging to the Brazil subsidiaries and is repaid solely from the Brazil subsidiaries' cash flows and such debt agreements provide that the repayment of the loans (and interest thereon) is secured solely by the capital stock, physical assets, contracts, and cash flows of the Brazil subsidiaries.
Note 7. Stockholders’ Equity and Earnings per Share
In January 2020, the Company's board of directors increased the quarterly cash dividend by 5% from $0.40 per share to $0.42 per share.
In October 2018, the Company's board of directors authorized a share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions. During the nine months ended June 30, 2020, the Company purchased 4.9 million shares of its common stock for a total of $405.6 million, which excluded $14.8 million of September 2019 purchases that cash settled in October 2019. As of June 30, 2020, the Company had $55.5 million of availability remaining under this program.
In May 2020, the Company's board of directors authorized a new share repurchase program allowing the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions.
Basic earnings per share is computed by dividing net income attributable to AmerisourceBergen Corporation by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed by dividing net income attributable to AmerisourceBergen Corporation by the weighted average number of shares of common stock outstanding, plus the dilutive effect of stock options and restricted stock units during the periods presented.
The following illustrates the components of diluted weighted average shares outstanding for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
Nine months ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted average common shares outstanding - basic
|
|
203,654
|
|
|
209,705
|
|
|
205,017
|
|
|
209,484
|
|
|
Dilutive effect of stock options and restricted stock units
|
|
1,890
|
|
|
1,456
|
|
|
1,697
|
|
|
1,667
|
|
|
Weighted average common shares outstanding - diluted
|
|
205,544
|
|
|
211,161
|
|
|
206,714
|
|
|
211,151
|
|
The potentially dilutive stock options and restricted stock units that were antidilutive for the three and nine months ended June 30, 2020 were 2.5 million and 3.6 million, respectively. The potentially dilutive stock options and restricted stock units that were antidilutive for the three and nine months ended June 30, 2019 were 5.3 million and 4.8 million, respectively.
Note 8. Related Party Transactions
Walgreens Boots Alliance, Inc. ("WBA") owns more than 10% of the Company’s outstanding common stock and is, therefore, considered a related party. The Company operates under various agreements and arrangements with WBA, including a pharmaceutical distribution agreement pursuant to which the Company distributes pharmaceutical products to WBA and an agreement that provides the Company the ability to access favorable economic pricing and generic products through a generic purchasing services arrangement with Walgreens Boots Alliance Development GmbH. Both of these agreements expire in 2026.
Revenue from the various agreements and arrangements with WBA was $15.2 billion and $47.0 billion in the three and nine months ended June 30, 2020, respectively. Revenue from the various agreements and arrangements with WBA was $15.1 billion and $45.0 billion in the three and nine months ended June 30, 2019, respectively. The Company’s receivable from WBA, net of incentives, was $5.9 billion and $6.1 billion as of June 30, 2020 and September 30, 2019, respectively.
Note 9. Employee Severance, Litigation, and Other
The following illustrates the charges incurred by the Company relating to Employee Severance, Litigation, and Other for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
Nine months ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Employee severance
|
|
$
|
6,523
|
|
|
$
|
10,815
|
|
|
$
|
32,368
|
|
|
$
|
29,621
|
|
|
Litigation and opioid-related costs
|
|
31,369
|
|
|
18,828
|
|
|
86,850
|
|
|
47,189
|
|
|
Acquisition-related deal and integration costs
|
|
8,306
|
|
|
12,283
|
|
|
9,109
|
|
|
34,328
|
|
|
Business transformation efforts
|
|
9,443
|
|
|
16,289
|
|
|
26,937
|
|
|
33,141
|
|
|
Other restructuring initiatives
|
|
2,944
|
|
|
1,791
|
|
|
10,362
|
|
|
11,788
|
|
|
Total employee severance, litigation, and other
|
|
$
|
58,585
|
|
|
$
|
60,006
|
|
|
$
|
165,626
|
|
|
$
|
156,067
|
|
Employee severance in the three and nine months ended June 30, 2020 included costs primarily related to position eliminations resulting from the Company's decision to permanently exit the PharMEDium compounding business. Employee severance in the three and nine months ended June 30, 2019 included costs primarily related to PharMEDium restructuring activities, position eliminations resulting from the Company's business transformation efforts and the integration of H.D. Smith, and restructuring activities related to its consulting business.
Litigation and opioid-related costs in the three and nine months ended June 30, 2020 and 2019 related to legal fees in connection with opioid lawsuits and investigations.
Acquisition-related deal and integration costs in the three and nine months ended June 30, 2019 primarily related to the integration of H.D. Smith. Integration costs primarily included costs to transition servicing legacy H.D. Smith customers to existing Company distribution facilities and operating systems.
Business transformation efforts in the three and nine months ended June 30, 2020 and 2019 primarily related to costs associated with reorganizing the Company to further align the organization to its customers' needs. The majority of these costs related to services provided by third-party consultants, including certain technology initiatives.
Note 10. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, government subpoenas, government investigations, stockholder demands, and other disputes, including antitrust, commercial, 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 records a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
For those matters for which the Company has not recognized a liability, the Company cannot predict the outcome of their impact on the Company as uncertainty remains with regard to whether such matters will proceed to trial, whether settlements will be reached, and the amount and terms of any such settlements. Outcomes may include settlements in significant amounts that are not currently estimable, limitations on the Company's conduct, the imposition of corporate integrity agreement obligations, consent decrees, and/or other civil and criminal penalties. From time to time, the Company is also involved in disputes with its customers, which the Company generally seeks to resolve through commercial negotiations. If negotiations are unsuccessful, the parties may litigate the dispute or otherwise attempt to settle the matter.
With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company's results of operations or cash flows for that period or on the Company's financial condition.
Opioid Lawsuits and Investigations
A significant number of counties, municipalities, and other governmental entities in a majority of U.S. states and Puerto Rico, as well as numerous states and tribes, have filed lawsuits in various federal, state and other courts against pharmaceutical wholesale distributors (including the Company and certain subsidiaries, such as AmerisourceBergen Drug Corporation ("ABDC") and H.D. Smith), pharmaceutical manufacturers, retail chains, medical practices, and physicians relating to the distribution of prescription opioid pain medications. Other lawsuits regarding the distribution of prescription opioid pain medications have been filed by: third-party payors and similar entities; hospitals; hospital groups; and individuals, including cases styled as putative class actions. The lawsuits, which have been and continue to be filed in federal, state, and other courts, generally allege violations of controlled substance laws and various other statutes as well as common law claims, including negligence, public nuisance, and unjust enrichment, and seek equitable relief and monetary damages. An initial group of cases was consolidated for Multidistrict Litigation ("MDL") proceedings before the United States District Court for the Northern District of Ohio (the "Court") in December 2017. Additional cases have been, and will likely continue to be, transferred to the MDL. Further, in June 2018, the Court granted a motion permitting the United States, through the DOJ, to participate in settlement discussions and as a friend of the Court by providing information to facilitate non-monetary remedies.
In April 2018, the Court issued an order creating a litigation track, which includes dispositive motion practice, discovery, and trials in certain bellwether jurisdictions. In December 2018, the Court issued an order selecting two additional cases for a second bellwether discovery and trial track. In November 2019 and January 2020, the Court filed Suggestions of Remand with the Judicial Panel on Multidistrict Litigation that identified four cases filed against the Company, including the two additional bellwether cases, for potential transfer from the MDL back to federal courts in California, Oklahoma, and West Virginia for the completion of discovery, motion practice, and trial. All four cases have now been remanded to those federal district courts and discovery has commenced. For the two consolidated cases in West Virginia, the current trial date is October 19, 2020. For the California case, the current trial date is June 28, 2021. No trial date has been established for the Oklahoma case.
On October 21, 2019, the Company announced an agreement in principle with two Ohio counties, Cuyahoga and Summit, to settle all claims brought by the two counties against the Company in the first track of the MDL. All claims against the Company were dismissed with prejudice pursuant to the settlement. Pursuant to this settlement, the Company made a payment of $66.7 million in December 2019. The Company had previously recorded a charge of $66.7 million in the fourth
quarter of the fiscal year ended September 30, 2019 within Employee Severance, Litigation and Other in its Statement of Operations and in Accrued Expenses and Other on the Company’s Consolidated Balance Sheet.
The Court has continued to oversee court-ordered settlement discussions with attorneys for the plaintiffs and certain states that it instituted at the beginning of the MDL proceedings. On October 21, 2019, the Attorneys General for North Carolina, Pennsylvania, Tennessee, and Texas announced certain proposed settlement terms intended to provide a potential framework for a global resolution of the MDL and other related state court litigation, including cases currently filed and that could be filed. The attorneys general's announcement outlined that the largest U.S. pharmaceutical distributors would be expected to pay an aggregate amount of up to $18.0 billion over 18 years, of which the Company's portion would be 31.0%, in addition to the development and participation in a program for free or rebated distribution of opioid-abuse medications for a period of 10 years and the implementation of industry-wide changes to be specified to controlled substance anti-diversion programs. The Company is currently engaged in discussions that include the four attorneys general, as well as other attorneys general, and other parties with the objective of reaching potential terms for a global resolution. The Company is also engaged in related discussions with plaintiffs' lawyers representing local governments and other parties with the same goal of reaching a global resolution with all parties. If agreed, the potential terms for a global resolution would then need to be presented to numerous other states and local governments, and a significant number of such jurisdictions would need to accept the proposed terms in order to achieve an agreement in principle that would provide the finality that the Company requires from a global resolution. Given the large number of parties involved, the complexity and difficulty of the underlying issues, and the resulting uncertainty of achieving a potential global resolution, the Company continues to litigate and prepare for trial in the cases pending in the MDL, those remanded from the MDL to federal district courts, as well as in state courts where lawsuits have been filed, and intends to continue to vigorously defend itself in all such cases. A liability associated with a global resolution has not been recognized as of June 30, 2020, since the Company is unable to predict the outcome of settlement discussions with the states and local governments that will need to participate and, therefore, a global resolution cannot be considered probable. Furthermore, significant uncertainty remains with regard to whether such matters will proceed to trial, and, given the inherent uncertainty related to such litigation, the Company is not in a position to assess the likely outcome, and therefore unable to estimate the range of possible loss.
In June 2019, attorneys for some of the plaintiffs filed a motion proposing a procedure to certify a nationwide "negotiation class" of cities and counties for the purpose of negotiating and settling with defendants engaged in the nationwide manufacturing, sale, or distribution of opioids. The attorneys subsequently withdrew the motion and refiled an amended motion on July 9, 2019. The Court granted the motion on September 11, 2019 and certain defendants, including ABDC, are appealing.
A trial in New York state for cases brought by Nassau and Suffolk Counties and the New York Attorney General against a variety of defendants, including the Company, was scheduled to begin on March 20, 2020. The trial is not part of the MDL and has been delayed due to the COVID-19 outbreak. The court has not yet set a new trial date but has expressed an intention to commence trial during the fall of 2020, if possible. A trial in Ohio state court for a case brought by the Ohio Attorney General against ABDC and certain other pharmaceutical wholesale distributors is scheduled to begin trial on October 19, 2020. Several other cases filed in various state courts have trial dates scheduled in 2021 and later, although all such dates are subject to change.
Aside from those parties that have already filed suit, other entities, including additional attorneys general’s offices, counties, and cities in multiple states, may continue to file additional lawsuits or enforcement proceedings. The Company is vigorously defending itself in the pending lawsuits and intends to vigorously defend itself against any threatened lawsuits or enforcement proceedings. The Company is not in a position to assess the likely outcome or its exposure, if any, with respect to these matters. In addition, other pharmaceutical wholesale distributors have faced shareholder derivative suits alleging violations of fiduciary duties in connection with the oversight of the distribution of controlled substances.
The Company has also received subpoenas, civil investigative demands, and other requests for information, requesting the production of documents regarding the distribution of prescription opioid pain medications from government agencies in other jurisdictions, including certain states. The Company is engaged in discussions with representatives from these government agencies regarding the requests and has been producing responsive documents.
Since July 2017, the Company has received subpoenas from several U.S. Attorney's Offices, including grand jury subpoenas from the U.S. Attorney's Office for the District of New Jersey ("USAO-NJ") and the U.S. Attorney's Office for the Eastern District of New York ("USAO-EDNY"). Those subpoenas request the production of a broad range of documents pertaining to the Company's distribution of controlled substances through its various subsidiaries, including ABDC, and its diversion control programs. The Company has been engaged in discussions with the various U.S. Attorney’s Offices, including the Health Care and Government Fraud Unit of the Criminal Division of the USAO-NJ, and has been producing documents in response to the subpoenas.
Government Enforcement and Related Litigation Matters
As previously disclosed, in late January 2020 the Company decided to permanently exit the PharMEDium compounding business. As a result the Company has ceased all commercial operations related to this business as well as all administrative operations other than those needed to complete the shutdown. On May 17, 2019, PharMEDium reached an agreement on the terms of the Consent Decree with the U.S. Food and Drug Administration ("FDA") and the DOJ that was entered by the United States District Court for the Northern District of Illinois on May 22, 2019. PharMEDium remains subject to the terms of the Consent Decree while winding down its operations and continues to work with the FDA and the DOJ to comply with applicable laws and regulations during this process.
Subpoenas, Ongoing Investigations, and Other Contingencies
From time to time, the Company receives subpoenas or requests for information from various government agencies relating to the Company's business or to the business of a customer, supplier, or other industry participant. The Company's responses often require time and effort and can result in considerable costs being incurred. Most of these matters are resolved without incident; however, such subpoenas or requests can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the healthcare industry, as well as to substantial settlements.
In January 2017, the Company's subsidiary U.S. Bioservices Corporation ("U.S. Bio") received a subpoena for information from the USAO-EDNY relating to its activities in connection with billing for products and making returns of potential overpayments to government payers. The Company engaged in discussions with the USAO-EDNY and produced documents in response to the subpoena. In April 2019, the government informed the Company that it had filed a notice with the U.S. District Court for the Eastern District of New York that it was declining to intervene in a filed qui tam action related to its investigation. The case was unsealed in April 2019 and counsel for the relator filed an amended complaint under seal with the USAO-EDNY. In December 2019, the government filed a notice that it was again declining to intervene in the action. The court ordered the relator's complaint against the Company, including subsidiaries AmerisourceBergen Specialty Group, LLC and U.S. Bio, be unsealed. The relator’s complaint alleged violations of the federal False Claims Act and the false claims acts of various states. The Company sought leave to file a motion to dismiss relator’s amended complaint. The relator filed a second amended complaint, removing one state false claims act count and the Company renewed its request for leave to file a motion to dismiss the second amended complaint. The court granted the Company's request to file a motion to dismiss and ordered complete briefing on the motion to dismiss, with a response and reply, to be filed with the court on September 28, 2020.
On October 11, 2019, Teamsters Local 443 Health Services & Insurance Plan, St. Paul Electrical Construction Pension Plan, St. Paul Electrical Construction Workers Supplemental Pension Plan (2014 Restatement), Retirement Medical Funding Plan for the St. Paul Electrical Workers, and San Antonio Fire & Police Pension Fund filed a complaint for a purported derivative action in the Delaware Court of Chancery against the Company and certain of its current and former officers and directors (collectively, "Defendants"). The complaint alleges that the Defendants breached their fiduciary duties by failing to oversee the compliance by certain of the Company's subsidiaries (including the Company's former subsidiary Medical Initiatives, Inc. ("MII")) with federal regulations, allegedly resulting in the payment of fines and penalties in connection with the settlements with the USAO-EDNY in fiscal 2017 and 2018 that resolved claims arising from MII's pre-filled syringe program. In December 2019, Defendants filed a motion to dismiss the complaint. The motion is fully briefed and remains pending before the Delaware Court of Chancery.
On February 6, 2020, Andrea Rosner filed a complaint for a purported derivative action in the United States District Court for the District of Delaware against the Company and certain of its current and former officers and directors. The complaint alleges claims for breach of fiduciary duty, corporate waste and unjust enrichment allegedly arising from the Company’s controlled substance diversion control programs and violation of Section 14(a) of the Securities Exchange Act of 1934. The defendants filed a motion to dismiss this matter on May 4, 2020. On June 30, 2020, Rosner voluntarily dismissed her complaint.
On July 17, 2020, CCAR Investments, Inc. filed a complaint for a purported derivative action in the United States District Court for the District of Delaware against the Company and certain of its current and former officers and directors. The complaint alleges claims for breach of fiduciary duty, corporate waste and unjust enrichment allegedly arising from the Company’s controlled substance diversion control programs and violation of Section 14(a) of the Securities Exchange Act of 1934. On July 30, 2020, a group of interested stockholders filed a motion to intervene and stay the proceedings filed by CCAR Investments, Inc. A response to the motion to intervene is due on August 13, 2020. The Company's response to the complaint is expected to be due in mid-August 2020.
New York State ("NYS") enacted the Opioid Stewardship Act ("OSA"), which went into effect on July 1, 2018. The OSA established an annual $100 million Opioid Stewardship Fund (the "Fund") and requires manufacturers, distributors, and importers licensed in NYS to ratably source the Fund. The ratable share of the assessment for each licensee was to be based upon opioids sold or distributed to or within NYS. In the fourth quarter of the fiscal year ended September 30, 2018, the Company accrued $22 million as an estimate of its liability under the OSA for opioids distributed from January 1, 2017 through September 30, 2018 and recognized this reserve in Cost of Goods Sold on its Consolidated Statement of Operations and in Accrued Expenses and Other on its Consolidated Balance Sheet as of September 30, 2018. In December 2018, the OSA was ruled unconstitutional by the U.S. District Court for the Southern District of New York, and, as a result, the Company reversed the $22.0 million accrual in the quarter ended December 31, 2018. NYS filed an appeal of the court decision on January 17, 2019; however, the Company does not believe a loss contingency is probable.
In December 2019, Reliable Pharmacy, together with other retail pharmacies and North Sunflower Medical Center, filed a civil antitrust complaint against multiple generic drug manufacturers, and also included claims against the Company, H.D. Smith, and other drug distributors and industry participants. The case is filed as a putative class action and plaintiffs purport to represent a class of drug purchasers including other retail pharmacies and healthcare providers. The case has been consolidated for multidistrict litigation proceedings before the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that the Company and others in the industry participated in a conspiracy to fix prices, allocate markets and rig bids regarding generic drugs. In March 2020, the plaintiffs filed a further amended complaint. On July 15, 2020, the Company and other industry participants filed a motion to dismiss the complaint.
Note 11. Litigation Settlements
Antitrust Settlements
Numerous lawsuits have been filed against certain brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. These lawsuits are generally brought as class actions. The Company is not typically named as a plaintiff in these lawsuits, but has been a member of the direct purchasers' class (i.e., those purchasers who purchase directly from these pharmaceutical manufacturers). None of the lawsuits have gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement funds. The Company recognized a gain of $8.5 million during the nine months ended June 30, 2020 related to these lawsuits. The Company recognized gains of $3.5 million and $142.7 million during the three and nine months ended June 30, 2019, respectively, related to these lawsuits. These gains, which are net of attorney fees and estimated payments due to other parties, were recorded as reductions to cost of goods sold in the Company’s Consolidated Statements of Operations.
Note 12. Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable as of June 30, 2020 and September 30, 2019 approximate fair value based upon the relatively short-term nature of these financial instruments. Within Cash and Cash Equivalents, the Company had $1,778.0 million of investments in money market accounts as of June 30, 2020 and had $1,552.0 million of investments in money market accounts as of September 30, 2019. The fair value of the money market accounts was determined based upon unadjusted quoted prices in active markets for identical assets, otherwise known as Level 1 inputs.
The recorded amount of long-term debt (see Note 6) and the corresponding fair value as of June 30, 2020 were $3,620.6 million and $3,985.3 million, respectively. The recorded amount of long-term debt and the corresponding fair value as of September 30, 2019 were $4,033.9 million and $4,158.4 million, respectively. The fair value of long-term debt was determined based upon inputs other than quoted prices, otherwise known as Level 2 inputs.
Note 13. Business Segment Information
The Company is organized based upon the products and services it provides to its customers. The Company's operations are comprised of the Pharmaceutical Distribution Services reportable segment and other operating segments that are not significant enough to require separate reportable segment disclosure and, therefore, have been included in Other for the purpose of reportable segment presentation. Other consists of operating segments that focus on global commercialization services and animal health (MWI Animal Health). The operating segments that focus on global commercialization services include AmerisourceBergen Consulting Services and World Courier.
The following illustrates reportable and operating segment disaggregated revenue as required by Accounting Standards Codification 606 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
Nine months ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Pharmaceutical Distribution Services
|
|
$
|
43,579,119
|
|
|
$
|
43,527,552
|
|
|
$
|
135,178,617
|
|
|
$
|
128,948,097
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
MWI Animal Health
|
|
1,008,581
|
|
|
1,021,936
|
|
|
3,079,915
|
|
|
2,923,813
|
|
|
Global Commercialization Services
|
|
801,952
|
|
|
712,602
|
|
|
2,454,195
|
|
|
2,147,092
|
|
|
Total Other
|
|
1,810,533
|
|
|
1,734,538
|
|
|
5,534,110
|
|
|
5,070,905
|
|
|
Intersegment eliminations
|
|
(22,875)
|
|
|
(22,825)
|
|
|
(63,569)
|
|
|
(67,683)
|
|
|
Revenue
|
|
$
|
45,366,777
|
|
|
$
|
45,239,265
|
|
|
$
|
140,649,158
|
|
|
$
|
133,951,319
|
|
Intersegment eliminations primarily represent the elimination of certain Pharmaceutical Distribution Services reportable segment sales to MWI.
The following illustrates reportable segment operating income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
Nine months ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Pharmaceutical Distribution Services
|
|
$
|
426,643
|
|
|
$
|
411,707
|
|
|
$
|
1,381,434
|
|
|
$
|
1,301,948
|
|
|
Other
|
|
82,875
|
|
|
95,110
|
|
|
295,614
|
|
|
293,923
|
|
|
Intersegment eliminations
|
|
(1,996)
|
|
|
(142)
|
|
|
(2,575)
|
|
|
(698)
|
|
|
Total segment operating income
|
|
$
|
507,522
|
|
|
$
|
506,675
|
|
|
$
|
1,674,473
|
|
|
$
|
1,595,173
|
|
The following reconciles total segment operating income to income before income taxes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
Nine months ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Total segment operating income
|
|
$
|
507,522
|
|
|
$
|
506,675
|
|
|
$
|
1,674,473
|
|
|
$
|
1,595,173
|
|
|
Gain from antitrust litigation settlements
|
|
—
|
|
|
3,480
|
|
|
8,546
|
|
|
142,735
|
|
|
LIFO (expense) credit
|
|
(6,061)
|
|
|
9,913
|
|
|
(43,195)
|
|
|
79,747
|
|
|
PharMEDium remediation costs
|
|
—
|
|
|
(19,344)
|
|
|
(16,165)
|
|
|
(55,736)
|
|
|
PharMEDium shutdown costs
|
|
(12,936)
|
|
|
—
|
|
|
(45,406)
|
|
|
—
|
|
|
New York State Opioid Stewardship Act
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,000
|
|
|
Contingent consideration adjustment
|
|
—
|
|
|
—
|
|
|
12,153
|
|
|
—
|
|
|
Acquisition-related intangibles amortization
|
|
(25,109)
|
|
|
(34,024)
|
|
|
(85,345)
|
|
|
(125,770)
|
|
|
Employee severance, litigation, and other
|
|
(58,585)
|
|
|
(60,006)
|
|
|
(165,626)
|
|
|
(156,067)
|
|
|
Impairment of PharMEDium assets
|
|
—
|
|
|
—
|
|
|
(361,652)
|
|
|
(570,000)
|
|
|
Operating income
|
|
404,831
|
|
|
406,694
|
|
|
977,783
|
|
|
932,082
|
|
|
Other loss (income), net
|
|
1,073
|
|
|
(342)
|
|
|
2,806
|
|
|
(11,739)
|
|
|
Interest expense, net
|
|
37,748
|
|
|
35,921
|
|
|
103,176
|
|
|
121,366
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement of debt
|
|
22,175
|
|
|
—
|
|
|
22,175
|
|
|
—
|
|
|
Income before income taxes
|
|
$
|
343,835
|
|
|
$
|
371,115
|
|
|
$
|
849,626
|
|
|
$
|
822,455
|
|
Segment operating income is evaluated by the chief operating decision maker ("CODM") of the Company before gain from antitrust litigation settlements; LIFO (expense) credit; PharMEDium remediation costs; PharMEDium shutdown costs; New York State Opioid Stewardship Act; contingent consideration adjustment; acquisition-related intangibles amortization; employee severance, litigation, and other; and impairment of PharMEDium assets. Segment measures were adjusted in fiscal 2020 to exclude PharMEDium shutdown costs and the contingent consideration adjustment as the CODM excludes all such items in the measurement of segment performance. All corporate office expenses are allocated to the operating segment level.
The Company incurred remediation costs in connection with the suspended production activities at PharMEDium (see Note 5). These remediation costs are primarily classified in Cost of Goods Sold in the Consolidated Statements of Operations. The Company incurred costs in connection with exiting the PharMEDium compounding business (see Note 5). These shutdown costs are primarily classified in Distribution, Selling, and Administrative expenses in the Consolidated Statements of Operations.
One of the Company's non-wholly-owned subsidiaries, Profarma, which the Company consolidates based on certain governance rights (see Note 3), adjusted its previous estimate of contingent consideration related to the purchase price of one of its prior business acquisitions.
The Company recorded a $13.7 million gain on the sale of an equity investment in Other (Income) Loss in the Company's Consolidated Statements of Operations in the nine months ended June 30, 2019.