VALLEY FORGE, Pa.--(BUSINESS WIRE)--April 21,
2005--AmerisourceBergen Corporation (NYSE:ABC) today reported results
for its fiscal second quarter ended March 31, 2005. The following
results are presented in accordance with U.S. generally accepted
accounting principles (GAAP).
Fiscal Second Quarter Highlights
-- Diluted earnings per share from continuing operations of
$0.91, including an $0.11 benefit from a change in an
accounting method.
-- Operating Revenue of $12.2 billion, down 1 percent.
-- Cash flow from operations of $1.1 billion.
-- Record low interest expense of $14.5 million, down 53 percent.
-- Record low total debt to total capital ratio of 18.7 percent.
Fiscal First Six Months Highlights
-- Diluted earnings per share from continuing operations of
$1.53, before the cumulative effect of the accounting change.
-- Cash flow from operations of $1.2 billion.
-- Operating Revenue of $24.4 billion, down 1 percent.
"Although we were disappointed in our financial performance for
the quarter, we remain optimistic about improving our operating margin
and are encouraged by our strong cash position," said R. David Yost,
AmerisourceBergen's Chief Executive Officer. "Our transition to a
fee-for-service model with our manufacturers has created a challenging
year, but we are making solid progress and expect to have this
transition largely complete by the end of calendar year 2005. The
lower inventories in the new model and our disciplined working capital
management produced excellent cash generation and the strongest
balance sheet in our history. Operating revenue in pharmaceutical
distribution was down less than 1 percent despite the loss of two
large customers that accounted for 12 percent of operating revenue in
the second quarter of fiscal 2004. We are enthusiastic about the
future as we continue to grow our specialty business, complete our new
distribution network, capture new generic opportunities, implement our
margin enhancement activities and look to fully participate in the
growth generated by the Medicare Modernization Act in 2006."
Discussion of Results
The results for the second quarter and the first six months of
fiscal year 2005 were both impacted by a change in the way the Company
accounts for cash discounts and other related manufacturer incentives.
Previously, AmerisourceBergen recognized these cash discounts as a
reduction in cost of goods sold when earned, which was typically at
the time the Company paid for the inventory. The Company now records
these cash discounts as a component of inventory cost and recognizes
them as a reduction to cost of goods sold when the related products
are sold. With AmerisourceBergen's move to a fee-for-service
relationship with manufacturers, the new method provides a more
objectively determinable method of recognizing cash discounts and a
better matching of inventory cost to revenue, as inventory turnover
rates are expected to continue to improve.
The impact of this change in accounting, effective at the
beginning of fiscal 2005, is a one-time cumulative effect charge of
$10.2 million, net of tax, or $0.09 per diluted share, which is
reflected in the six-month results ended March 31, 2005. In addition
to the cumulative effect, the new method resulted in an increase in
income from continuing operations in the March quarter of $12.2
million, net of tax, or $0.11 per diluted share; and income from
continuing operations in the December quarter of fiscal 2005 was
revised to reflect a charge of $3.3 million, net of tax, or $0.03 per
diluted share. See the attached table for further illustration.
In the March quarter of fiscal 2005, AmerisourceBergen's operating
revenue was $12.2 billion compared to $12.3 billion for the same
period last year. Bulk deliveries in the quarter decreased 7 percent
to $0.9 billion.
Consolidated operating income in the March quarter declined 30
percent to $181.7 million primarily due to reduced buy-side profits in
the pharmaceutical distribution segment.
Below the consolidated operating income line, "Other loss" of $4.9
million in the quarter is primarily due to the write down of certain
technology related intangible assets.
Interest expense in the second quarter of fiscal 2005 was a record
low $14.5 million compared to $30.9 million in the prior year's second
quarter, a 53 percent decrease driven by debt reduction.
Diluted earnings per share from continuing operations were $0.91
in the second quarter of fiscal 2005, compared to $1.23 (also $1.23 on
a pro forma basis for the accounting change) in the previous fiscal
year's second quarter. Included in the results are a $1.1 million
special charge, net of tax, in the second quarter of fiscal 2005 and a
$1.4 million special charge, net of tax, in the same period of the
previous fiscal year. Both the charges are for facility consolidations
and employee severance and both decreased diluted earnings per share
by $0.01.
Diluted average shares outstanding for the second quarter of
fiscal year 2005 were 110.2 million. During the March quarter,
AmerisourceBergen used the remaining $102 million under its $500
million share repurchase program authorized in August 2004 to purchase
1.7 million shares, and completed the purchase of all of the 5.7
million shares under its repurchase program established in February
2005.
Discontinued operations in the March quarter reflect an additional
$0.6 million loss, net of tax, from the sale of the Company's Rita Ann
cosmetics distribution business, announced in the December quarter.
Cash generated from operations in the second quarter of fiscal
year 2005 was a record $1.1 billion, compared to $476 million in the
prior year's second quarter, due primarily to lower working capital
levels.
For the first six months of fiscal 2005, AmerisourceBergen's
operating revenue was $24.4 billion compared to $24.6 billion for the
same period last year. Bulk deliveries in the first half of the fiscal
year increased 13 percent to $2.4 billion.
Consolidated operating income in the first six months of the
fiscal year declined 33 percent to $313.3 million primarily due to
reduced buy-side profits in the pharmaceutical distribution segment.
For the first six months of fiscal 2005 diluted earnings per share
from continuing operations before the cumulative effect of the change
in accounting were $1.53, compared to $2.18 ($2.14 on a pro forma
basis for the accounting change) in the same six-month period last
year.
"Significant initiatives are underway to improve our operating
margins and better position us for the opportunities ahead," said Kurt
J. Hilzinger, AmerisourceBergen's President and Chief Operating
Officer. "In our transition to fee-for-service relationships, we
continue to sign new manufacturer agreements which we expect to
improve the stability and predictability of our earnings.
"During the March quarter, our Specialty Group continued to enjoy
solid growth. Our market-leading oncology businesses had another
strong quarter and our commercialization businesses continued to win
new manufacturer contracts. The Packaging Group delivered solid
results on its growing pipeline of contract packaging programs for
manufacturers and further expanded its customized packaging solutions
for healthcare providers.
"In the Drug Corporation, our Optimiz(TM) program, which is
designed to lower our operating costs, continued on schedule and on
budget. Our new Dallas, Texas, facility, the third of our six new
distribution centers, opened this quarter and is fully operational.
Coupled with our new warehouse management system, the new network will
drive additional cost savings and improved customer service in the
future. In the quarter we began implementation of our Transform
program designed to improve profitability from our healthcare provider
customers."
"In our PharMerica segment, we continue to face a difficult
competitive environment, and in response are making significant
progress in reducing the segment's operating expenses. Our new
customer-facing technology continues to win new customers in our
long-term care business, and our more than $30 million of technology
investments in the segment are beginning to deliver results," said
Hilzinger.
Segment Review
AmerisourceBergen operates in two segments: Pharmaceutical
Distribution (which includes the operations of AmerisourceBergen Drug
Corporation and AmerisourceBergen Specialty, Packaging, and Technology
groups) and PharMerica (which includes the long-term care pharmacy and
workers' compensation businesses). Intersegment sales of $218 million
in the second quarter of fiscal 2005 from AmerisourceBergen Drug
Corporation to PharMerica, which are included in the Pharmaceutical
Distribution segment operating revenue, are eliminated for
consolidated reporting purposes.
Pharmaceutical Distribution Segment
Operating revenue of $12.1 billion in the second quarter of fiscal
2005 was down 1 percent compared to the same quarter in the previous
fiscal year.
Led by strong growth in the Specialty Group, the Company was able
to largely offset the impact of the prior year's loss of the
Department of Veterans Affairs (VA) and AdvancePCS contracts. The two
contract losses accounted for 12 percent of segment operating revenue
in the second quarter of fiscal 2004. Lower than anticipated buy-side
contribution due to the ongoing transition to a new manufacturer
compensation model based on fees and a competitive environment,
including the VA impact, reduced gross profit and operating margins in
the quarter.
Pharmaceutical Distribution customer mix in the second quarter of
fiscal 2005 was 56 percent institutional and 44 percent retail.
AmerisourceBergen Specialty Group continued its excellent
performance with annualized operating revenue of more than $6 billion.
The Group continues to build on its leadership position in the
distribution of products and services to physicians in numerous
disease states, including its industry leading position in oncology.
The Group also continues to grow its manufacturer services businesses,
including third party logistics, reimbursement consulting and
physician education.
PharMerica
PharMerica's operating revenue for the second quarter of fiscal
2005 was $391.1 million, essentially flat compared to the previous
year's second quarter. Operating income for the second quarter of
fiscal 2005 was $32.0 million, up 13 percent from $28.2 million for
the same quarter last year reflecting a $4.0 million reduction in
sales tax liability, supplier initiatives and expense control. The
Company continues to expect revenues in the segment to be flat for the
2005 fiscal year. Operating margins are expected to be in the high end
of the 6 percent to 7 percent range.
Looking Ahead
"Our expectations for fiscal 2005 remain unchanged from our March
announcement," said Yost. "We continue to expect operating revenue
growth in fiscal year 2005 to be flat at about $49 billion, and
diluted earnings per share from continuing operations before the
cumulative effect of the accounting change for fiscal 2005 of between
$3.10 and $3.50 on a GAAP basis. Though we begin our detailed planning
process for the next fiscal year during this quarter, we currently
estimate earnings per share from continuing operations in fiscal 2006
to be between $3.60 and $4.40, also on a GAAP basis. The bottom of the
range reflects pharmaceutical market growth in the high single digits
and the full-year impact of fiscal 2005 capital deployment
initiatives. The top of the range depends on our ability to improve
our pharmaceutical distribution operating margin, expected to be in
the 100 to 110 basis points range in fiscal 2005, by 30 basis points
through margin enhancement activities including those mentioned
above."
Conference Call
The Company will host a conference call to discuss its results at
11:00 a.m. Eastern Standard Time on April 21, 2005. Participating in
the conference call will be: R. David Yost, Chief Executive Officer;
Kurt J. Hilzinger, President and Chief Operating Officer; and Michael
D. DiCandilo, Senior Vice President and Chief Financial Officer.
To access the live conference call via telephone:
Dial in: 612-326-1029, no access code required.
To access the live webcast:
Go to the Quarterly Webcasts section on the Investor Relations
page at http://www.amerisourcebergen.com.
A replay of the telephone call and webcast will be available from
2:30 p.m. April 21, 2005 until 11:59 p.m. April 28, 2005. The Webcast
replay will be available for 30 days.
To access the replay via telephone:
Dial in: (800) 475-6701 from within the U.S., access code: 777705
(320) 365-3844 from outside the U.S., access code: 777705
To access the archived webcast:
Go to the Quarterly Webcasts section on the Investor Relations
page at http://www.amerisourcebergen.com.
About AmerisourceBergen
AmerisourceBergen (NYSE:ABC) is one of the largest pharmaceutical
services companies in the United States. Servicing both pharmaceutical
manufacturers and healthcare providers in the pharmaceutical supply
channel, the Company provides drug distribution and related services
designed to reduce costs and improve patient outcomes.
AmerisourceBergen's service solutions range from pharmacy automation,
bedside medication safety systems, and pharmaceutical packaging to
pharmacy services for skilled nursing and assisted living facilities,
reimbursement and pharmaceutical consulting services, and physician
education. With more than $48 billion in operating revenue,
AmerisourceBergen is headquartered in Valley Forge, PA, and employs
more than 14,000 people. AmerisourceBergen is ranked #23 on the
Fortune 500 list. For more information, go to
www.amerisourcebergen.com.
Forward-Looking Statements
This news release may contain certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements
are based on management's current expectations and are subject to
uncertainty and changes in circumstances. Actual results may vary
materially from the expectations contained in the forward-looking
statements. Forward-looking statements may include statements
addressing AmerisourceBergen's future financial and operating results.
The following factors, among others, could cause actual results to
differ materially from those described in any forward-looking
statements: competitive pressures; the loss of one or more key
customer relationships; customer insolvencies; changes in customer
mix; changes in pharmaceutical manufacturers' pricing and distribution
policies or practices; regulatory changes; changes in U.S. government
policies (including changes in government policies pertaining to drug
reimbursement); changes in market interest rates; and other economic,
business, competitive, legal, regulatory and/or operational factors
affecting the business of AmerisourceBergen generally.
More detailed information about these and other risk factors is
set forth in AmerisourceBergen's filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for
fiscal 2004.
AmerisourceBergen is under no obligation to (and expressly
disclaims any such obligation to) update or alter any forward looking
statements whether as a result of new information, future events or
otherwise.
AMERISOURCEBERGEN CORPORATION
FINANCIAL SUMMARY
(In thousands, except per share data)
(unaudited)
Three Three
Months Ended % of Months Ended % of
March 31, Operating March 31, Operating %
2005 Revenue 2004 Revenue Change
------------ --------- ------------ --------- ------
Revenue:
Operating
revenue $12,243,148 100.00% $12,332,842 100.00% -1%
Bulk deliveries
to customer
warehouses 948,428 1,018,919 -7%
------------ ------------
Total revenue 13,191,576 13,351,761 -1%
Cost of goods
sold 12,689,461 12,771,318 -1%
------------ ------------
Gross profit 502,115 4.10% 580,443 4.71% -13%
Operating
expenses:
Distribution,
selling and
administrative 297,835 2.43% 300,463 2.44% -1%
Depreciation
and
amortization 20,761 0.17% 18,516 0.15% 12%
Facility
consolidations
and employee
severance 1,837 0.02% 2,216 0.02% -17%
------------ ------------
Operating income 181,682 1.48% 259,248 2.10% -30%
Other loss
(income) 4,876 0.04% (3,663) -0.03% N/A
Interest expense 14,513 0.12% 30,871 0.25% -53%
------------ ------------
Income from
continuing
operations
before taxes 162,293 1.33% 232,040 1.88% -30%
Income taxes 62,321 0.51% 89,334 0.72% -30%
------------ ------------
Income from
continuing
operations 99,972 0.82% 142,706 1.16% -30%
Loss from
discontinued
operations, net
of tax benefit (550) (554)
------------ ------------
Net income $ 99,422 0.81% $ 142,152 1.15% -30%
============ ============
Earnings per
share:
Basic
Continuing
operations $ 0.91 $ 1.28 -29%
Discontinued
operations - (0.01)
------------ ------------
Net income $ 0.91 $ 1.27 -28%
============ ============
Diluted
Continuing
operations $ 0.91 $ 1.23 -26%
Discontinued
operations (0.01) -
------------ ------------
Net income $ 0.90 $ 1.23 -27%
============ ============
Weighted average
common shares
outstanding:
Basic 109,645 111,847
Diluted 110,234 117,946
AMERISOURCEBERGEN CORPORATION
FINANCIAL SUMMARY
(In thousands, except per share data)
(unaudited)
Six Six
Months Ended % of Months Ended % of
March 31, Operating March 31, Operating %
2005 Revenue 2004 Revenue Change
------------ --------- ------------ --------- ------
Revenue:
Operating
revenue $24,447,463 100.00% $24,585,579 100.00% -1%
Bulk deliveries
to customer
warehouses 2,383,155 2,108,353 13%
------------ ------------
Total revenue 26,830,618 26,693,932 1%
Cost of goods
sold 25,873,012 25,588,439 1%
------------ ------------
Gross profit 957,606 3.92% 1,105,493 4.50% -13%
Operating
expenses:
Distribution,
selling and
administrative 595,386 2.44% 595,846 2.42% 0%
Depreciation
and
amortization 41,915 0.17% 35,232 0.14% 19%
Facility
consolidations
and employee
severance 6,970 0.03% 3,769 0.02% 85%
------------ ------------
Operating income 313,335 1.28% 470,646 1.91% -33%
Other loss
(income) 3,818 0.02% (1,076) 0.00% N/A
Interest expense 36,589 0.15% 62,378 0.25% -41%
Loss on early
retirement of
debt 1,015 0.00% -
------------ ------------
Income before
taxes,
discontinued
operations, and
cumulative
effect of change
in accounting 271,913 1.11% 409,344 1.66% -34%
Income taxes 104,415 0.43% 157,597 0.64% -34%
------------ ------------
Income from
continuing
operations
before
cumulative
effect of change
in accounting 167,498 0.69% 251,747 1.02% -33%
Loss from
discontinued
operations, net
of tax benefit (6,958) (1,121)
Cumulative effect
of change in
accounting, net
of tax benefit (10,172) -
------------ ------------
Net income $ 150,368 0.62% $ 250,626 1.02% -40%
============ ============
Earnings per
share:
Basic
Continuing
operations $ 1.56 $ 2.25 -31%
Discontinued
operations (0.06) (0.01)
Cumulative
effect of
change in
accounting (0.10) -
------------ ------------
Net income $ 1.40 $ 2.24 -38%
============ ============
Diluted
Continuing
operations $ 1.53 $ 2.18 -30%
Discontinued
operations (0.06) (0.01)
Cumulative
effect of
change in
accounting (0.09) -
------------ ------------
Net income $ 1.38 $ 2.17 -36%
============ ============
Weighted average
common shares
outstanding:
Basic 107,584 111,738
Diluted 110,932 117,948
AMERISOURCEBERGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
March 31, September 30,
2005 2004
--------------- ---------------
Current assets:
Cash and cash equivalents $ 1,153,432 $ 871,343
Accounts receivable, net 2,450,124 2,260,973
Merchandise inventories 4,623,581 5,135,830
Prepaid expenses and other 18,764 27,243
--------------- ---------------
Total current assets 8,245,901 8,295,389
Long-term assets 3,386,911 3,358,614
--------------- ---------------
Total assets $ 11,632,812 $ 11,654,003
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,655,556 $ 4,947,037
Current portion of long-term debt 101,433 281,360
Other current liabilities 795,738 875,511
--------------- ---------------
Total current liabilities 6,552,727 6,103,908
Long-term debt, less current portion 856,371 1,157,111
Other liabilities 61,721 53,939
Stockholders' equity 4,161,993 4,339,045
--------------- ---------------
Total liabilities and
stockholders' equity $ 11,632,812 $ 11,654,003
=============== ===============
AMERISOURCEBERGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Six
Months Ended Months Ended
March 31, March 31,
2005 2004
--------------- ---------------
Operating Activities:
Net income $ 150,368 $ 250,626
Non-cash items 91,912 72,796
Changes in operating assets and
liabilities 950,726 (301,404)
--------------- ---------------
Net cash provided by operating
activities 1,193,006 22,018
--------------- ---------------
Investing Activities:
Capital expenditures (123,246) (85,335)
Cost of acquired companies, net of
cash acquired and other (588) (45,710)
Proceeds from sale-leaseback
transactions 20,732 -
Proceeds from sale of discontinued
operations 3,560 -
--------------- ---------------
Net cash used in investing activities (99,542) (131,045)
--------------- ---------------
Financing Activities:
Long-term debt repayments (180,000) (30,000)
Exercise of stock options 53,503 8,542
Cash dividends on common stock (5,381) (5,607)
Purchase of common stock (675,348) -
Deferred financing costs and other (4,149) (180)
--------------- ---------------
Net cash used in financing activities (811,375) (27,245)
--------------- ---------------
Increase (decrease) in cash and cash
equivalents 282,089 (136,272)
Cash and cash equivalents at beginning
of period 871,343 800,036
--------------- ---------------
Cash and cash equivalents at end of
period $ 1,153,432 $ 663,764
=============== ===============
AMERISOURCEBERGEN CORPORATION
SUMMARY SEGMENT INFORMATION
(dollars in thousands)
(unaudited)
Three Months Ended March 31,
------------------------------------
Operating Revenue 2005 2004 % Change
--------------------------------- ------------------------------------
Pharmaceutical Distribution $ 12,070,185 $12,151,538 -1%
PharMerica 391,090 392,078 0%
Intersegment eliminations (218,127) (210,774) -3%
------------- ------------
Operating revenue $ 12,243,148 $12,332,842 -1%
============= ============
Three Months Ended March 31,
------------------------------------
Operating Income 2005 2004 % Change
--------------------------------- ------------------------------------
Pharmaceutical Distribution $ 151,548 $ 233,283 -35%
PharMerica 31,971 28,181 13%
Facility consolidations and
employee severance (1,837) (2,216) 17%
------------- ------------
Operating income $ 181,682 $ 259,248 -30%
============= ============
Percentages of operating revenue:
Pharmaceutical Distribution
Gross profit 3.21% 3.79%
Operating expenses 1.96% 1.87%
Operating income 1.26% 1.92%
PharMerica
Gross profit 29.25% 30.58%
Operating expenses 21.07% 23.40%
Operating income 8.18% 7.19%
AmerisourceBergen Corporation
Gross profit 4.10% 4.71%
Operating expenses 2.62% 2.60%
Operating income 1.48% 2.10%
AMERISOURCEBERGEN CORPORATION
SUMMARY SEGMENT INFORMATION
(dollars in thousands)
(unaudited)
Six Months Ended March 31,
------------------------------------
Operating Revenue 2005 2004 % Change
--------------------------------- ------------------------------------
Pharmaceutical Distribution $ 24,114,159 $24,229,120 0%
PharMerica 776,711 794,518 -2%
Intersegment eliminations (443,407) (438,059) -1%
------------- ------------
Operating revenue $ 24,447,463 $24,585,579 -1%
============= ============
Six Months Ended March 31,
------------------------------------
Operating Income 2005 2004 % Change
--------------------------------- ------------------------------------
Pharmaceutical Distribution $ 245,987 $ 417,741 -41%
PharMerica 55,493 56,674 -2%
Facility consolidations and
employee severance (6,970) (3,769) -85%
Gain on litigation settlement 18,825 - N/A
------------- ------------
Operating income $ 313,335 $ 470,646 -33%
============= ============
Percentages of operating revenue:
Pharmaceutical Distribution
Gross profit 2.98% 3.55%
Operating expenses 1.96% 1.83%
Operating income 1.02% 1.72%
PharMerica
Gross profit 28.47% 30.77%
Operating expenses 21.33% 23.64%
Operating income 7.14% 7.13%
AmerisourceBergen Corporation
Gross profit 3.92% 4.50%
Operating expenses 2.64% 2.58%
Operating income 1.28% 1.91%
AMERISOURCEBERGEN CORPORATION
EARNINGS PER SHARE
(In thousands, except per share data)
(unaudited)
Basic earnings per share is computed on the basis of the weighted
average number of shares of common stock outstanding during the
periods presented. Diluted earnings per share is computed on the basis
of the weighted average number of shares of common stock outstanding
during the period plus the dilutive effect of stock options.
Additionally, the diluted earnings per share calculation considers the
convertible subordinated notes as if converted and, therefore, the
effect of interest expense related to those notes is added back to net
income in determining income from continuing operations available to
common stockholders.
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Income from continuing
operations, before cumulative
effect of change in
accounting $ 99,972 $142,706 $167,498 $251,747
Interest expense - convertible
subordinated notes, net of
income taxes 28 2,530 2,539 5,060
--------- --------- --------- ---------
Income from continuing
operations available to
common stockholders $100,000 $145,236 $170,037 $256,807
========= ========= ========= =========
Weighted average common shares
outstanding - basic 109,645 111,847 107,584 111,738
Effect of dilutive securities:
Options to purchase common
stock 477 435 450 546
Convertible subordinated
notes 112 5,664 2,898 5,664
--------- --------- --------- ---------
Weighted average common shares
outstanding - diluted 110,234 117,946 110,932 117,948
========= ========= ========= =========
Earnings per share:
Basic
Continuing operations $ 0.91 $ 1.28 $ 1.56 $ 2.25
Discontinued operations - (0.01) (0.06) (0.01)
Cumulative effect of
change in accounting - - (0.10) -
--------- --------- --------- ---------
Net income $ 0.91 $ 1.27 $ 1.40 $ 2.24
========= ========= ========= =========
Diluted
Continuing operations $ 0.91 $ 1.23 $ 1.53 $ 2.18
Discontinued operations (0.01) - (0.06) (0.01)
Cumulative effect of
change in accounting - - (0.09) -
--------- --------- --------- ---------
Net income $ 0.90 $ 1.23 $ 1.38 $ 2.17
========= ========= ========= =========
AMERISOURCEBERGEN CORPORATION
CHANGE IN ACCOUNTING
(UNAUDITED)
Effective as of the begining of fiscal 2005, the Company changed
its method of recognizing cash discounts and other related
manufacturer incentives. The Company previously recognized cash
discounts as a reduction of cost of goods sold when earned, primarily
upon payment of vendor invoices. As a result of the change, the
Company now records cash discounts as a component of inventory cost
and recognizes such discounts as a reduction to cost of goods sold
upon the sale of the inventory. With the change to a fee-for-service
model, the Company believes the change in accounting method provides a
more objectively determinable method of recognizing cash discounts and
a better matching of inventory cost to revenue, as inventory turnover
rates are expected to continue to improve.
The Company recorded a $10.2 million (net of tax of $6.3 million)
cumulative effect of change in accounting in the consolidated
statement of operations. This $10.2 million cumulative effect
adjustment reduced diluted earnings per share by $0.09 for the six
months ended March 31, 2005. The Company also adjusted its previously
reported consolidated statement of operations for the three months
ended December 31, 2004 for this accounting change. The change
decreased earnings from continuing operations for the December quarter
by approximately $3.3 million, net of tax, or $0.03 per diluted share
from continuing operations. The accounting change is incorporated in
the Company's results for the three months ended March 31, 2005, and
the change improved earnings from continuing operations in the March
quarter by approximately $12.2 million, net of tax, or $0.11 per
diluted share from continuing operations.
The pro forma effect of this accounting change on prior periods is as
follows:
Three Months Six Months
Ended Ended
(in thousands, except per share data) March 31, 2004 March 31, 2004
-------------------------------------- --------------- ---------------
Income from continuing operations
before cumulative effect of change in
accounting
As Reported $ 142,706 $ 251,747
Pro Forma $ 142,381 $ 247,270
Net income
As Reported $ 142,152 $ 250,626
Pro Forma $ 141,827 $ 246,149
Basic earnings per share from
continuing operations
As Reported $ 1.28 $ 2.25
Pro Forma $ 1.27 $ 2.21
Diluted earnings per share from
continuing operations
As Reported $ 1.23 $ 2.18
Pro Forma $ 1.23 $ 2.14
CONTACT: AmerisourceBergen Corporation, Valley Forge
Michael N. Kilpatric, 610-727-7118
mkilpatric@amerisourcebergen.com
SOURCE: AmerisourceBergen Corporation