UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
OR
Commission file number 1-16671
AMERISOURCEBERGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
23-3079390
(State or other jurisdiction
of incorporation or organization)
(IRS Employer
Identification No.)
1300 Morris Drive, Suite 100, Chesterbrook, PA
19087-5594
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (610) 727-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of common stock of AmerisourceBergen Corporation outstanding as of April 30, 2003 was 110,386,680.
INDEX
Page No.
Part I. Financial Information
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets, March 31, 2003 and September 30, 2002
3
Consolidated Statements of Operations for the three and six months ended March 31, 2003 and 2002
5
Consolidated Statements of Cash Flows for the six months ended March 31, 2003 and 2002
6
Notes to Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35
Item 4.
Controls and Procedures
Part II. Other Information
Changes in Securities and Use of Proceeds
36
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits and Reports on Form 8-K
37
Signatures
38
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, 2003
September 30, 2002
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
225,956
663,340
Accounts receivable, less allowance for doubtful accounts: $184,697 at March 31, 2003 and $181,432 at September 30, 2002
2,163,665
2,222,156
Merchandise inventories
6,898,825
5,437,878
Prepaid expenses and other
16,211
26,263
Total current assets
9,304,657
8,349,637
Property and equipment, at cost:
Land
24,952
Buildings and improvements
121,205
120,301
Machinery, equipment and other
306,311
277,247
Total property and equipment
452,468
422,500
Less accumulated depreciation
166,103
139,922
Property and equipment, net
286,365
282,578
Other assets:
Goodwill
2,310,774
2,205,159
Deferred income taxes
27,370
12,400
Intangibles, deferred charges and other
394,473
363,238
Total other assets
2,732,617
2,580,797
TOTAL ASSETS
12,323,639
11,213,012
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS – (Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
5,782,858
5,367,837
Accrued expenses and other
459,327
433,835
Current portion of long-term debt
60,948
60,819
Accrued income taxes
62,817
31,955
222,374
205,071
Total current liabilities
6,588,324
6,099,517
Long-term debt, net of current portion
2,000,790
1,756,494
Other liabilities
42,571
40,663
Stockholders’ equity:
Common stock, $.01 par value – authorized: 300,000,000 shares; issued and outstanding: 110,349,992 at March 31, 2003 and 106,581,837 shares at September 30, 2002
1,103
1,066
Additional paid-in capital
3,030,455
2,858,596
Retained earnings
666,340
462,619
Accumulated other comprehensive loss
(5,944
)
(5,943
Total stockholders’ equity
3,691,954
3,316,338
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
4
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended March 31,
Six months ended March 31,
2003
2002
Operating revenue
11,213,959
9,918,609
22,320,864
19,604,885
Bulk deliveries to customer warehouses
948,582
1,025,658
2,276,210
2,408,162
Total revenue
12,162,541
10,944,267
24,597,074
22,013,047
Cost of goods sold
11,581,352
10,429,774
23,494,460
21,027,121
Gross profit
581,189
514,493
1,102,614
985,926
Operating expenses:
Distribution, selling and administrative
323,563
304,576
641,245
602,168
Depreciation
15,264
13,851
31,067
28,098
Amortization
1,805
551
3,271
1,351
Facility consolidations and employee severance
4,005
—
2,624
Merger costs
4,741
12,238
Operating income
236,552
190,774
424,407
342,071
Equity in losses (income) of affiliates and other
5,733
(354
5,916
1,377
Interest expense
38,399
38,752
72,784
75,745
Income before taxes
192,420
152,376
345,707
264,949
Income taxes
76,006
60,502
136,554
105,192
Net income
116,414
91,874
209,153
159,757
Earnings per share:
Basic
1.06
0.88
1.93
1.54
Diluted
1.03
0.84
1.87
1.48
Weighted average common shares outstanding:
109,438
104,404
108,101
104,070
115,756
111,704
114,566
111,443
Cash dividends declared per share of common stock
0.025
0.050
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization, including amounts charged to interest expense
6,721
4,052
Provision for loss on accounts receivable
19,278
32,704
Loss on disposal of property and equipment
1,744
336
Equity in losses of affiliates and other
Provision for deferred income taxes
18,068
6,037
Employee stock compensation
478
411
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable
82,662
58,207
(1,452,376
(239,538
9,697
(1,862
Accounts payable, accrued expenses and income taxes
450,245
173,683
Other
2,076
2,192
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
(615,271
225,454
INVESTING ACTIVITIES
Capital expenditures
(35,162
(20,999
Cost of acquired companies, net of cash acquired
(32,747
Purchase of additional equity interests in businesses
(13,879
Proceeds from sales of property and equipment
116
1,518
NET CASH USED IN INVESTING ACTIVITIES
(67,793
(33,360
FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit and receivables securitization facilities
124,000
(37,000
Long-term debt borrowings
300,000
Long-term debt repayments
(180,066
(23,119
Deferred financing costs and other
(4,912
(1,118
Exercise of stock options
12,666
40,534
Cash dividends on common stock
(5,432
(5,202
Common stock purchases for employee stock purchase plan
(576
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
245,680
(25,905
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(437,384
166,189
Cash and cash equivalents at beginning of period
297,626
CASH AND CASH EQUIVALENTS AT END OF PERIOD
463,815
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations and cash flows of AmerisourceBergen Corporation and its wholly-owned subsidiaries (the “Company”) as of the dates and for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation.
The Company was formed in connection with the merger of AmeriSource Health Corporation (“AmeriSource”) and Bergen Brunswig Corporation (“Bergen”), which was consummated on August 29, 2001.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of March 31, 2003 and the results of operations and cash flows for the interim periods ended March 31, 2003 and 2002 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States, 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, 2002.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimated amounts.
Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.
Recently Issued Financial Accounting Standards
In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of the standard was effective for fiscal years and interim periods beginning after December 15, 2002. The Company did not adopt the fair value method of accounting for stock-based compensation. As required, the Company adopted the disclosure provisions of this standard beginning with the quarter ended March 31, 2003.
In November 2002, the FASB issued Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation enhances the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of the initial recognition and measurement requirements of FIN No. 45 did not have an impact on the Company’s consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and requires consolidation of variable interest entities by their primary beneficiaries if certain conditions are met. This interpretation applies to variable interest entities created or obtained after January 31, 2003, and as of July 1, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company is in the process of evaluating the adoption of this standard, but does not believe it will have a material impact on its consolidated financial statements.
Stock-Related Compensation
The Company has a number of stock-related compensation plans, including stock option, stock purchase and restricted stock plans, which are described in Note 8 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002. The Company continues to use the accounting method under Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” and related interpretations for these plans. Under APB No. 25, generally, when the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to all stock-related compensation.
Three months ended
March 31,
Six months ended
Net income, as reported
Add: Stock-related compensation expense included in reported net income, net of income taxes
41
Deduct: Stock-related compensation expense determined under the fair value method, net of income taxes
(4,954
(2,377
(9,208
(4,736
Pro forma net income
111,501
89,497
199,986
155,021
Basic, as reported
Basic, pro forma
1.02
0.86
1.84
1.49
Diluted, as reported
Diluted, pro forma
0.98
0.82
1.79
1.43
The diluted calculations consider the 5% convertible subordinated notes as if converted and, therefore, the after-tax effect of interest expense related to these notes is added back to net income in determining income available to common stockholders.
8
Note 2. Acquisitions and Other Investments
On January 17, 2003, the Company acquired US Bioservices Corporation (“US Bio”), a national pharmaceutical products and services provider focused on the management of high-cost complex therapies and reimbursement support with revenues of approximately $120 million in calendar 2002, to expand the Company’s service offerings within the specialty pharmaceutical business. The results of operations of US Bio have been included in the Company’s consolidated statements of operations since the acquisition date. The total base purchase price was $159.7 million, which included the repayment of US Bio debt of $14.8 million. The Company issued 2,399,091 shares of Common Stock, as set forth in the acquisition agreement, with an aggregate market value of $131.0 million, which was calculated based on an average of the Company’s closing stock price on the two days before and the two days after the transaction measurement date. The Company paid the remaining $27.6 million of the base purchase price in cash, and incurred $1.1 million of transaction costs associated with this acquisition. The agreement also provides for contingent payments of up to $27.6 million in cash based on US Bio achieving defined earnings targets through the end of the first quarter of calendar 2004.
On January 3, 2003, the Company acquired Bridge Medical, Inc. (“Bridge”), a leading provider of barcode-enabled point-of-care software designed to reduce medication errors, to enhance the Company’s offerings in the pharmaceutical supply chain. The results of operations of Bridge have been included in the Company’s consolidated statements of operations since the acquisition date. The total base purchase price was $28.3 million. The Company paid the base purchase price by issuing 401,780 shares of Common Stock with an aggregate market value of $22.9 million, which was calculated based on a 30-day average of the Company’s closing stock price for the period ending three days prior to the transaction closing date, as set forth in the acquisition agreement. The remaining base purchase price was paid with $4.8 million of cash, and the Company incurred $0.6 million of transaction costs associated with this acquisition. The acquisition agreement also provides for contingent payments of up to a maximum of $55 million based on Bridge achieving defined earnings targets through the end of calendar 2004. The Company intends to pay any contingent amounts that may become due primarily in shares of Common Stock. At the closing of the acquisition, the Company issued an additional 401,780 shares of Common Stock into an escrow account that may be used for the payment of contingent amounts, if any, that become due in the future. The Company will retire all unused shares remaining in the escrow account after the end of calendar 2004 upon the completion of the contingent payment determinations.
The following table summarizes the allocation of the purchase price, including transaction costs, based on the fair values of US Bio and Bridge assets and liabilities at the effective dates of the respective acquisitions (in thousands):
Cash
2,477
43,397
Inventory
8,571
104,441
Intangible assets
36,622
Deferred tax assets
17,670
Other assets
3,253
Debt
(14,789
Current and other liabilities
(13,608
Total base purchase price for US Bio and Bridge
188,034
Intangible assets of $36.6 million principally consist of $26.4 million of trade names, which have indefinite lives and are not subject to amortization, $6.5 million of non-compete agreements, which will be amortized over a weighted average life of 4 years, and $3.7 million of software, which will be amortized over a three-year life. Deferred tax assets principally relate to net operating losses and research and development costs incurred by Bridge prior to the acquisition.
All of the goodwill associated with the US Bio and Bridge acquisitions was assigned to the pharmaceutical distribution segment and will not be deductible for income tax purposes.
Had the US Bio and Bridge acquisitions been consummated at the beginning of the respective fiscal years, the Company’s consolidated total revenue, net income and diluted earnings per share for the three and six months ended March 31, 2003 and 2002 would not have been significantly different from the reported amounts.
9
In May 2002, the Company’s Pharmaceutical Distribution segment acquired a 20% equity interest in a physician management consulting company for $5 million in cash, which was subject to a possible adjustment contingent on the entity achieving defined earnings targets in calendar 2002. Additionally, the Company agreed to acquire, within the next two years, the remaining 80% equity interest. Under the terms of the acquisition agreement, the total purchase price for 100% equity ownership of the entity shall not exceed $100 million and is based on the entity’s earnings during calendar years 2002 through 2004. The Company currently expects to pay between $70 million and $80 million, in the aggregate, for its 100% equity ownership in the entity. The initial 20% investment has been accounted for using the equity method of accounting.
Subsequent to March 31, 2003, the Company satisfied the residual contingent obligation for the initial 20% equity interest and agreed to acquire an additional 40% equity interest in the physician management consulting company for $24.7 million in cash, in the aggregate, subject to possible adjustment, contingent on the completion of an audit of the physician management company. The Company paid $18.5 million of the total $24.7 million and the remainder will be paid subject to the satisfactory completion of the audit. Subject to adjustment, the Company has now agreed to pay approximately $30 million in connection with the first 60% equity interest acquired in the physician management consulting company.
Note 3. Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods plus the dilutive effect of stock options. Additionally, the diluted calculations consider the 5% convertible subordinated notes as if converted and, therefore, the after-tax effect of interest expense related to these notes is added back to net income in determining income available to common stockholders.
Interest expense – convertible subordinated notes, net of income taxes
2,489
2,481
4,978
4,961
Income available to common stockholders
118,903
94,355
214,131
164,718
Weighted average common shares outstanding – basic
Effect of dilutive securities:
Options to purchase common stock
654
1,636
801
1,709
Convertible subordinated notes
5,664
Weighted average common shares outstanding – diluted
10
Note 4. Goodwill and Other Intangible Assets
Following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the six months ended March 31, 2003 (in thousands):
Pharmaceutical Distribution
PharMerica
Total
Goodwill at September 30, 2002
1,936,203
268,956
Goodwill recognized in connection with the acquisition of US Bio, Bridge, and other businesses
105,615
Goodwill at March 31, 2003
2,041,818
Following is a summary of other intangible assets (in thousands):
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Unamortized intangibles:
Tradenames
253,181
226,781
Amortized intangibles:
Customer lists and other
43,060
(10,267
32,793
32,838
(6,996
25,842
Total other intangible assets
296,241
285,974
259,619
252,623
Amortization expense for other intangible assets was $3.3 million and $1.4 million in the six months ended March 31, 2003 and 2002, respectively. Amortization expense for other intangible assets is estimated to be $6.6 million in fiscal 2003, $6.7 million in fiscal 2004, $6.6 million in fiscal 2005, $5.6 million in fiscal 2006 and $3.1 million in fiscal 2007.
11
Note 5. Debt
Debt consisted of the following (in thousands):
Term loan facility at 2.88% and 3.41%, respectively, due 2003 to 2006
270,000
Revolving credit facility, due 2006
Blanco revolving credit facility at 3.27% and 3.71%, respectively, due 2004
55,000
AmeriSource receivables securitization financing due 2004
Bergen receivables securitization financing due 2005
Bergen 73/8% senior notes due 2003
150,419
Bergen 71/4% senior notes due 2005
99,803
99,758
81/8% senior notes due 2008
500,000
71/4% senior notes due 2012
PharMerica 83/8% senior subordinated notes due 2008
124,438
124,532
AmeriSource 5% convertible subordinated notes due 2007
Bergen 67/8% exchangeable subordinated debentures due 2011
8,425
Bergen 7.80% trust preferred securities due 2039
275,624
275,288
4,448
3,891
Total debt
2,061,738
1,817,313
Less current portion
Total, net of current portion
A description of the principal terms of the aforementioned debt is set forth in Note 5 of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002.
In November 2002, the Company issued $300 million of 71/4% senior notes due November 15, 2012 (the “71/4% Notes”). The 71/4% Notes are redeemable at the Company’s option at any time before maturity at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption and, under some circumstances, a redemption premium. Interest on the 71/4% Notes is payable semiannually in arrears, commencing May 15, 2003. The Company used the net proceeds of the 71/4% Notes to repay $15 million of the term loan in December 2002 and $150 million in aggregate principal of the Bergen 73/8% senior notes in January 2003. In connection with the issuance of the 71/4% Notes, the Company incurred approximately $5.5 million of costs which were deferred and are being amortized over the ten-year term of the notes.
Subsequent to March 31, 2003, the Company redeemed the PharMerica 83/8% senior subordinated notes due 2008 (the “83/8% Notes”) at a redemption price equal to 104.19% of the principal amount thereof, using the remaining proceeds from the issuance of the 71/4% Notes. The cost of the redemption premium of $5.2 million, less $1.0 million of the unamortized premium on the 83/8% Notes, will be reflected in the Company’s third quarter 2003 operating results.
The Blanco Facility, which originally was scheduled to expire in May 2003, has been extended to May 2004.
12
Note 6. Facility Consolidations and Employee Severance and Merger Costs
Facility Consolidations and Employee Severance
In connection with the Merger, the Company has developed integration plans to consolidate its distribution network and eliminate duplicate administrative functions, which are expected to result in synergies of approximately $150 million annually by the end of fiscal 2004. The Company’s plan is to have a distribution facility network consisting of 30 facilities in the next three to four years. This will be accomplished by building six new facilities, expanding seven facilities, and closing 27 facilities. During fiscal 2002, the Company closed seven distribution facilities and has closed additional facilities in fiscal 2003. In addition, one of the seven facility expansions has been completed as of March 31, 2003.
In September 2001, the Company announced plans to close seven distribution facilities in fiscal 2002, consisting of six former AmeriSource facilities and one former Bergen facility. A charge of $10.9 million was recognized in the fourth quarter of fiscal 2001 related to the AmeriSource facilities, and included $6.2 million of severance for approximately 260 warehouse and administrative personnel to be terminated, $2.3 million in lease and contract cancellations, and $2.4 million for the write-down of assets related to the facilities to be closed. Approximately $0.2 million of costs related to the Bergen facility were included in the purchase price allocation.
During the fiscal year ended September 30, 2002, the Company announced further integration initiatives relating to the closure of Bergen’s repackaging facility and the elimination of certain Bergen administrative functions, including the closure of a related office facility. The cost of these initiatives of approximately $19.2 million, which included $15.8 million of severance for approximately 310 employees to be terminated, $1.6 million for lease cancellation costs, and $1.8 million for the write-down of assets related to the facilities to be closed, resulted in additional goodwill being recorded during fiscal 2002.
Since September 2002, the Company has announced plans to close four facilities in fiscal 2003. As of March 31, 2003, three of these four facilities have been closed. The Company expects to announce the closure of two additional facilities during the second-half of its 2003 fiscal year. During the six months ended March 31, 2003, the Company recorded additional severance costs relating to the elimination of certain Bergen administrative functions. Employee severance and lease cancellation costs related to the fiscal 2003 facility closures and the elimination of certain Bergen administrative functions have been recognized in accordance with the new provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Employee severance costs are generally expensed during the employee service period and lease cancellation and other costs are generally expensed when the Company becomes contractually bound to pay such costs. A charge of $4.7 million and $0.4 million was recognized in the six months ended March 31, 2003 for employee severance and for lease cancellation costs, respectively. Additional amounts for integration initiatives will be recognized in subsequent periods as facilities to be consolidated are identified and specific plans are approved and announced. The Company terminated 409 employees in the six months ended March 31, 2003 related to the aforementioned integration plans.
During the six months ended March 31, 2003, severance accruals of $1.8 million recorded in September 2001 were reversed into income because certain employees who were expected to be severed either voluntarily left the Company or were retained in other positions within the Company.
13
The following table displays the activity in accrued expenses and other from September 30, 2002 to March 31, 2003 related to the integration plans discussed above (in thousands):
Employee Severance
Lease Cancellation Costs and Other
Balance as of September 30, 2002
8,156
955
9,111
Expense recorded during the period
4,746
378
5,124
Payments made during period
(5,839
(1,111
(6,950
Employee severance reduction
(1,754
Balance as of March 31, 2003
5,309
222
5,531
Merger Costs
During the quarter and six months ended March 31, 2002, the Company expensed approximately $4.7 million and $12.2 million of merger costs, respectively, primarily related to integrating the operations of AmeriSource and Bergen. Such costs were comprised primarily of consulting fees, which amounted to $3.4 million in the quarter and $9.4 million in the six months. Effective October 1, 2002, the Company converted its merger integration office to an operations management office. Accordingly, the costs of the operations management office are included within distribution, selling and administrative expenses in the consolidated statements of operations.
Note 7. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust, environmental, product liability, regulatory and other matters. Large and sometimes unspecified damages or penalties may be sought from the Company in some matters, and some matters may require years for the Company to resolve. The Company establishes reserves from time to time based on its periodic assessment of the potential outcomes of pending matters. There can be no assurance that an adverse resolution of one or more matters during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations for that period. However, on the basis of information furnished by counsel and others and taking into consideration the reserves established for pending matters, the Company does not believe that the resolution of currently pending matters (including those matters specifically described below), individually or in the aggregate, will have a material adverse effect on the Company’s financial condition.
14
Environmental Remediation
The Company is subject to contingencies pursuant to environmental laws and regulations at a former distribution center. The Company has an accrued liability of $0.9 million as reflected in other liabilities in the accompanying consolidated balance sheet at March 31, 2003. Such liability represents the current estimate of the cost to remediate the site. However, changes in regulations or technology or new information concerning the site could affect the actual liability.
Contract Dispute
In January 2002, BBDC was served with a complaint filed in the United States District Court for the District of New Jersey by one of its manufacturer vendors, Bracco Diagnostics Inc. The complaint, which includes claims for fraud, breach of New Jersey’s Consumer Fraud Act, breach of contract and unjust enrichment, involves disputes relating to chargebacks and credits. The Court granted the Company’s motion to dismiss the fraud and New Jersey Consumer Fraud Act counts. The Company has answered the remaining counts of the complaint, the parties have served each other with discovery requests and discovery is ongoing.
Note 8. Business Segment Information
The Company is organized based upon the products and services it provides to its customers. The Company’s operations have been aggregated into two reportable segments: Pharmaceutical Distribution and PharMerica.
The Pharmaceutical Distribution segment includes AmerisourceBergen Drug Company (“ABDC”) and AmerisourceBergen Specialty Group (“ABSG”). ABDC includes the full-service pharmaceutical distribution facilities and other healthcare related businesses. ABDC sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products and services to hospitals, alternate care and mail order facilities, and independent and chain retail pharmacies. ABDC also provides promotional, packaging, inventory management, pharmacy automation and information services to its customers and healthcare product manufacturers. ABSG sells specialty pharmaceutical products and services to physicians, clinics and other providers primarily in the oncology, nephrology, plasma and vaccines sectors. ABSG also provides third party logistics and reimbursement consulting services to healthcare product manufacturers.
The PharMerica segment consists solely of the Company’s PharMerica operations. PharMerica provides institutional pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities, and residential living communities. PharMerica also provides mail order pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors.
All of the Company’s operations are located in the United States, except for one ABDC subsidiary, which operates in Puerto Rico.
15
The following tables present segment information for the three and six months ended March 31 (in thousands):
Revenue
11,009,646
9,750,903
21,909,216
19,272,979
397,095
359,761
799,937
715,176
Intersegment eliminations
(192,782
(192,055
(388,289
(383,270
Management evaluates segment performance based on revenues excluding bulk deliveries to customer warehouses. Intersegment eliminations represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. ABDC is the principal supplier of pharmaceuticals to PharMerica.
Operating Income
Three months endedMarch 31,
Six months endedMarch 31,
216,456
175,968
379,391
315,452
24,101
19,547
47,640
38,857
Facility consolidations and employee severance and merger costs (“special items”)
(4,005
(4,741
(2,624
(12,238
Total operating income
Segment operating income is evaluated before equity in losses of affiliates, interest expense and special items. All corporate office expenses are allocated to the two reportable segments.
16
Note 9. Selected Consolidating Financial Statements of Parent, Guarantors and Non-Guarantors
The Company’s 81/8% Notes, 7¼% Notes and 5% Notes each are fully and unconditionally guaranteed on a joint and several basis by certain of the Company’s subsidiaries (the subsidiaries of the Company which are guarantors of either the 81/8% Notes, 7¼% Notes and/or the 5% Notes being referred to collectively as the “Guarantor Subsidiaries”). The Company’s 81/8% Notes, 7¼% Notes and 5% Notes each are guaranteed by Guarantor Subsidiaries whose total assets, stockholders’ equity, revenues, earnings and cash flows from operating activities, in each case, exceeded a majority of the consolidated total of such items as of or for the periods reported. The only subsidiaries of the Company which are not guarantors of either the 81/8% Notes, the 7¼% Notes and/or the 5% Notes (the “Non-Guarantor Subsidiaries”) are: (a) ARFC Securitization Facility and Blue Hill Securitization Program, the receivables securitization special purpose entities; (b) Capital I Trust, the issuer of the Trust Preferred Securities; and (c) certain operating subsidiaries, all of which, collectively, are minor. The following tables present condensed consolidating financial statements including AmerisourceBergen Corporation (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of March 31, 2003 and September 30, 2002, statements of operations for the three and six months ended March 31, 2003 and 2002, and statements of cash flows for the six months ended March 31, 2003 and 2002.
SUMMARY CONSOLIDATING BALANCE SHEETS:
Parent
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Consolidated Total
1,479
149,520
74,957
Accounts receivable, net
229,105
1,934,557
6,847,252
51,573
98
15,818
295
1,580
7,241,695
2,061,382
285,543
822
2,307,637
3,137
28,394
391,919
310,809
(309,279
421,843
Intercompany investments and advances
4,690,568
667,253
(1,264,985
(4,092,836
Total assets
4,720,542
10,894,047
1,111,165
(4,402,115
5,756,780
26,078
13,029
663,684
4,988
681,701
60,000
948
(127,331
190,148
(54,302
6,611,560
31,066
1,434,000
511,790
355,000
(300,000
Stockholders’ equity
3,340,844
3,728,126
725,099
(4,102,115
Total liabilities and stockholders’ equity
17
416,002
172,058
75,280
3,315
243,587
1,975,254
5,387,288
50,590
218
25,082
963
419,535
5,828,015
2,102,087
281,682
896
2,202,023
3,136
26,082
348,657
310,791
(309,892
375,638
3,568,716
1,684,081
(1,439,566
(3,813,231
4,014,333
10,344,458
977,344
(4,123,123
5,350,189
18,771
(1,123
10,819
626,373
1,714
638,906
819
(62,360
94,315
8,459
6,071,696
20,485
1,040,000
661,494
40,038
625
2,965,874
3,571,230
601,234
(3,822,000
SUMMARY CONSOLIDATING STATEMENTS OF OPERATIONS:
Three months ended March 31, 2003
Non-Guarantor
Subsidiaries
11,157,653
56,306
948,576
12,106,229
56,312
11,530,775
50,577
575,454
5,735
329,704
(6,141
15,180
84
1,787
18
224,778
11,774
Interest (income) expense
(31,043
61,022
8,420
Income before taxes and equity in earnings of subsidiaries
31,043
158,023
3,354
12,264
62,416
1,326
Equity in earnings of subsidiaries
97,635
(97,635
95,607
2,028
Three months ended March 31, 2002
Non-GuarantorSubsidiaries
9,856,489
62,120
1,025,654
10,882,143
62,124
10,374,842
54,932
507,301
7,192
319,228
(14,652
13,752
99
169,029
21,745
Equity in income of affiliates and other
27,630
11,122
141,753
10,623
56,490
4,012
(91,874
85,263
6,611
Six months ended March 31, 2003
22,204,193
116,671
2,276,193
24,480,386
116,688
23,385,485
108,975
1,094,901
7,713
661,212
(19,967
30,900
167
3,235
396,930
27,477
(48,169
15,761
48,169
285,822
11,716
19,029
112,898
4,627
180,013
(180,013
172,924
7,089
19
Six months ended March 31, 2002
Consolidated
19,483,617
121,268
2,408,147
21,891,764
121,283
20,918,117
109,004
973,647
12,279
630,043
(27,875
27,929
169
302,086
39,985
49,645
26,100
251,064
13,885
99,797
5,395
(159,757
151,267
8,490
SUMMARY CONSOLIDATING STATEMENTS OF CASH FLOWS:
Guarantor
Adjustments to reconcile net income to net cash (used in) provided by operating activities
(236,185
(818,738
50,486
(824,424
Net cash (used in) provided by operating activities
(27,032
(645,814
57,575
(35,069
(93
Net cash used in investing activities
(67,700
Net borrowings under revolving credit and securitization facilities
(30,000
(150,066
(5,469
557
Cash dividends on Common Stock
(782,680
840,485
(57,805
Net cash (used in) provided by financing activities
(387,491
690,976
(Decrease) increase in cash and cash equivalents
(414,523
(22,538
(323
Cash and cash equivalents at end of period
20
(192,913
122,403
(23,550
65,697
(33,156
273,670
(15,060
(20,965
(34
Purchase of additional equity interests in business
(9,408
(4,471
(28,855
(4,505
(1,083
(35
171,230
(245,856
74,626
Net cash provided by (used in) financing activities
206,562
(270,058
37,591
Increase (decrease) in cash and cash equivalents
173,406
(25,243
18,026
61
197,097
100,468
173,467
171,854
118,494
21
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein:
The Company
AmerisourceBergen Corporation (the “Company”) is a leading national wholesale distributor of pharmaceutical products and related healthcare services and solutions with over $40 billion in annualized operating revenue. The Company was formed in connection with the merger of AmeriSource Health Corporation (“AmeriSource”) and Bergen Brunswig Corporation (“Bergen”), which was consummated on August 29, 2001 (the “Merger”).
The Company is organized based upon the products and services it provides to its customers. The Company’s operating segments have been aggregated into two reportable segments: Pharmaceutical Distribution and PharMerica.
The Pharmaceutical Distribution segment includes AmerisourceBergen Drug Company (“ABDC”) and AmerisourceBergen Specialty Group (“ABSG”). ABDC includes the full-service pharmaceutical distribution facilities and other healthcare related businesses. ABDC sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products and services to hospitals, alternate care and mail order facilities and independent and chain retail pharmacies. ABDC also provides promotional, packaging, inventory management, pharmacy automation and information services to its customers and healthcare product manufacturers. ABSG sells specialty pharmaceutical products and services to physicians, clinics and other providers primarily in the oncology, nephrology, plasma and vaccines sectors. ABSG also provides third party logistics and reimbursement consulting services to healthcare product manufacturers.
The PharMerica segment consists solely of the Company’s PharMerica operations. PharMerica provides institutional pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities, and residential living communities. It also provides mail order and on-line pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
AmerisourceBergen Corporation
Summary Segment Information
Operating RevenueThree Months Ended March 31,
(dollars in thousands)
Change
%
Operating IncomeThree Months Ended March 31,
23
Facility consolidations and employee severance and Merger costs (“special items”)
24
Percentages of operating revenue:
4.11
4.04
Operating expenses
2.15
2.23
1.97
1.80
32.35
33.52
26.28
28.09
6.07
5.43
5.18
5.19
3.07
3.26
2.11
1.92
Operating RevenueSix Months Ended March 31,
(1
Operating IncomeSix Months Ended March 31,
79
3.85
3.87
2.12
1.73
1.64
32.26
33.57
26.31
28.14
5.96
4.94
5.03
3.04
3.28
1.90
1.74
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation (Continued)
Consolidated Results
Operating revenue, which excludes bulk deliveries, for the quarter ended March 31, 2003 increased 13% to $11.2 billion from $9.9 billion in the prior-year quarter. For the six months ended March 31, 2003, operating revenue increased 14% to $22.3 billion compared to $19.6 billion in the prior-year period. These increases are primarily due to increased operating revenue in the Pharmaceutical Distribution segment.
The Company reports as revenue bulk deliveries to customer warehouses, whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products. Bulk deliveries for the quarter ended March 31, 2003 decreased 8% to $0.9 billion from $1.0 billion in the prior-year quarter. For the six months ended March 31, 2003, bulk deliveries decreased 5% to $2.3 billion compared to $2.4 billion in the prior-year period. Due to the insignificant service fees generated from these bulk deliveries, fluctuations in volume have no significant impact on operating margins. However, revenue from bulk deliveries has a positive impact to the Company’s cash flows due to favorable timing between the customer payments to the Company and the payments by the Company to its suppliers.
Gross profit of $581.2 million in the quarter ended March 31, 2003 reflects an increase of 13% from $514.5 million in the prior-year quarter. As a percentage of operating revenue, gross profit in the quarter ended March 31, 2003 was 5.18%, as compared to the prior-year percentage of 5.19%. The decrease in gross profit percentage in comparison with the prior-year quarter reflects a decrease in the PharMerica segment gross profit percentage offset, in part, by an increase in the Pharmaceutical Distribution segment gross profit percentage. Gross profit of $1,102.6 million in the six months ended March 31, 2003 reflects an increase of 12% from $985.9 million in the prior-year period. As a percentage of operating revenue, gross profit in the six months ended March 31, 2003 was 4.94% as compared to 5.03% in the prior-year period. The decrease in gross profit percentage in comparison with the prior-year period reflects declines in both the Pharmaceutical Distribution and PharMerica segments primarily due to changes in customer mix and competitive selling price pressures.
Distribution, selling and administrative expenses, depreciation and amortization (“DSAD&A”) of $340.6 million in the quarter ended March 31, 2003 reflects an increase of 7% compared to $319.0 million in the prior-year quarter. As a percentage of operating revenue, DSAD&A in the quarter and six months ended March 31, 2003 was 3.04% and 3.03%, respectively. As a percentage of operating revenue, DSAD&A in the quarter and six months ended March 31, 2002 was 3.22%. The decreases in the DSAD&A percentages from the prior-year ratios reflect improvements in both the Pharmaceutical Distribution and PharMerica segments due to customer mix changes, operational efficiencies and continued benefits from the merger integration effort.
In September 2001, the Company announced plans to close seven distribution facilities in fiscal 2002, consisting of six former AmeriSource facilities and one former Bergen facility. A charge of $10.9 million was recognized in the fourth quarter of fiscal 2001 related to the AmeriSource facilities, and included $6.2 million of severance for approximately 260 warehouse and administrative personnel to be terminated, $2.3 million in lease and contract cancellations, and $2.4 million for the write-down of assets related to the facilities to be closed. Approximately $0.2 million of costs related to the Bergen facility were included in the Merger purchase price allocation.
25
Since September 2002, the Company has announced plans to close four facilities in fiscal 2003. As of March 31, 2003, three of these four facilities have been closed. The Company expects to announce the closure of two additional facilities during the second-half of its 2003 fiscal year. During the six months ended March 31, 2003, the Company recorded additional severance costs relating to the elimination of certain Bergen administrative functions. Employee severance and lease cancellation costs related to the fiscal 2003 facility closures and the elimination of certain Bergen administrative functions have been recognized in accordance with the new provisions of Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which the Company elected to adopt early in September 2002. Employee severance costs are generally expensed during the employee service period and lease cancellation and other costs are generally expensed when the Company becomes contractually bound to pay such costs. A charge of $4.7 million and $0.4 million was recognized in the six months ended March 31, 2003 for employee severance and for lease cancellation costs, respectively. Additional amounts for integration initiatives will be recognized in subsequent periods as facilities to be consolidated are identified and specific plans are approved and announced.
The Company paid a total of $7.0 million for employee severance and lease and contract cancellation costs and terminated 409 employees in the first six months of fiscal 2003 related to the aforementioned integration plans.
During the three and six months ended March 31, 2002, the Company expensed approximately $4.7 million and $12.2 million of merger costs, respectively, primarily related to integrating the operations of AmeriSource and Bergen. Such costs were comprised primarily of consulting fees, which amounted to $3.4 million in the quarter and $9.4 million in the six months. Effective October 1, 2002, the Company converted its merger integration office to an operations management office. Accordingly, the costs of the operations management office are included within distribution, selling and administrative expenses in the consolidated statements of operations.
Operating income of $236.6 million for the quarter ended March 31, 2003 reflects an increase of 24% from $190.8 million in the prior-year quarter. Special items reduced the Company’s operating income by $4.0 million in the quarter ended March 31, 2003 and by $4.7 million in the prior-year quarter. The Company’s operating income as a percentage of operating revenue was 2.11% in the quarter ended March 31, 2003 in comparison to 1.92% in the prior-year quarter. Operating income of $424.4 million for the six months ended March 31, 2003 reflects an increase of 24% from $342.1 million in the prior-year period. Special items reduced the Company’s operating income by $2.6 million in the six months ended March 31, 2003 and by $12.2 million in the prior-year period. The Company’s operating income as a percentage of operating revenue was 1.90% in the six months ended March 31, 2003 in comparison to 1.74% in the prior-year period. These improvements were primarily due to lower special items and the aforementioned DSAD&A expense percentage reduction.
During the quarter and six months ended March 31, 2003, the Company recorded a $5.5 million decline in the fair value of its equity investment in a technology company because the decline was judged to be other-than-temporary.
Interest expense decreased 1% in the quarter ended March 31, 2003 to $38.4 million compared to $38.8 million in the prior-year quarter. Average borrowings, net of invested cash, under the Company’s debt facilities during the quarter ended March 31, 2003 were $2.4 billion as compared to average borrowings, net of invested cash, of $2.6 billion in the prior-year quarter. Average borrowing rates under the Company’s debt facilities increased to 5.65% in the current quarter from 5.42% in the prior-year quarter. Interest expense decreased 4% in the six months ended March 31, 2003 to $72.8 million compared to $75.7 million in the prior-year period. Average borrowings, net of invested cash, under the Company’s debt facilities during the six months ended March 31, 2003 were $2.1 billion as compared to average borrowings, net of invested cash, of $2.4 billion in the prior-year period. Average borrowing rates under the Company’s debt facilities increased to 5.98% in the six months ended March 31, 2003 from 5.69% in the prior-year period. The reductions in average borrowings, net of invested cash, were achieved due to improvements in the management of the Company’s working capital. The increases in average borrowing rates resulted from higher percentages of fixed-rate debt outstanding to total debt outstanding in the current-year periods in comparison to the respective prior-year periods.
26
Income tax expense of $76.0 million and $136.6 million in the quarter and six months ended March 31, 2003 reflect an effective tax rate of 39.5% versus 39.7% in the prior-year quarter and six-month period. The tax provision for the quarter and six months ended March 31, 2003 was computed based on an estimate of the annual effective rate.
Net income of $116.4 million for the quarter ended March 31, 2003 reflects an increase of 27% from $91.9 million in the prior-year quarter. Diluted earnings per share of $1.03 in the quarter ended March 31, 2003 reflects a 23% increase as compared to $0.84 per share in the prior-year quarter. Special items had the effect of decreasing net income by $2.4 million and $2.9 million for the quarters ended March 31, 2003 and 2002, respectively. Special items had the effect of reducing diluted earnings per share by $0.02 and $0.03 for the quarters ended March 31, 2003 and 2002, respectively. Net income of $209.2 million for the six months ended March 31, 2003 reflects an increase of 31% from $159.8 million in the prior-year period. Diluted earnings per share of $1.87 for the six months ended March 31, 2003 reflects a 26% increase as compared to $1.48 per share in the prior-year period. Special items had the effect of decreasing net income by $1.6 million and $7.4 million for the six months ended March 31, 2003 and 2002, respectively. Special items had the effect of reducing diluted earnings per share by $0.01 and $0.06 for the six months ended March 31, 2003 and 2002, respectively. The growth in earnings per share was smaller than the growth in net income for the quarter and six months ended March 31, 2003 due to the issuance of Company common stock in connection with the acquisitions described in Note 2 and the exercise of stock options.
Segment Information
Pharmaceutical Distribution Segment
Pharmaceutical Distribution operating revenue of $11.0 billion for the quarter ended March 31, 2003 reflects an increase of 13% from $9.8 billion in the prior-year quarter. Operating revenue of $21.9 billion for the six months ended March 31, 2003 reflects an increase of 14% from $19.3 billion in the prior-year period. The Company’s recent acquisitions contributed less than 0.5% of the segment’s operating revenue growth for the quarter and six months ended March 31, 2003. During the quarter ended March 31, 2003, 55% of operating revenue was from sales to institutional customers and 45% was from retail customers; this compares to a customer mix in the prior-year quarter of 53% institutional and 47% retail. In comparison with the prior-year results, sales to institutional customers increased 18% for the quarter primarily due to higher revenues from mail order customers and the ABSG specialty pharmaceutical business. Sales to retail customers increased 7% over the prior-year quarter, principally due to higher revenues from drug store chains, including the pharmacy departments of supermarkets. The growth rate of sales to retail customers was less than the first quarter of fiscal 2003 growth rate and is consistent with market trends and the below market growth of certain of the Company’s large regional chain customers. The Company expects the Pharmaceutical Distribution operating revenue growth rate will decline from the reported 14% during the first six months of fiscal 2003 to approximately 11% – 12% for the second-half of fiscal 2003. This anticipated decline is attributable to the impact of net customer gains and losses and overall lower industry growth rates primarily due to the impact of brand name drug patent expirations and the slowdown in the introduction of significant new drugs. This segment’s growth largely reflects national industry economic conditions, including increases in prescription drug usage and higher pharmaceutical prices. Future operating revenue growth may continue to be impacted by industry growth rates, competition within the industry and customer consolidation. Industry growth rates, as estimated by IMS Healthcare, Inc., are expected to be between 11% and 14% over the next four years.
Pharmaceutical Distribution gross profit of $452.7 million in the quarter ended March 31, 2003 reflects an increase of 15% from $393.9 million in the prior-year quarter. As a percentage of operating revenue, gross profit in the second quarter of fiscal 2003 was 4.11%, as compared to the prior-year percentage of 4.04%. This gross profit improvement was primarily due to the positive 12 basis points margin impact resulting from the recent Company acquisitions, offset in part by the change in customer mix to a higher percentage of large institutional, mail order and chain accounts, and the continuing competitive pricing environment. Pharmaceutical Distribution gross profit of $844.5 million in the six months ended March 31, 2003 reflects an increase of 13% from $745.9 million in the prior-year period. As a percentage of operating revenue, gross profit for the six months ended March 31, 2003 was 3.85%, as compared to the prior-year percentage of 3.87%. The gross profit decline reflects the net impact of a number of factors, including the change in customer mix to a higher percentage of large institutional, mail order and chain accounts, and the continuing competitive pricing environment, offset in part by the positive 8 basis points margin impact resulting from the recent Company acquisitions and higher buy-side margins than in the prior year. Downward pressures on sell-side gross profit margin are expected to continue and there can be no assurance that the inclusion of additional businesses
27
that generate higher margins and that increases in the buy-side component of the gross margin, including manufacturer price increases and negotiated deals, will be available in the future to fully or partially offset the anticipated decline. The Company’s cost of goods sold for interim periods includes a last-in, first-out (“LIFO”) provision that is based on the Company’s estimated annual LIFO provision. The annual LIFO provision is affected by changes in inventory quantities, product mix, and manufacturer pricing practices, which may be impacted by market and other external influences.
Pharmaceutical Distribution operating expenses of $236.3 million in the quarter ended March 31, 2003 reflect an increase of 8% from $217.9 million in the prior-year quarter. As a percentage of operating revenue, operating expenses in the second quarter of fiscal 2003 were 2.15%, as compared to the prior-year percentage of 2.23%. Pharmaceutical Distribution operating expenses of $465.2 million in the six months ended March 31, 2003 reflect an increase of 8% from $430.4 million in the prior-year period. As a percentage of operating revenue, operating expenses in the six months ended March 31, 2003 were 2.12%, as compared to the prior-year percentage of 2.23%. The decreases in the expense percentages reflect the changing customer mix described above, efficiencies of scale, the elimination of redundant costs through the merger integration process, the continued emphasis on productivity throughout the Company’s distribution network and a reduction of bad debt expense, offset, in part, by higher expense ratios associated with the Company’s recent acquisitions.
Pharmaceutical Distribution operating income of $216.5 million in the quarter ended March 31, 2003 reflects an increase of 23% from $176.0 million in the prior-year quarter. As a percentage of operating revenue, operating income in the second quarter of fiscal 2003 was 1.97%, as compared to the prior-year percentage of 1.80%. Pharmaceutical Distribution operating income of $379.4 million in the six months ended March 31, 2003 reflects an increase of 20% from $315.5 million in the prior-year period. As a percentage of operating revenue, operating income in the six months ended March 31, 2003 was 1.73%, as compared to the prior-year percentage of 1.64%. The improvements over the prior-year percentages were due to a reduction in the operating expense ratios. The reductions in the operating expense ratios were partially due to the Company’s ability to capture synergy cost savings from the Merger. While management historically has been able to lower expense ratios and expects to continue to do so, there can be no assurance that reductions will occur in the future, or that expense ratio reductions will exceed possible declines in gross margins. Additionally, there can be no assurance that merger integration efforts will proceed as planned and result in the desired synergies.
PharMerica Segment
PharMerica’s operating revenue increased 10% for the quarter ended March 31, 2003 to $397.1 million compared to $359.8 million in the prior-year quarter. Operating revenue increased 12% for the six months ended March 31, 2003 to $799.9 million compared to $715.2 million in the prior-year period. These increases are principally attributable to growth in PharMerica’s workers’ compensation business, which has grown at a faster rate than its long-term care business.
PharMerica’s gross profit of $128.4 million for the quarter ended March 31, 2003 increased 7% from gross profit of $120.6 million in the prior-year quarter. PharMerica’s gross profit of $258.1 million for the six months ended March 31, 2003 increased 7% from gross profit of $240.1 million in the prior-year period. PharMerica’s gross profit margin declined to 32.35% for the quarter ended March 31, 2003 from 33.52% in the prior-year quarter, and to 32.26% for the six months ended March 31, 2003 from 33.57% in the prior-year period. These decreases are primarily the result of a change in the sales mix, with a greater proportion of PharMerica’s current year revenues coming from its workers’ compensation business, which has lower gross profit margins and lower operating expenses than its long-term care business. In addition, industry competitive pressures continue to adversely affect gross profit margins.
PharMerica’s operating expenses of $104.3 million for the quarter ended March 31, 2003 increased 3% from operating expenses of $101.1 million in the prior-year quarter. PharMerica’s operating expenses of $210.4 million for the six months ended March 31, 2003 increased 5% from operating expenses of $201.2 million in the prior-year period. As a percentage of operating revenue, operating expenses were reduced to 26.28% in the quarter ended March 31, 2003 from 28.09% in the prior-year quarter, and to 26.31% in the six months ended March 31, 2003 from 28.14% in the prior-year period. The percentage reductions were due to several factors, including the aforementioned shift in customer mix towards the workers’ compensation business, continued improvements in operating practices, and a reduction in bad debt expense as a percentage of operating revenue.
28
PharMerica’s operating income of $24.1 million for the quarter ended March 31, 2003 increased 23% compared to operating income of $19.5 million in the prior-year quarter. As a percentage of operating revenue, operating income in the second quarter of fiscal 2003 was 6.07%, as compared to the prior-year percentage of 5.43%. PharMerica’s operating income of $47.6 million for the six months ended March 31, 2003 increased 23% compared to operating income of $38.9 million in the prior-year period. As a percentage of operating revenue, operating income for the six months ended March 31, 2003 was 5.96%, as compared to the prior-year percentage of 5.43%. The improvements were due to the aforementioned reductions in the operating expense ratios, which were greater than the reductions in gross profit margin.
Intersegment Eliminations
These amounts represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. AmerisourceBergen Drug Company is the principal supplier of pharmaceuticals to PharMerica.
Liquidity and Capital Resources
The following table illustrates the Company’s debt structure at March 31, 2003, including availability under revolving credit facilities and receivables securitization facilities (in thousands):
Outstanding Balance
Additional Availability
Fixed-Rate Debt:
Total fixed-rate debt
1,612,738
Variable-Rate Debt:
Term loan facility due 2003 to 2006
Blanco revolving credit facility due 2004
Revolving credit facility due 2006
813,615
400,000
700,000
Total variable-rate debt
449,000
1,913,615
Total debt, including current portion
The Company’s working capital usage fluctuates widely during the year due to seasonal inventory buying requirements and buy-side purchasing opportunities. During the second quarter of fiscal 2003, the Company’s highest utilization was 44% of the $2.1 billion of aggregate availability under its revolving credit facility and receivables securitization facilities, which are described below.
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In November 2002, the Company issued $300 million of 71/4% senior notes due November 15, 2012 (the “71/4% Notes”). The 71/4% Notes are redeemable at the Company’s option at any time before maturity at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption and, under some circumstances, a redemption premium. Interest on the 71/4% Notes is payable semiannually in arrears, commencing May 15, 2003. The 71/4% Notes rank junior to the Senior Credit Agreement (defined below) and equal to the Company’s other senior unsecured notes. The Company used the net proceeds of the 71/4% Notes to repay $15 million of the Term Facility (defined below) in December 2002 and $150 million in aggregate principal of the Bergen 73/8% senior notes in January 2003. Additionally, the Company redeemed the PharMerica 83/8% senior subordinated notes due 2008, at a redemption price equal to 104.19% of the principal amount thereof, in April 2003. The cost of the redemption premium will be reflected in the Company’s third quarter 2003 operating results. In connection with the issuance of the 71/4% Notes, the Company incurred approximately $5.5 million of costs which were deferred and are being amortized over the ten-year term of the notes.
The Senior Credit Agreement consists of a $1.0 billion revolving credit facility (the “Revolving Facility”) and a $300 million term loan facility (the “Term Facility”), both maturing in August 2006. The Term Facility has scheduled maturities on a quarterly basis that began on December 31, 2002, totaling $60 million in each of fiscal 2003 and 2004, and $80 million and $100 million in fiscal 2005 and 2006, respectively. The first two scheduled term loan payments were made in fiscal 2003. There was $124.0 million outstanding under the Revolving Facility at March 31, 2003. Interest on borrowings under the Senior Credit Agreement accrues at specified rates based on the Company’s debt ratings. Such rates range from 1.0% to 2.5% over LIBOR or 0% to 1.5% over prime. At March 31, 2003, the rate was 1.5% over LIBOR or ..50% over prime. In April 2003, the Company’s debt rating was raised by one of the rating agencies and in accordance with the terms of the Senior Credit Agreement, future interest on borrowings will accrue at lower rates, either 1.25% over LIBOR or .25% over prime. Availability under the Revolving Facility is reduced by the amount of outstanding letters of credit ($62.4 million at March 31, 2003). The Company pays quarterly commitment fees to maintain the availability under the Revolving Facility at specified rates based on the Company’s debt ratings ranging from .25% to .50% of the unused availability. At March 31, 2003, the rate was .375%. In April 2003, the rate was revised to .300% resulting from the Company’s improved debt rating. The Senior Credit Agreement contains restrictions on, among other things, additional indebtedness, distributions and dividends to stockholders, investments and capital expenditures. Additional covenants require compliance with financial tests, including leverage and fixed charge coverage ratios, and maintenance of minimum tangible net worth. The Company can choose to repay or reduce its commitments under the Senior Credit Agreement at any time. Substantially all of the Company’s assets, except for trade receivables sold into the AmeriSource and Bergen receivables securitization facilities (as described below), collateralize the Senior Credit Agreement.
At March 31, 2003, there were no borrowings under the AmeriSource $400 million receivables securitization facility. The facility has an expiration date of May 2004 and interest rates are based on prevailing market rates for short-term commercial paper plus a program fee of 38.5 basis points. In order to borrow available amounts under this securitization facility, a back-up 364-day liquidity facility is required to be in place. The current liquidity facility, which originally was scheduled to expire in May 2003, has been extended to June 30, 2003. At March 31, 2003, there were no borrowings under the $450 million Bergen receivables securitization facility, which expires in December 2005, and interest rates are based on prevailing market rates for short-term commercial paper plus a program fee of 75 basis points. In December 2002, the Company obtained an increase to its availability under the Bergen receivables securitization facility up to $700 million through December 2003 to fund discretionary inventory buying opportunities. In order to borrow available amounts in excess of $450 million under the Bergen receivables securitization facility, a back-up 364-day liquidity facility is required to be in place. The current liquidity facility expires in December 2003. The Bergen receivables securitization facility was previously subject to termination in the event of a material adverse effect, among other things, on the financial condition, business, operations or prospects of AmerisourceBergen. Subsequent to March 31, 2003, the receivables securitization facility was amended and is no longer subject to termination in such event. The receivables securitization facilities represent financing vehicles utilized by the Company because of the availability of attractive interest rates relative to other financing sources. The Company securitizes its trade accounts and notes receivable, which are generally non-interest bearing, in transactions that are accounted for as borrowings under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
The Company’s most significant market risk is the effect of changing interest rates. The Company manages this risk by using a combination of fixed-rate and variable-rate debt. At March 31, 2003, the Company had approximately $1.6 billion of fixed-rate debt with a weighted average interest rate of 7.3% and $449.0 million of variable-rate debt with a weighted average interest rate of 3.5%. The amount of variable-rate debt fluctuates during the year based on the Company’s working capital requirements.
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The Company periodically evaluates various financial instruments that could mitigate a portion of its exposure to variable interest rates. However, there are no assurances that such instruments will be available on terms acceptable to the Company. There were no such financial instruments in effect at March 31, 2003. For every $100 million of unhedged variable-rate debt outstanding, a 35 basis-point increase in interest rates (one-tenth of the average variable rate at March 31, 2003) would increase the Company’s annual interest expense by $0.35 million.
The Company’s operating results have generated sufficient cash flow which, together with borrowings under its debt agreements and credit terms from suppliers, have provided sufficient capital resources to finance working capital and cash operating requirements, fund capital expenditures, and fund the payment of interest on outstanding debt. The Company’s primary ongoing cash requirements will be to finance working capital, fund the payment of interest on indebtedness, finance Merger integration initiatives and fund capital expenditures and routine growth and expansion through new business opportunities. Future cash flows from operations and borrowings are expected to be sufficient to fund the Company’s ongoing cash requirements.
Following is a summary of the Company’s contractual obligations for future principal payments on its debt, minimum rental payments on its noncancelable operating leases and minimum payments on its other commitments at March 31, 2003 (in thousands):
Payments Due by Period
Within 1 year
1-3years
4-5years
After5 years
2,085,357
184,373
316,424
475,424
1,109,136
Operating Leases
165,521
49,411
64,918
29,464
21,728
Other Commitments
45,076
2,295,954
278,860
381,342
504,888
1,130,864
The debt amounts in the above table differ from the related carrying amounts on the consolidated balance sheet due to the purchase accounting adjustments recorded in order to reflect Bergen’s obligations at fair value on the effective date of the Merger. These differences are being amortized over the terms of the respective obligations.
The Company redeemed the PharMerica 8 3/8% senior subordinated notes due 2008 (the “8 3/8% Notes”), at a redemption price equal to 104.19% of the principal amount thereof, in April 2003. As a result, the principal amount redeemed has been included in the “Within 1 year” column in the above repayment table. The cost of the redemption premium of $5.2 million, less $1.0 million of the unamortized premium on the 8 3/8 % Notes, will be reflected in the Company’s third quarter 2003 operating results.
Other Commitments include a future minimum payment of $24.7 million, as described in Note 2 to the Company’s consolidated financial statements, relating to the Company’s acquisition of a physician management consulting company. Subsequent to March 31, 2003, the Company paid $18.5 million of the total $24.7 million and the remainder will be paid subject to the satisfactory completion of an audit. The Company currently expects to pay between $70 million and $80 million during fiscal years 2003 through 2005, of which $40 million to $50 million is contingent upon the entity’s ability to achieve defined earnings targets, for its 100% equity ownership in the entity. Contingent payments relating to this acquisition, as well as any other contingent payments outstanding, are not reflected in the above table.
In connection with its merger integration plans, the Company intends to build six new distribution facilities and expand seven others over the next three to four years. The Company has begun to enter into various commitments with third parties relating to site selection, purchase of land, design and construction of the new facilities. As of March 31, 2003, the Company has entered into $20.4 million of commitments relating to the construction of the new facilities. The facility commitments are included in Other Commitments in the above table. In December 2002, the Company entered into a 15-year lease obligation totaling $17.4 million for one of the facilities; this obligation is reflected in Operating Leases in the above table.
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During the six months ended March 31, 2003, the Company’s operating activities used $615.3 million of cash. Cash used in operations during the six months ended March 31, 2003 was principally the result of a $1,452.4 million increase in merchandise inventories offset, in part, by a $450.2 million increase in accounts payable, accrued expenses and income taxes, net income of $209.2 million, non-cash items of $83.3 million and a decrease of $82.7 million in accounts receivable. The increase in merchandise inventories reflects inventory required to support the revenue increase and inventory purchased to take advantage of buy-side gross profit opportunities near the end of the second quarter including opportunities associated with manufacturer price increases and negotiated deals. In addition, there were fewer manufacturer price increases early in the quarter compared to the prior year, resulting in relatively higher inventory quantities on-hand at the end of the current quarter. The Company also held certain duplicative inventories on hand at the end of the second quarter resulting from distribution facilities that were consolidated during the period. Accounts receivable decreased by 3.6%, excluding changes in the allowance for doubtful accounts and customer additions due to acquired companies, despite the 14% increase in operating revenues. Days sales outstanding for the Pharmaceutical Distribution segment increased slightly to 16.7 days in the six months ended March 31, 2003 from 16.6 days in the prior-year period primarily due to the strong revenue growth of AmerisourceBergen Specialty Group, which generally has a higher receivable investment than the core distribution business. Days sales outstanding for the PharMerica segment improved to 40.2 days in the six months ended March 31, 2003 from 43.6 days in the prior-year period as a result of the continued improvements in centralized billing and collection practices. The $415.0 million increase in accounts payable was primarily due to the merchandise inventory increase. Operating cash uses during the six months ended March 31, 2003 included $64.5 million in interest payments and $81.3 million of income tax payments, net of refunds. The Company has historically used more of its cash in operations during the first six months of the fiscal year and generated more of its cash in operations during the last six months of the fiscal year. It is anticipated that cash to be provided by operations for the remaining six months of fiscal 2003 will more than offset the cash used in operations during the first six months of fiscal 2003.
During the six months ended March 31, 2002, the Company’s operating activities generated $225.5 million in cash. This positive operating cash flow was the result of $159.8 million of net income and $73.0 million of non-cash items affecting net income. There was a $7.3 million negative cash flow effect from changes in operating assets and liabilities during the six months, as an increase in merchandise inventories of $239.5 million was substantially offset by an increase in accounts payable, accrued expenses and income taxes of $173.7 million and a decrease in accounts receivable of $58.2 million. The increase in merchandise inventories reflects inventory required to support the strong revenue increase, as well as inventory purchased to take advantage of buy-side gross profit opportunities including manufacturer price increases and negotiated deals. Accounts receivable were lower at March 31, 2002 than at September 30, 2001, despite higher revenues in the second quarter of fiscal 2002 than in the fourth quarter of fiscal 2001, primarily due to lower days sales outstanding in both the Pharmaceutical Distribution and PharMerica segments as a result of continued emphasis on receivable management at the local level. Operating cash uses during the six months ended March 31, 2002 included $63.0 million in interest payments and $48.2 million in income tax payments, net of refunds.
Capital expenditures for the six months ended March 31, 2003 were $35.2 million and related principally to investments in warehouse improvements, information technology and warehouse automation. The Company estimates that it will spend approximately $80 million to $100 million for capital expenditures during fiscal 2003.
Capital expenditures for the six months ended March 31, 2002 were $21.0 million and related principally to investments in warehouse improvements, information technology and warehouse automation.
On January 17, 2003, the Company acquired US Bioservices Corporation (“US Bio”), a national pharmaceutical products and services provider focused on the management of high-cost complex therapies and reimbursement support for a total base purchase price of $159.7 million, which included the repayment of US Bio debt of $14.8 million. The Company issued 2,399,091 shares of Common Stock, as set forth in the acquisition agreement, with an aggregate market value of $131.0 million. The Company paid the remaining $27.6 million of the base purchase price in cash and incurred $1.1 million of transaction costs associated with this acquisition. On January 3, 2003, the Company acquired Bridge Medical, Inc. (“Bridge”), a leading provider of barcode-enabled point-of-care software designed to reduce medication errors, to enhance the Company’s offerings in the pharmaceutical supply chain for a total base purchase price of $28.3 million. The Company paid the base purchase price by issuing 401,780 shares of Common Stock with an aggregate market value of $22.9 million and the remaining base purchase price was paid with $4.8 million of cash. Additionally, the Company incurred $0.6 million of transaction costs associated with this
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acquisition. The Company also used cash of $1.4 million to purchase two other smaller companies related to the Pharmaceutical Distribution segment.
During the six months ended March 31, 2002, the Company used cash of $13.9 million to purchase additional equity interests in five businesses related to the Pharmaceutical Distribution segment.
During the six months ended March 31, 2003, the Company had net borrowings of $124.0 million on its revolving credit facility, principally to meet seasonal working capital requirements, as described above. In November 2002, the Company issued the aforementioned $300 million of 7 1/4 % Notes. A portion of the proceeds received from the issuance was used to repay $15.0 million of the Term Facility in December 2002 and $150.0 million in aggregate principal of the Bergen 7 3/8 % senior notes in January 2003, as described above. In March 2003, the Company repaid an additional $15.0 million of the Term Facility, as scheduled.
During the six months ended March 31, 2002, the Company made net repayments of $37.0 million on its receivables securitization facilities. The Company repaid debt of $23.1 million during the six-month period, principally consisting of $20.6 million for the retirement of Bergen’s 7% debentures pursuant to a tender offer which was required as a result of the Merger.
The Company has paid quarterly cash dividends of $0.025 per share on common stock since the first quarter of fiscal 2002. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Company’s board of directors and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of the standard was effective for fiscal years and interim periods beginning after December 15, 2002. The Company did not adopt the fair value method of accounting for stock-based compensation. As required, the Company adopted the disclosure provisions of this standard beginning with the quarter ended March 31, 2003.
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Forward-Looking Statements
Certain of the statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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. The forward-looking statements herein include statements addressing management’s views with respect to future financial and operating results and the benefits and other aspects of the merger between AmeriSource Health Corporation and Bergen Brunswig Corporation. Various factors, including competitive pressures, success of integration, restructuring or systems initiatives, market interest rates, regulatory changes, changes in customer mix, changes in pharmaceutical manufacturers’ pricing and distribution policies, changes in U.S. Government policies, customer insolvencies, or the loss of one or more key customer or supplier relationships, could cause actual outcomes and results to differ materially from those described in forward-looking statements. 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 in Item 1 (Business) under the heading “Certain Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002 and elsewhere in this report.
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The Company’s most significant market risk is the effect of changing interest rates. See discussion under “Liquidity and Capital Resources” in Item 2 above.
The Company maintains disclosure controls and procedures that are intended to ensure that information required to be disclosed in the Company’s reports submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These controls and procedures also are intended to ensure that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
Based on their evaluation as of a date within 90 days prior to the filing date of this quarterly report, the Company’s Chief Executive Officer and Chief Financial Officer, with the participation of other members of the Company’s management, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a – 14(c) and 15d – 14(c) under the Exchange Act) and have concluded that the Company’s disclosure controls and procedures are effective for their intended purposes. There have been no significant changes in the Company’s internal controls or in those factors that could significantly affect those controls since the date of their most recent evaluation.
PART II. OTHER INFORMATION
On January 3, 2003, the Company issued 401,780 shares of Common Stock in connection with the acquisition of Bridge Medical, Inc. The shares of Common Stock were issued to the then stockholders of Bridge Medical, Inc. The offer and sale of the shares of Common Stock was effected without registration in reliance on the exemption afforded by Section 3(a)(10) of the Securities Act of 1933, as amended (the “1933 Act”). Such offer and sale and certain contingent issuances of Common Stock contemplated by the transaction, which issuances are subject to the attainment by Bridge Medical, Inc. of certain earnings targets through the end of calendar 2004, were approved by the California Department of Corporations, after a hearing upon the fairness of the terms and conditions of the transaction, under its authority to grant such approval as expressly authorized by the laws of the State of California
On January 17, 2003, the Company issued 2,399,091 shares of Common Stock in connection with the acquisition of US Bioservices Corporation. The shares of Common Stock were issued to the then stockholders of US Bioservices Corporation. The offer and sale of the shares of Common Stock was effected without registration in accordance with Regulation D under the 1933 Act and in reliance on the private placement exemption afforded by Section 4(2) of the 1933 Act. The Company filed a registration statement on Form S-3 to register such shares of Common Stock for resale by the recipients thereof. Such registration statement has been declared effective by the Securities and Exchange Commission.
The Annual Meeting of Stockholders of the Company was held on February 27, 2003 in Philadelphia, Pennsylvania. At the meeting, the stockholders of the Company were asked to vote upon the following matters and cast their votes as set forth below.
1. Election of Directors. The three nominees each were elected to a three-year term expiring in 2006 by the following vote:
Nominee
For
Withheld
Richard C. Gozon
90,928,932
1,077,492
James R. Mellor
90,905,842
1,100,582
J. Lawrence Wilson
90,926,770
1,079,654
Directors whose term of office continued after the Annual Meeting were: Rodney H. Brady, Charles H. Cotros, Jane E. Henney, M.D. and R. David Yost, each of whose terms expire in 2005, and Edward E. Hagenlocker, Robert E. Martini and Francis G. Rodgers, each of whose terms expire in 2004.
2. Amendment to AmerisourceBergen Corporation 2002 Management Stock Incentive Plan. The proposal to approve an amendment to the AmerisourceBergen Corporation 2002 Management Stock Incentive Plan (the “2002 Plan”) and to approve the 2002 Plan, as amended, was approved by the following vote:
Against
Abstained
Broker Non-Votes
80,365,336
11,006,174
634,914
15,799,308
10.1
AmerisourceBergen Corporation 2002 Management Stock Incentive Plan, as amended and restated through April 22, 2003.
99.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
99.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
On January 6, 2003, a Current Report on Form 8-K was filed, reporting under items 5 and 7 that the Company had closed the acquisition of Bridge Medical, Inc. on January 3, 2003.
On January 17, 2003, a Current Report on Form 8-K was filed, reporting under items 5 and 7 that the Company closed the acquisition of US Bioservices Corporation.
On January 24, 2003, a Current Report on Form 8-K was filed, reporting under items 5 and 7 that the Company announced its earnings for the fiscal quarter ended December 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By:
/s/ R. DAVIDYOST
R. David Yost
Chief Executive Officer
/s/ MICHAEL D. DICANDILO
Michael D. DiCandilo
Senior Vice President and
Chief Financial Officer
May 12, 2003
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Chief Executive Officer of AmerisourceBergen Corporation
I, R. David Yost, certify that:
(a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
Date: May 12, 2003
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Certification of Chief Financial Officer of AmerisourceBergen Corporation
I, Michael D. DiCandilo, certify that:
Senior Vice President and Chief
Financial Officer
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