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AmerisourceBergen Reports Third Quarter Fiscal Year 2016 Results

08/02/16

VALLEY FORGE, Pa.--(BUSINESS WIRE)--Aug. 2, 2016-- AmerisourceBergen Corporation (NYSE:ABC) today reported that in its fiscal year 2016 third quarter ended June 30, 2016, revenue increased 7.7 percent to $36.9 billion. On the basis of U.S. generally accepted accounting principles (GAAP), diluted earnings per share was $1.56 for the June quarter of fiscal 2016, an increase of 75.3 percent. Adjusted diluted earnings per share, which excludes items described below, increased 14.2 percent to $1.37 in the quarter.

“I am pleased with the solid performance we delivered in the June quarter,” said Steven H. Collis, Chairman, President and Chief Executive Officer of AmerisourceBergen. “Our most recent acquisitions, MWI Veterinary Supply and PharMEDium, have made strong contributions, and our specialty group delivered excellent performance. We renewed our relationship with our largest health systems customer for an additional 5 years, and have made progress on our efforts to address the headwinds we face in AmerisourceBergen Drug Corporation.”

Below we present descriptive summaries of our GAAP quarterly results as well as our adjusted quarterly results. In the tables that follow, we present our GAAP results and GAAP to non-GAAP reconciliations. Refer to the Supplemental Information Regarding Non-GAAP Financial Measures following the tables.

Summary of GAAP Quarterly Results

  • Revenue: In the third quarter of fiscal 2016, revenue was $36.9 billion, up 7.7 percent compared to the same quarter in the previous fiscal year, reflecting an 8.0 percent increase in Pharmaceutical Distribution revenue, and a 2.8 percent increase in revenue within Other.
  • Gross Profit: Gross profit in the fiscal 2016 third quarter was $1.1 billion, a 24.3 percent increase over the same period in the previous year, driven primarily by an increase in the gain from antitrust litigation settlements, a decrease in LIFO expense, and the addition of PharMEDium, which was acquired in November 2015. Gross profit as a percentage of revenue increased 40 basis points to 3.00 percent from the prior year quarter.
  • Operating Expenses: In the third quarter of fiscal 2016, operating expenses were $581.2 million, up 4.0 percent over the same period in the last fiscal year. Distribution, selling and administrative expenses increased by $17.3 million compared to the same period in the last fiscal year, primarily due to our November 2015 acquisition of PharMEDium and additional costs to support the revenue growth of our businesses, offset in part by the impact of certain expense reduction initiatives. Operating expenses as a percentage of revenue in the fiscal 2016 third quarter were 1.58 percent compared to 1.63 percent for the same period in the previous fiscal year.
  • Operating Income: In the fiscal 2016 third quarter, operating income of $526.6 million was up 58.3 percent versus the prior year, driven by the increase in gross profit, which was offset in part by the increase in operating expenses. Operating income as a percentage of revenue increased 46 basis points to 1.43 percent in the fiscal 2016 third quarter compared to the previous year’s third quarter.
  • Interest Expense, Net: In the fiscal 2016 third quarter, net interest expense of $32.1 million was up 7.8 percent versus the prior year quarter due to the increase in borrowings to partially fund the acquisition of PharMEDium.
  • Tax Rate: The effective tax rate for the third quarter of fiscal 2016 was 29.6 percent, flat compared to the previous fiscal year’s third quarter.
  • Earnings Per Share: Diluted earnings per share was up 75.3 percent to $1.56 in the third quarter of fiscal year 2016 compared to $0.89 in the previous fiscal year’s third quarter, driven primarily by the increase in net income.
  • Shares Outstanding: Diluted weighted average shares outstanding for the third quarter of fiscal year 2016 were 224.8 million, a 6.4 percent decline versus the prior year quarter due to share repurchases, net of the 2016 Warrants and stock option exercises.

Definition of Adjusted Results

The comments below compare adjusted results, which exclude:

  • Warrants (income) expense;
  • Gain from antitrust litigation settlements;
  • LIFO expense;
  • Acquisition-related intangibles amortization;
  • Employee severance, litigation and other expenses; and a
  • Pension settlement.

In addition, we calculate our adjusted earnings per share for each period using a diluted weighted average share count, which excludes the accounting dilution resulting from the impact of the unexercised equity warrants, and the impact from the shares repurchased under our special share repurchase programs, net of the weighted average number of shares issued related to the March 2016 warrant exercise. We previously issued $600 million of 1.15% senior notes due in May 2017 to fund our initial special share repurchase program. The interest expense incurred relating to this borrowing is also excluded from the non-GAAP presentation.

Summary of Adjusted Quarterly Results

  • Revenue: In the third quarter of fiscal 2016, revenue was $36.9 billion, up 7.7 percent compared to the same quarter in the previous fiscal year, reflecting an 8.0 percent increase in Pharmaceutical Distribution revenue, and a 2.8 percent increase in revenue within Other.
  • Adjusted Gross Profit: Gross profit in the fiscal 2016 third quarter was $1.1 billion, a 6.0 percent increase over the same period in the previous year, driven primarily by the addition of PharMEDium and the increase in revenue. Gross profit as a percentage of revenue decreased 5 basis points to 2.89 percent from the prior year quarter.
  • Adjusted Operating Expenses: In the third quarter of fiscal 2016, operating expenses were $574.0 million, up 4.1 percent over the same period in the last fiscal year. The increase in operating expenses in the quarter was primarily driven by the addition of PharMEDium and additional costs to support the revenue growth of our businesses, offset in part by the impact of certain expense reduction initiatives. Operating expenses as a percentage of revenue in the fiscal 2016 third quarter were 1.56 percent, compared to 1.61 percent for the same period in the previous fiscal year.
  • Adjusted Operating Income: In the fiscal 2016 third quarter, operating income of $493.2 million was up 8.4 percent versus the prior year, driven by the increase in gross profit, which was offset in part by the increase in operating expenses. Operating income as a percentage of revenue increased 1 basis point to 1.34 percent in the fiscal 2016 third quarter compared to the previous year’s third quarter.
  • Adjusted Interest Expense, Net: In the fiscal 2016 third quarter, net interest expense of $30.0 million was up 8.4 percent versus the prior year quarter due to the increase in borrowings to partially fund the acquisition of PharMEDium.
  • Adjusted Tax Rate: The effective tax rate for the third quarter of fiscal 2016 was 32.8 percent, down from 35.3 percent in the previous fiscal year’s third quarter, reflecting a rate benefit resulting from the favorable impact of growth in our international businesses.
  • Adjusted Earnings Per Share: Diluted earnings per share was up 14.2 percent to $1.37 in the third quarter of fiscal year 2016 compared to $1.20 in the previous fiscal year’s third quarter, driven primarily by the increase in income before taxes and the lower effective tax rate.
  • Adjusted Shares Outstanding: Diluted weighted average shares outstanding for the third quarter of fiscal year 2016 were 228.6 million, a 1 percent decline versus the prior year quarter.

Segment Discussion

The Pharmaceutical Distribution segment includes both AmerisourceBergen Drug Corporation (ABDC) and AmerisourceBergen Specialty Group (ABSG). PharMEDium is a component of ABDC. Other includes AmerisourceBergen Consulting Services (ABCS), World Courier, and MWI Veterinary Supply (MWI).

Pharmaceutical Distribution Segment

Pharmaceutical Distribution revenue was $35.4 billion, an increase of 8.0 percent compared to the same quarter in the prior year. ABDC’s revenue increased 6.5 percent, due primarily to solid organic sales growth including sales to Walgreens Boots Alliance, Inc. ABSG’s revenue increased 20.2 percent, which was driven by strong performance in our third party logistics business, in our oncology business (including an increase in sales to community oncologists), and by sales growth in our blood products, vaccine and physician office distribution businesses. Intrasegment revenues between ABDC and ABSG have been eliminated in the presentation of total Pharmaceutical Distribution revenue. Total intrasegment revenues were $2.0 billion and $1.6 billion in the quarters ended June 30, 2016 and 2015, respectively.

Segment operating income of $410.7 million in the June quarter of fiscal 2016 was up 8.7 percent compared to the same period in the previous year due to the addition of PharMEDium and strong performance in ABSG, offset in part by the impact of previously announced customer renewals in ABDC.

Other

Revenue in Other was $1.6 billion in the third quarter of fiscal 2016, an increase of 2.8 percent over the same period in the prior year as good performance in MWI and World Courier was offset by a decline in ABCS revenue. Operating income in Other increased 6.6 percent to $82.5 million in the third quarter of fiscal 2016, primarily driven by strong performance of MWI.

Fiscal Year 2016 Expectations on an Adjusted Basis

Looking ahead, we continue to expect our gross profit in the fourth quarter to be negatively impacted by the headwinds we identified in early May, but with the performance we achieved in the June quarter, we now expect fiscal year 2016 adjusted diluted earnings per share to be in the range of $5.52 to $5.57.

The Company continues to expect:

  • Revenue growth of approximately 8 percent;
  • Operating income growth in the range of 5 percent to 6 percent;
  • Effective tax rate of approximately 33 percent;
  • Free cash flow generation in the range of $1.9 billion to $2.1 billion; and
  • Capital expenditures in the $400 million range.

In addition, we now expect total share repurchases under our regular programs of approximately $350 million, as well as special share repurchases to satisfy previously disclosed hedging programs, all subject to market conditions.

Preliminary Fiscal Year 2017 Expectations on an Adjusted Basis

The Company also continues to expect that the headwinds that are impacting our fiscal 2016 will continue well into fiscal 2017, including a rate of deflation on generic products in the high single digit range. Adjusted diluted earnings per share in fiscal year 2017 is expected to grow in the range of 4 percent to 6 percent above the midpoint of our updated fiscal 2016 guidance. This expectation, as well as the other assumptions below, does not include any potential benefit from a change in the accounting for the excess tax benefits relating to share-based compensation, or any potential negative impact from proposed changes to reimbursement mechanisms under Medicare Part B.

Other assumptions underlying the preliminary expectations for financial performance in fiscal 2017 include:

  • Revenue growth slightly better than the overall market;
  • Incremental expenses related to information technology projects and infrastructure investments;
  • A slight decrease in the effective tax rate;
  • Free cash flow equal to or slightly below net income;
  • No contribution from new business that any of our customers may contribute as the result of business combinations; and
  • Regular share repurchases will offset dilution from employee stock option exercises and no dilution from the exercise of the 2017 Warrants.

Conference Call

The Company will host a conference call to discuss the results at 11:00 a.m. Eastern Time on August 2, 2016. Participating in the conference call will be:

Steven H. Collis, Chairman, President & Chief Executive Officer
Tim G. Guttman, Executive Vice President & Chief Financial Officer

The dial-in number for the live call will be (612) 326-1003. No access code is required. The live call will also be webcast via the Company’s website at www.amerisourcebergen.com. Users are encouraged to log on to the webcast approximately 10 minutes in advance of the scheduled start time of the call.

Replays of the call will be made available via telephone and webcast. A replay of the webcast will be posted on www.amerisourcebergen.com approximately two hours after the completion of the call and will remain available for thirty days. The telephone replay will also be available approximately two hours after the completion of the call and will remain available for seven days. To access the telephone replay from within the US, dial (800) 475-6701. From outside the US, dial (320) 365-3844. The access code for the replay is 397127.

Upcoming Investor Events

AmerisourceBergen management will be attending the following investor conferences in September:

  • Robert W. Baird Healthcare Conference on September 7, 2016, and
  • Morgan Stanley Global Healthcare Conference on September 13, 2016.

Please check the website for updates regarding the timing of the live presentation webcasts, if any, and for replay information.

About AmerisourceBergen

AmerisourceBergen is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. With services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen delivers innovative programs and solutions across the pharmaceutical supply channel in human and animal health. With over $140 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA, and employs approximately 19,000 people. AmerisourceBergen is ranked #12 on the Fortune 500 list. For more information, go to www.amerisourcebergen.com.

AmerisourceBergen's Cautionary Note Regarding Forward-Looking Statements

Certain of the statements contained in this press release 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. Words such as "expect," "likely," "outlook," "forecast," "would," "could," "should," "can," "will," "project," "intend," "plan," "continue," "sustain," "synergy," "on track," "believe," "seek," "estimate," "anticipate," "may," "possible," "assume," variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and change in circumstances. These statements are not guarantees of future performance and are based on assumptions that could prove incorrect or could cause actual results to vary materially from those indicated. Among the factors that could cause actual results to differ materially from those projected, anticipated, or implied are the following: competition; industry consolidation of both customers and suppliers resulting in increasing pressure to reduce prices for our products and services; changes in pharmaceutical market growth rates; price inflation in branded and generic pharmaceuticals, and price deflation in generics; declining economic conditions in the United States and abroad; financial market volatility and disruption; substantial defaults in payment, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; the loss, bankruptcy or insolvency of a major supplier; changes to the customer or supplier mix; the retention of key customer or supplier relationships under less favorable economics or the adverse resolution of any contract or other dispute with customers or suppliers; changes to customer or supplier payment terms; changes in any of the economic models used by any of our suppliers to set pricing and/or other terms for the purchase of pharmaceuticals; interest rate and foreign currency exchange rate fluctuations; the disruption of AmerisourceBergen's cash flow and ability to return value to its stockholders in accordance with its past practices; risks associated with the strategic, long-term relationship between Walgreens Boots Alliance, Inc. and AmerisourceBergen, including with respect to the pharmaceutical distribution agreement and/or the global sourcing arrangement; risks associated with the potential impact on AmerisourceBergen's earnings per share resulting from the issuance of the warrants to subsidiaries of Walgreens Boots Alliance, Inc. (the "Warrants"); AmerisourceBergen's inability to fully implement its hedging strategy to mitigate the potentially dilutive effect of the issuance of its common stock in accordance with the Warrants under its special share repurchase program due to its financial performance, the current and future share price of its common stock, its expected cash flows, competing priorities for capital, and overall market conditions; changes in the United States healthcare and regulatory environment, including changes that could impact prescription drug reimbursement under Medicare and Medicaid; increasing governmental regulations regarding the pharmaceutical supply channel and pharmaceutical compounding; federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances; federal and state prosecution of alleged violations of related laws and regulations, and any related litigation, including shareholder derivative lawsuits or other disputes relating to our distribution of controlled substances; increased federal scrutiny and 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; material adverse resolution of pending legal proceedings; declining reimbursement rates for pharmaceuticals; the acquisition of businesses that do not perform as expected, or that are difficult to integrate or control, including the integration of MWI and PharMEDium, or the inability to capture all of the anticipated synergies related thereto; managing foreign expansion, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws and economic sanctions and import laws and regulations; malfunction, failure or breach of sophisticated information systems to operate as designed; risks generally associated with data privacy regulation and the international transfer of personal data; changes in tax laws or legislative initiatives that could adversely affect AmerisourceBergen's tax positions and/or AmerisourceBergen's tax liabilities or adverse resolution of challenges to AmerisourceBergen's tax positions; natural disasters or other unexpected events that affect AmerisourceBergen's operations; the impairment of goodwill or other intangible assets, resulting in a charge to earnings; errors in the production, labeling or packaging of products compounded by our compounded sterile preparations (CSP) business; and other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting AmerisourceBergen's 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) in Item 1A (Risk Factors) in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2015 and elsewhere in that report and (ii) in other reports filed by the Company pursuant to the Securities Exchange Act.

 
AMERISOURCEBERGEN CORPORATION
FINANCIAL SUMMARY
(In thousands, except per share data)
(unaudited)
         
 
Three Three
Months Ended Months Ended
June 30, % of June 30, % of %
2016 Revenue 2015 Revenue Change
 
Revenue $36,881,680 $34,233,556 7.7 %
 
Cost of goods sold 35,773,817   33,342,092   7.3 %
 
Gross profit (1) 1,107,863 3.00 % 891,464 2.60 % 24.3 %
 
Operating expenses:
Distribution, selling and administrative 520,032 1.41 % 502,744 1.47 % 3.4 %
Depreciation and amortization 92,687 0.25 % 68,430 0.20 % 35.4 %
Warrants (83,704 ) (14,900 )
Employee severance, litigation and other (2) 52,234   2,625  
Total operating expenses 581,249 1.58 % 558,899 1.63 %
 
Operating income 526,614 1.43 % 332,565 0.97 % 58.3 %
 
Other income (2,158 ) (1,534 )
 
Interest expense, net 32,115   29,793   7.8 %
 
Income before income taxes 496,657 1.35 % 304,306 0.89 % 63.2 %
 
Income tax expense 146,854   90,143   62.9 %
 
Net income $349,803   0.95 % $214,163   0.63 % 63.3 %
 
 
Earnings per share:
Basic $1.62 $0.98 65.3 %
Diluted $1.56 $0.89 75.3 %
 
Weighted average common shares outstanding:
Basic 215,688 219,359 -1.7 %
Diluted 224,802 240,236 -6.4 %
 

(1)

Includes $121.0 million gain from antitrust litigation settlements and an $80.4 million LIFO expense charge in the three months ended June 30, 2016. Includes a $158.7 million LIFO expense charge and $43.6 million gain from antitrust litigation settlements in the three months ended June 30, 2015.

(2)

Includes $34.6 million of employee severance and other costs, a $17.1 million charge related to the transfer of surplus assets from the Company's settled salaried defined benefit pension plan to its defined contribution 401(k) plan, and $0.5 million of deal-related transaction costs in the three months ended June 30, 2016. Includes $2.3 million of deal-related transaction costs and $0.4 million of employee severance and other costs in the three months ended June 30, 2015.

 
 
AMERISOURCEBERGEN CORPORATION
FINANCIAL SUMMARY
(In thousands, except per share data)
(unaudited)
         
 
Nine Nine
Months Ended Months Ended
June 30, % of June 30, % of %
2016 Revenue 2015 Revenue Change
 
Revenue $109,289,083 $100,491,425 8.8 %
 
Cost of goods sold 106,141,012   97,935,686   8.4 %
 
Gross profit (1) 3,148,071 2.88 % 2,555,739 2.54 % 23.2 %
 
Operating expenses:
Distribution, selling and administrative 1,571,088 1.44 % 1,361,678 1.36 % 15.4 %
Depreciation and amortization 265,437 0.24 % 173,932 0.17 % 52.6 %
Warrants (120,275 ) 1,109,211
Employee severance, litigation and other (2) 88,719 30,999
Pension settlement 47,607   -  
Total operating expenses 1,852,576 1.70 % 2,675,820 2.66 %
 
Operating income (loss) 1,295,495 1.19 % (120,081 ) -0.12 %
 
Other (income) loss (3,224 ) 11,185
 
Interest expense, net 96,107   70,081   37.1 %
 
Income (loss) before income taxes 1,202,612 1.10 % (201,347 ) -0.20 %
 
Income tax (benefit) expense (81,703 ) 297,827  
 
Net income (loss) $1,284,315   1.18 % ($499,174 ) -0.50 %
 
 
Earnings per share:
Basic $6.12 ($2.27 )
Diluted $5.69 ($2.27 )
 
Weighted average common shares outstanding:
Basic 209,898 219,689 -4.5 %
Diluted (3) 225,646 219,689 2.7 %
 

(1)

Includes a $274.3 million LIFO expense charge and $133.8 million gain from antitrust litigation settlements in the nine months ended June 30, 2016. Includes a $453.9 million LIFO expense charge and $65.1 million gain from antitrust litigation settlements in the nine months ended June 30, 2015.

(2)

Includes $40.2 million of employee severance and other costs, $18.3 million of deal-related transaction costs (primarily related to professional fees with respect to the PharMEDium acquisition), a $17.1 million charge related to the transfer of surplus assets from the Company's settled salaried defined benefit pension plan to its defined contribution 401(k) plan, and $13.0 million of costs related to customer contract extensions (primarily related to the settlement of certain disputed items) in the nine months ended June 30, 2016. Includes $29.6 million of deal-related transaction costs (primarily related to professional fees with respect to the MWI acquisition) and $1.4 million of employee severance and other costs in the nine months ended June 30, 2015.

(3)

As a result of the net loss in the nine months ended June 30, 2015, stock options, restricted stock, restricted stock units and the Warrants issued to Walgreens Boots Alliance, Inc. were anti-dilutive.

 
 
AMERISOURCEBERGEN CORPORATION
GAAP TO NON-GAAP RECONCILIATIONS
(in thousands, except per share data)
(unaudited)
               
Three Months Ended June 30, 2016

Gross Profit

Operating
Expenses

Operating
Income

Interest
Expense, Net

Income Before
Income Taxes

Income Tax
Expense

Net Income

Diluted
Earnings Per
Share

 
GAAP $ 1,107,863 $ 581,249 $ 526,614 $ 32,115 $ 496,657 $ 146,854 $ 349,803 $ 1.56
 
Warrants income (1) - 83,704 (83,704 ) (2,155 ) (81,549 ) (29,709 ) (51,840 ) (0.25 )
 
Gain from antitrust litigation settlements (120,960 ) - (120,960 ) - (120,960 ) (47,979 ) (72,981 ) (0.32 )
 
LIFO expense 80,364 - 80,364 - 80,364 40,618 39,746 0.17
 
Acquisition-related intangibles amortization - (38,681 ) 38,681 - 38,767 18,484 20,283 0.09
 
Employee severance, litigation and other - (52,234 ) 52,234 - 52,234 22,177 30,057 0.13
 
Pension settlement - - - - - 2,243 (2,243 ) (0.01 )
               
Adjusted Non-GAAP $ 1,067,267   $ 574,038   $ 493,229   $ 29,960   $ 465,513   $ 152,688   $ 312,825   $ 1.37  
 
Adjusted Non-GAAP % changes vs. prior year quarter 6.0 % 4.1 % 8.4 % 8.4 % 8.4 % 0.6 % 12.7 % 14.2 %
 
Percentages of Revenue: GAAP

Adjusted
Non-GAAP

 
Gross profit 3.00 % 2.89 %
Operating expenses 1.58 % 1.56 %
Operating income 1.43 % 1.34 %
   

(1) A tax expense of approximately $31 million was recognized primarily related to the change in the fair value of the Warrants during the three months ended June 30, 2016. In connection with the fiscal 2014 special $650 million share repurchase program, the Company issued $600 million of 1.15% senior notes due in May 2017. The interest expense incurred relating to this borrowing has been excluded from the non-GAAP presentation.

 

Note: For more information related to non-GAAP financial measures, refer to the section titled "Supplemental Information Regarding Non-GAAP Financial Measures" of this release.

 
 
AMERISOURCEBERGEN CORPORATION
GAAP TO NON-GAAP RECONCILIATIONS
(in thousands, except per share data)
(unaudited)
               
Three Months Ended June 30, 2015

Gross Profit

Operating
Expenses

Operating
Income

Interest
Expense, Net

Income Before
Income Taxes

Income Tax
Expense

Net Income

Diluted
Earnings Per
Share

 
GAAP $ 891,464 $ 558,899 $ 332,565 $ 29,793 $ 304,306 $ 90,143 $ 214,163 $ 0.89
 
Warrants income (1) - 14,900 (14,900 ) (2,159 ) (12,741 ) 7,170 (19,911 ) (0.05 )
 
Gain from antitrust litigation settlements (43,567 ) - (43,567 ) - (43,567 ) (17,076 ) (26,491 ) (0.11 )
 
LIFO expense 158,710 - 158,710 - 158,710 62,823 95,887 0.41
 
Acquisition-related intangibles amortization - (19,710 ) 19,710 - 19,941 7,831 12,110 0.05
 
Employee severance, litigation and other - (2,625 ) 2,625 - 2,625 856 1,769 0.01
               
Adjusted Non-GAAP $ 1,006,607   $ 551,464   $ 455,143   $ 27,634   $ 429,274   $ 151,747   $ 277,527   $ 1.20  
 
Percentages of Revenue: GAAP

Adjusted
Non-GAAP

 
Gross profit 2.60 % 2.94 %
Operating expenses 1.63 % 1.61 %
Operating income 0.97 % 1.33 %
   

(1) During the three months ended June 30, 2015, the amount of Warrants expense deductible for income tax purposes was based on the initial 2013 valuation of the Warrants. In connection with the fiscal 2014 special $650 million share repurchase program, the Company issued $600 million of 1.15% senior notes due in May 2017. The interest expense incurred relating to this borrowing has been excluded from the non-GAAP presentation.

 

Note: For more information related to non-GAAP financial measures, refer to the section titled "Supplemental Information Regarding Non-GAAP Financial Measures" of this release.

 
 
AMERISOURCEBERGEN CORPORATION
GAAP TO NON-GAAP RECONCILIATIONS
(in thousands, except per share data)
(unaudited)
               
Nine Months Ended June 30, 2016
Gross Profit

Operating
Expenses

Operating
Income

Interest
Expense, Net

Income Before
Income Taxes

Income Tax
(Benefit)
Expense

Net Income

Diluted
Earnings Per
Share

 
GAAP $ 3,148,071 $ 1,852,576 $ 1,295,495 $ 96,107 $ 1,202,612 ($81,703 ) $ 1,284,315 $ 5.69
 
Warrants income (1) - 120,275 (120,275 ) (6,464 ) (113,811 ) 414,273 (528,084 ) $ (2.39 )
 
Gain from antitrust litigation settlements (133,758 ) - (133,758 ) - (133,758 ) (52,389 ) (81,369 ) $ (0.36 )
 
LIFO expense 274,305 - 274,305 - 274,305 107,438 166,867 $ 0.73
 
Acquisition-related intangibles amortization - (108,611 ) 108,611 - 108,801 42,614 66,187 $ 0.29
 
Employee severance, litigation and other - (88,719 ) 88,719 - 88,719 34,748 53,971 $ 0.24
 
Pension settlement - (47,607 ) 47,607 - 47,607 18,646 28,961 $ 0.13
               
Adjusted Non-GAAP $ 3,288,618   $ 1,727,914   $ 1,560,704   $ 89,643   $ 1,474,475   $ 483,627   $ 990,848   $ 4.32  

(2)

 
Adjusted Non-GAAP % changes vs. prior year period 11.7 % 15.1 % 8.1 % 40.9 % 7.7 % -2.6 % 13.5 % 14.0 %
 
Percentages of Revenue: GAAP

Adjusted
Non-GAAP

 
Gross profit 2.88 % 3.01 %
Operating expenses 1.70 % 1.58 %
Operating income 1.19 % 1.43 %
   

(1) The Company received a private letter ruling from the Internal Revenue Service in November 2015, which entitles it to an income tax deduction equal to the fair value of the Warrants on the date of exercise. As a result, the Company recognized a tax benefit adjustment of approximately $456 million, which represented the estimated tax deduction for the increase in the fair value of the Warrants from the issuance date through September 30, 2015. A tax expense of approximately $44 million was recognized primarily related to the change in the fair value of the Warrants during the nine months ended June 30, 2016. In connection with the fiscal 2014 special $650 million share repurchase program, the Company issued $600 million of 1.15% senior notes due in May 2017. The interest expense incurred relating to this borrowing has been excluded from the non-GAAP presentation.

 

(2) The sum of the components does not equal the total due to rounding.

 

Note: For more information related to non-GAAP financial measures, refer to the section titled "Supplemental Information Regarding Non-GAAP Financial Measures" of this release.

 
 
AMERISOURCEBERGEN CORPORATION
GAAP TO NON-GAAP RECONCILIATIONS
(in thousands, except per share data)
(unaudited)
               
Nine Months Ended June 30, 2015
Gross Profit

Operating
Expenses

Operating
(Loss)
Income

Interest
Expense, Net

(Loss) Income
Before Income
Taxes

Income Tax
Expense

Net (Loss)
Income

Diluted
Earnings Per
Share

 
GAAP $ 2,555,739 $ 2,675,820 ($120,081 ) $ 70,081 ($201,347 ) $ 297,827 ($499,174 ) $ (2.27 )
 
Warrants expense (1) - (1,109,211 ) 1,109,211 (6,459 ) 1,115,670 21,468 1,094,202 4.86
 
Gain from antitrust litigation settlements (65,050 ) - (65,050 ) - (65,050 ) (25,403 ) (39,647 ) (0.17 )
 
LIFO expense 453,878 - 453,878 - 453,878 177,249 276,629 1.20
 
Acquisition-related intangibles amortization - (34,478 ) 34,478 - 35,279 13,777 21,502 0.09
 
Employee severance, litigation and other - (30,999 ) 30,999 - 30,999 11,774 19,225 0.08
               
Adjusted Non-GAAP $ 2,944,567   $ 1,501,132   $ 1,443,435   $ 63,622   $ 1,369,429   $ 496,692   $ 872,737   $ 3.79  
 
Percentages of Revenue: GAAP

Adjusted
Non-GAAP

 
Gross profit 2.54 % 2.93 %
Operating expenses 2.66 % 1.49 %
Operating income -0.12 % 1.44 %
   

(1) During the nine months ended June 30, 2015, the amount of Warrants expense deductible for income tax purposes was based on the initial 2013 valuation of the Warrants. In connection with the fiscal 2014 special $650 million share repurchase program, the Company issued $600 million of 1.15% senior notes due in May 2017. The interest expense incurred relating to this borrowing has been excluded from the non-GAAP presentation.

 

Note: For more information related to non-GAAP financial measures, refer to the section titled "Supplemental Information Regarding Non-GAAP Financial Measures" of this release.

 
 
AMERISOURCEBERGEN CORPORATION
RECONCILIATION OF DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (GAAP TO NON-GAAP)
(In thousands)
(unaudited)
       
 
Three Months Ended June 30, Nine Months Ended June 30,
2016 2015 2016 2015
 
Basic shares outstanding 215,688 219,359 209,898 219,689
 
Stock option, restricted stock, and restricted stock unit dilution 3,042 4,878 3,440 -
 
Warrant dilution 6,072 15,999 12,308 -
       
GAAP diluted shares outstanding 224,802   240,236   225,646   219,689
 
Warrant dilution (1) (6,072 ) (15,999 ) (12,308 ) -
 
Shares repurchased under special share repurchase programs, net (1) 9,849 7,060 15,926 5,669
 
Stock option, restricted stock, and restricted stock unit dilution (2) - - - 4,968
       
Non-GAAP diluted shares outstanding 228,579   231,297   229,264   230,326
   

(1) For the non-GAAP presentation, diluted weighted average common shares outstanding have been adjusted to exclude the impact of the unexercised Warrants and the shares repurchased under special share repurchase programs, net of the weighted average number of shares issued related to the March 2016 Warrants exercise.

 

(2) For the non-GAAP presentation, diluted weighted average common shares outstanding have been adjusted to include the impact of the stock options, restricted stock, and restricted stock units that were anti-dilutive for the GAAP presentation due to the GAAP loss in the nine months ended June 30, 2015.

 

Note: For more information related to non-GAAP financial measures, refer to the section titled "Supplemental Information Regarding Non-GAAP Financial Measures" of this release.

 
     
AMERISOURCEBERGEN CORPORATION
WARRANTS COVERAGE INFORMATION
(In thousands)
(unaudited)
 
 
 
 
 
2017 Warrants Exercisable 22,697
 

Shares repurchased under special share repurchase programs through June 30, 2016

10,447
 
Shares expected to be repurchased under remaining Capped Calls (1)     13,620  
 
Total repurchases 24,067
 
2017 Warrants Coverage 106 %
 

(1)

Based on June 30, 2016 closing stock price of $79.32.

 
 
AMERISOURCEBERGEN CORPORATION
SUMMARY SEGMENT INFORMATION
(dollars in thousands)
(unaudited)
   
 
Three Months Ended June 30,
Revenue 2016 2015 % Change
 
Pharmaceutical Distribution $ 35,373,725 $ 32,758,828 8.0 %
Other 1,576,368 1,532,907 2.8 %
Intersegment eliminations   (68,413 )   (58,179 ) 17.6 %
 
Revenue $ 36,881,680   $ 34,233,556   7.7 %
 
 
 
 
Three Months Ended June 30,
Operating income 2016 2015 % Change
 
Pharmaceutical Distribution $ 410,718 $ 377,771 8.7 %
Other   82,511     77,372   6.6 %
Total segment operating income 493,229 455,143 8.4 %
 
Gain from antitrust litigation settlements 120,960 43,567
LIFO expense (80,364 ) (158,710 )
Acquisition-related intangibles amortization (38,681 ) (19,710 )
Warrants income 83,704 14,900
Employee severance, litigation and other   (52,234 )   (2,625 )
 
Operating income $ 526,614   $ 332,565  
 
 
 
Percentages of revenue:
 
Pharmaceutical Distribution
Gross profit 2.25 % 2.28 %
Operating expenses 1.08 % 1.12 %
Operating income 1.16 % 1.15 %
 
Other
Gross profit 17.31 % 17.01 %
Operating expenses 12.07 % 11.96 %
Operating income 5.23 % 5.05 %
 
AmerisourceBergen Corporation (GAAP)
Gross profit 3.00 % 2.60 %
Operating expenses 1.58 % 1.63 %
Operating income 1.43 % 0.97 %
 
AmerisourceBergen Corporation (Non-GAAP)
Gross profit 2.89 % 2.94 %
Operating expenses 1.56 % 1.61 %
Operating income 1.34 % 1.33 %
 
 
AMERISOURCEBERGEN CORPORATION
SUMMARY SEGMENT INFORMATION
(dollars in thousands)
(unaudited)
   
 
Nine Months Ended June 30,
Revenue 2016 2015 % Change
 
Pharmaceutical Distribution $ 104,734,137 $ 97,504,075 7.4 %
Other 4,753,988 3,214,977 47.9 %
Intersegment eliminations   (199,042 )   (227,627 ) -12.6 %
 
Revenue $ 109,289,083   $ 100,491,425   8.8 %
 
 
 
 
Nine Months Ended June 30,
Operating income (loss) 2016 2015 % Change
 
Pharmaceutical Distribution $ 1,288,672 $ 1,256,747 2.5 %
Other   272,032     186,688   45.7 %
Total segment operating income 1,560,704 1,443,435 8.1 %
 
Gain from antitrust litigation settlements 133,758 65,050
LIFO expense (274,305 ) (453,878 )
Acquisition-related intangibles amortization (108,611 ) (34,478 )
Warrants income (expense) 120,275 (1,109,211 )
Employee severance, litigation and other (88,719 ) (30,999 )
Pension settlement   (47,607 )   -  
 
Operating income (loss) $ 1,295,495     ($120,081 )
 
 
 
Percentages of revenue:
 
Pharmaceutical Distribution
Gross profit 2.34 % 2.41 %
Operating expenses 1.11 % 1.12 %
Operating income 1.23 % 1.29 %
 
Other
Gross profit 17.67 % 18.58 %
Operating expenses 11.95 % 12.78 %
Operating income 5.72 % 5.81 %
 
AmerisourceBergen Corporation (GAAP)
Gross profit 2.88 % 2.54 %
Operating expenses 1.70 % 2.66 %

Operating income (loss)

1.19 % -0.12 %
 
AmerisourceBergen Corporation (Non-GAAP)
Gross profit 3.01 % 2.93 %
Operating expenses 1.58 % 1.49 %
Operating income 1.43 % 1.44 %
 
   
AMERISOURCEBERGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
ASSETS
June 30, September 30,
2016 2015
Current assets:
Cash and cash equivalents $ 1,865,202 $ 2,167,442
Accounts receivable, net 8,984,533 8,222,951
Merchandise inventories 10,492,561 9,755,094
Prepaid expenses and other   114,959   189,001
Total current assets 21,457,255 20,334,488
 
Property and equipment, net 1,165,663 979,251
Goodwill and other intangible assets 8,986,106 6,123,944
Other long-term assets   305,219   298,474
 
Total assets $ 31,914,243 $ 27,736,157
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 22,692,064 $ 20,886,439
Other current liabilities   1,305,191   679,309
Total current liabilities 23,997,255 21,565,748
 
Long-term debt 3,794,036 3,493,048
 
Other long-term liabilities 2,243,635 2,043,841
 
Stockholders' equity   1,879,317   633,520
 
Total liabilities and stockholders' equity $ 31,914,243 $ 27,736,157
 
   
AMERISOURCEBERGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 

Nine

Nine
Months Ended Months Ended
June 30, June 30,
2016 2015
 
Operating Activities:
Net income (loss) $1,284,315 ($499,174 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities (1) 53,277 1,314,045
Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures:
Accounts receivable (705,462 ) (868,708 )
Merchandise inventories (2) (675,582 ) (700,331 )
Accounts payable, accrued expenses, and income taxes 1,812,329 3,530,780
Other 53,081   (16,347 )
Net cash provided by operating activities 1,821,958   2,760,265  
 
Investing Activities:
Capital expenditures (310,178 ) (157,089 )
Cost of acquired companies, net of cash acquired (2,731,356 ) (2,606,524 )
Cost of equity investments (19,034 ) -
Net proceeds from investment activity in available-for-sale securities 60,693 -
Other (21,186 ) 18,974  
Net cash used in investing activities (3,021,061 ) (2,744,639 )
 
Financing Activities:
Net borrowings 914,822 1,753,291
Purchases of common stock (3) (1,023,149 ) (800,299 )
Exercises of warrants 1,168,891 -
Exercises of stock options, including excess tax benefits 73,356 178,146
Cash dividends on common stock (215,070 ) (192,054 )
Purchases of call options - (180,000 )
Other (21,987 ) (28,040 )
Net cash provided by financing activities 896,863   731,044  
 
(Decrease) increase in cash and cash equivalents (302,240 ) 746,670
 
Cash and cash equivalents at beginning of period 2,167,442   1,808,513  
 
Cash and cash equivalents at end of period $1,865,202   $2,555,183  
 

(1)

Adjustments include non-cash Warrants (income) expense of ($120.3) million and $1,109.2 million for the nine months ended June 30, 2016 and 2015, respectively.

 

(2)

Merchandise inventories include LIFO expense of $274.3 million and $453.9 million for the nine months ended June 30, 2016 and 2015, respectively.

 

(3)

Includes purchases made under special share repurchase programs totaling $820.0 million that cash settled in the nine months ended June 30, 2016 (all under the call options). Includes purchases made under special share repurchase programs totaling $555.7 million in the nine months ended June 30, 2015, which includes $18.0 million of fiscal 2014 purchases that cash settled in October 2014. Additional purchases made in June 2015 under the special share repurchase programs totaling $14.3 million cash settled in July 2015.

 

SUPPLEMENTAL INFORMATION REGARDING
NON-GAAP FINANCIAL MEASURES

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures including (i) adjusted gross profit, (ii) adjusted operating expenses, (iii) adjusted operating income, (iv) adjusted interest expense, net, (v) adjusted income before income taxes, (vi) adjusted income tax expense, (vii) adjusted net income and (viii) adjusted diluted earnings per share. The preceding tables provide reconciliations of the financial measures calculated and presented in accordance with GAAP to the supplemental non-GAAP financial measures presented in this press release.

The non-GAAP financial measures are presented because management uses non-GAAP financial measures to evaluate the Company’s operating performance, to perform financial planning, and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company's core operating performance. The non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP.

The Company does not provide forward-looking diluted earnings per share guidance on a GAAP basis as certain financial information is not available and cannot be reasonably estimated. For example, the expense or income we recognize related to Warrants is largely dependent on future changes in our stock price, which are out of the Company’s control and cannot be reasonably estimated. Additionally, our LIFO expense is largely dependent upon the future inflation or deflation of brand and generic pharmaceuticals, which is out of the Company’s control and cannot be predicted with any reasonable certainty. For the same reasons, the Company is unable to address the probable significance of the unavailable information.

Source: AmerisourceBergen Corporation

AmerisourceBergen Corporation
Barbara Brungess
Vice President, Corporate & Investor Relations
610-727-7199
bbrungess@amerisourcebergen.com

Corporate Overview

AmerisourceBergen is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. With services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen delivers innovative programs and solutions across the pharmaceutical supply channel..

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