NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations, and cash flows of AmerisourceBergen Corporation and its subsidiaries, including less-than-wholly-owned subsidiaries in which AmerisourceBergen Corporation has a controlling financial interest (the "Company"), as of the dates and for the periods indicated. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals, except as otherwise disclosed herein) considered necessary to present fairly the financial position as of June 30, 2022 and the results of operations and cash flows for the interim periods ended June 30, 2022 and 2021 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimated amounts. Certain reclassifications have been made to prior-period amounts in order to conform to the current year presentation.
Restricted Cash
The Company is required to maintain certain cash deposits with banks mainly consisting of deposits restricted under contractual agency agreements and cash restricted by law and other obligations. Restricted cash includes $52.9 million and $288.4 million held in escrow related to an opioid-related legal settlement as of June 30, 2022 and September 30, 2021, respectively.
The following represents a reconciliation of cash and cash equivalents in the Consolidated Balance Sheets to cash, cash equivalents, and restricted cash used in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(amounts in thousands) | | June 30, 2022 | | September 30, 2021 | | June 30, 2021 | | September 30, 2020 |
| | (unaudited) | | | | (unaudited) | | |
Cash and cash equivalents | | $ | 3,034,233 | | | $ | 2,547,142 | | | $ | 2,553,217 | | | $ | 4,597,746 | |
Restricted cash (included in Prepaid Expenses and Other) | | 207,722 | | | 462,986 | | | 128,526 | | | — | |
Restricted cash (included in Other Assets) | | 60,099 | | | 60,000 | | | — | | | — | |
Cash, cash equivalents, and restricted cash | | $ | 3,302,054 | | | $ | 3,070,128 | | | $ | 2,681,743 | | | $ | 4,597,746 | |
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles in Accounting Standards Codification ("ASC") 740 in order to reduce the cost and complexity of its application. ASU 2019-12 was effective for annual reporting periods beginning after December 15, 2020, including interim periods within those fiscal years, with certain amendments applied on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, and others prospectively.
The Company adopted ASU No. 2019-12 as of October 1, 2021. The adoption of ASU No. 2019-12 had no impact on the Company's financial statements and is not expected to have a material impact on its results of operations or cash flows.
As of June 30, 2022, there were no other recently-issued accounting standards that could have a material impact on the Company’s financial position, results of operations, cash flows, or notes to the financial statements upon their adoption.
New Reporting Structure
The Company undertook a strategic evaluation of its reporting structure to reflect its expanded international presence as a result of the June 2021 acquisition of Alliance Healthcare. As a result of this review, beginning in the first quarter of fiscal 2022, the Company re-aligned its reporting structure under two reportable segments: U.S. Healthcare Solutions and International Healthcare Solutions. U.S. Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma), MWI Animal Health, Xcenda, Lash Group, and ICS 3PL. International Healthcare Solutions consists of Alliance Healthcare, World Courier, Innomar, Profarma, and Profarma Specialty (until it was divested in June 2022). Profarma had previously been included in the Pharmaceutical Distribution Services reportable segment. The Company's previously reported segment results have been revised to conform to its re-aligned reporting structure. Refer to Note 13 for the Company's segment results under the new reporting structure.
Turkey Highly Inflationary Impact
During the quarter ended March 31, 2022, Turkey became a highly inflationary economy, as defined under U.S. GAAP. As a result, effective April 1, 2022, and until such time as the applicable economy is no longer considered highly inflationary, the financial statements of the Company's Alliance Healthcare Turkish subsidiary are remeasured using the Company's reporting currency in accordance with ASC 830, "Foreign Currency Matters." Turkish Lira-denominated monetary assets and liabilities (i.e., cash, accounts receivables, and accounts payables) are remeasured at each balance sheet date using the currency exchange rate then in effect, with currency remeasurement gains and losses recognized in Other (Income) Loss, Net in the Statement of Operations. Turkish Lira-denominated nonmonetary assets and liabilities (i.e., inventories, goodwill, and other intangible assets) are translated at the currency exchange rate in effect prior to highly inflation accounting commencement or at the exchange rate in effect at their date of acquisition if subsequent to April 1, 2022. As such, nonmonetary assets and liabilities retain a higher historical basis when currencies are devalued. This higher historical basis results in incremental expense being recognized when nonmonetary assets are consumed (i.e., sale of inventory). During the three months ended June 30, 2022, the Company recorded an expense of $27.6 million in Cost of Goods Sold related to the consumption of inventory and an expense of $5.8 million in Other (Income) Loss, Net related to the remeasurement of monetary assets and liabilities.
Note 2. Acquisition and Assets and Liabilities Held for Sale
Acquisition
On June 1, 2021, the Company acquired a majority of Walgreens Boots Alliance, Inc.'s ("WBA") Alliance Healthcare businesses ("Alliance Healthcare") for $6,662.0 million in cash, $229.1 million of the Company's common stock (2 million shares at the Company's June 1, 2021 opening stock price of $114.54 per share), and $6.1 million of other equity consideration. The net cash payment was $5,596.7 million, as the Company acquired $922.0 million of cash and cash equivalents and $143.3 million of restricted cash. The shares issued were from the Company's treasury stock on a first-in, first-out basis and were originally purchased for $149.1 million. In the nine months ended June 30, 2022, the Company's previous estimate of $96.9 million of accrued consideration was settled for $60.0 million, which resulted in a $36.9 million reduction to Goodwill. The $60.0 million cash payment is included in the total $6,662.0 million cash consideration. The Company funded the cash purchase price through a combination of cash on hand and new debt financing. The acquisition expands the Company's reach and solutions in pharmaceutical distribution and adds to the Company's depth and breadth of global manufacturer services.
The Company completed the purchase price allocation as of June 1, 2022 and recorded purchase accounting adjustments that reduced working capital account balances by $102.7 million, increased the corresponding deferred tax assets by $63.0 million, and decreased other assets by $13.3 million, which resulted in a $53.0 million increase to Goodwill. There were no measurement period adjustments recorded to the previously-reported opening balance sheet that would have had a material impact on the Company's previously-reported results of operations had those adjustments been recorded in the previous reporting periods. The final purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition in the table that follows:
| | | | | | | | |
(in thousands) | | |
Consideration | | |
Cash | | $ | 6,662,020 | |
Equity (2 million shares of AmerisourceBergen Corporation common stock) | | 229,080 | |
Other equity consideration | | 6,061 | |
Fair value of total consideration | | $ | 6,897,161 | |
| | |
Recognized amounts of identifiable assets acquired and liabilities assumed | | |
Cash and cash equivalents | | $ | 921,995 | |
Accounts receivable | | 3,628,056 | |
Inventories | | 1,647,330 | |
Prepaid expenses and other | | 355,030 | |
Property and equipment | | 634,220 | |
Goodwill | | 2,496,338 | |
Other intangible assets | | 3,735,000 | |
Deferred income taxes | | 33,922 | |
Other assets | | 534,393 | |
Total assets acquired | | 13,986,284 | |
| | |
Accounts payable | | (4,618,807) | |
Accrued expenses and other | | (765,463) | |
Short-term debt | | (353,420) | |
Deferred income taxes | | (760,937) | |
Other liabilities | | (405,332) | |
Total liabilities assumed | | (6,903,959) | |
| | |
Net assets acquired | | 7,082,325 | |
| | |
Noncontrolling interest | | (185,164) | |
Equity consideration | | (235,141) | |
Cash acquired, including restricted cash of $143,308 included in Prepaid Expenses and Other | | (1,065,303) | |
Net cash paid | | $ | 5,596,717 | |
The fair value of the intangible assets acquired of $3.7 billion and the useful lives are as follows:
| | | | | | | | | | | | | | |
(in thousands, except useful lives) | | Fair Value | | Weighted-Average Useful Life |
Customer relationships | | $ | 3,327,000 | | | 18 |
Trade names | | 408,000 | | | 11 |
Total | | $ | 3,735,000 | | | |
Goodwill resulting from this acquisition is not deductible for income tax purposes.
The fair value of the $185.2 million noncontrolling interest in Alliance Healthcare Egypt, a 50%-owned subsidiary, was estimated by applying income and market-based approaches. This fair value measurement is based on inputs that are not observable in the market and, therefore, represents a fair value measurement categorized within Level 3 of the fair value hierarchy.
The Company incurred $90.9 million of acquisition-related costs in connection with this acquisition. These costs were recognized in Employee Severance, Litigation, and Other in the Company's Statements of Operations in the fiscal year ended September 30, 2021.
Assets and Liabilities Held for Sale
The Company entered into agreements in the fourth quarter of fiscal 2021 to sell two of its non-core subsidiaries. In connection with entering into these agreements, the Company concluded that both disposal groups met the held for sale criteria and classified their assets and liabilities as held for sale as of September 30, 2021. One disposal group was included within the U.S. Healthcare Solutions reportable segment and the other disposal group was included within the International Healthcare Solutions reportable segment.
In connection with the held for sale classification, the Company recorded a $16.3 million loss on the remeasurement of the disposal group held for sale in the U.S. Healthcare Solutions reportable segment to fair value less cost to sell, $4.9 million of which was recorded in Impairment of Assets on its Consolidated Statement of Operations for the nine months ended June 30, 2022. The Company previously recorded a loss of $11.3 million in fiscal 2021. The Company completed the sales of the disposal groups in the fiscal quarter ended June 30, 2022 and received total proceeds of $253.1 million, subject to final working capital adjustments. In connection with the sales of these disposal groups, the Company recorded a gain of $56.2 million, which is included in Other (Income) Loss, Net in the Company's Consolidated Statements of Operations.
Total assets and liabilities of the combined disposal groups held for sale on the Consolidated Balance Sheet for the period indicated were comprised of the following:
| | | | | | | | |
(in thousands) | | September 30, 2021 |
Cash and cash equivalents | | $ | 1,751 | |
Accounts receivables, less allowance for credit losses | | 182,077 | |
Inventories | | 123,424 | |
Prepaid expenses and other | | 11,258 | |
Property and equipment | | 3,084 | |
Goodwill | | 31,903 | |
Other intangible assets | | 22,923 | |
Other assets | | 7,812 | |
Loss on the remeasurement of disposal group held for sale to fair value less cost to sell | | (11,324) | |
Total assets held for sale | | $ | 372,908 | |
| | |
Accounts payable | | $ | 173,104 | |
Accrued expenses and other | | 7,234 | |
Short-term debt | | 4,225 | |
Long-term debt | | 50 | |
Deferred income taxes | | 5,857 | |
Other liabilities | | 1,599 | |
Total liabilities held for sale | | $ | 192,069 | |
Note 3. Variable Interest Entity
The Company has substantial governance rights over Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), which allow it to direct the activities that significantly impact Profarma’s economic performance. As such, the Company consolidates the operating results of Profarma in its consolidated financial statements. The Company is not obligated to provide future financial support to Profarma.
The following assets and liabilities of Profarma are included in the Company's Consolidated Balance Sheets:
| | | | | | | | | | | | | | |
(in thousands) | | June 30, 2022 | | September 30, 2021 |
Cash and cash equivalents | | $ | 23,069 | | | $ | 33,699 | |
Accounts receivables, net | | 189,121 | | | 148,485 | |
Inventories | | 239,521 | | | 168,229 | |
Prepaid expenses and other | | 67,361 | | | 62,545 | |
Property and equipment, net | | 35,480 | | | 31,920 | |
Goodwill (see Note 5) | | — | | | 75,936 | |
Other intangible assets | | 67,627 | | | 70,840 | |
Other long-term assets | | 88,588 | | | 74,177 | |
Total assets | | $ | 710,767 | | | $ | 665,831 | |
| | | | |
Accounts payable | | $ | 195,346 | | | $ | 162,768 | |
Accrued expenses and other | | 51,263 | | | 38,477 | |
Short-term debt | | 112,916 | | | 64,215 | |
Long-term debt | | 73,736 | | | 52,613 | |
Deferred income taxes | | 23,752 | | | 37,041 | |
Other long-term liabilities | | 56,635 | | | 57,945 | |
Total liabilities | | $ | 513,648 | | | $ | 413,059 | |
Profarma's assets can only be used to settle its obligations, and its creditors do not have recourse to the general credit of the Company.
Note 4. Income Taxes
The Company files income tax returns in U.S. federal, state, and various foreign jurisdictions. As of June 30, 2022, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, of $543.2 million ($473.5 million, net of federal benefit). If recognized, $455.3 million of these tax benefits would have reduced income tax expense and the effective tax rate. Included in this amount is $21.3 million of interest and penalties, which the Company records in Income Tax Expense in the Company's Consolidated Statements of Operations. In the nine months ended June 30, 2022, unrecognized tax benefits increased by $20.4 million. Over the next 12 months, it is reasonably possible that tax authority audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits of approximately $2.9 million.
The Company's effective tax rates were 23.7% and 24.0% for the three and nine months ended June 30, 2022, respectively. The Company's effective tax rates were 48.5% and 33.6% for the three and nine months ended June 30, 2021, respectively. The effective tax rates for the three and nine months ended June 30, 2022 were higher than the U.S. statutory rate primarily due to U.S. state income taxes as well as discrete tax expense associated with foreign valuation allowance adjustments, offset in part by the benefit of non-U.S. income taxed at rates lower than the U.S. statutory rate. The effective tax rates in the three and nine months ended June 30, 2021 were higher than the U.S. statutory rate primarily due to UK Tax Reform.
Note 5. Goodwill and Other Intangible Assets
In connection with the change in the Company's reporting structure that is discussed in Note 1, the Company reallocated goodwill among the impacted reporting units using a relative fair value approach and assessed impairment before and after goodwill was reallocated. The following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the nine months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | U. S. Healthcare Solutions | | International Healthcare Solutions | | Total |
Goodwill as of September 30, 2021 (as revised) | | $ | 6,260,374 | | | $ | 2,770,157 | | | $ | 9,030,531 | |
Purchase accounting adjustments | | — | | | 27,186 | | | 27,186 | |
Goodwill recognized in connection with acquisition | | 18,409 | | | — | | | 18,409 | |
Goodwill derecognized in connection with disposal | | (1,224) | | | — | | | (1,224) | |
Goodwill impairment | | — | | | (75,936) | | | (75,936) | |
Foreign currency translation | | (2,662) | | | (364,180) | | | (366,842) | |
Goodwill as of June 30, 2022 | | $ | 6,274,897 | | | $ | 2,357,227 | | | $ | 8,632,124 | |
As a result of a prolonged decline in Profarma’s stock price, the Company performed an impairment assessment over the Profarma reporting unit as of June 30, 2022 and recorded a goodwill impairment of $75.9 million in the three months ended June 30, 2022. The Company determined the fair value of the Profarma reporting unit based upon Profarma’s publicly-traded stock price, plus an estimated control premium. This represents a level 2 nonrecurring fair value measurement.
In connection with the Profarma impairment assessment, the Company first performed a recoverability assessment of Profarma’s long-lived assets by comparing the undiscounted cash flows to the carrying value of the Profarma asset group, and it was determined to be recoverable. However, the forecasted undiscounted cash flows used to perform the recoverability assessment are inherently uncertain and include assumptions that could differ from actual results in future periods.
The following is a summary of other intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | September 30, 2021 |
(in thousands) | | Weighted Average Remaining Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived trade names | | | | $ | 668,085 | | | $ | — | | | $ | 668,085 | | | $ | 668,119 | | | $ | — | | | $ | 668,119 | |
Finite-lived: | | | | | | | | | | | | | | |
Customer relationships | | 16 years | | 4,420,018 | | | (884,950) | | | 3,535,068 | | | 4,838,549 | | | (718,750) | | | 4,119,799 | |
Trade names and other | | 11 years | | 568,811 | | | (163,990) | | | 404,821 | | | 609,050 | | | (140,041) | | | 469,009 | |
Total other intangible assets | | | | $ | 5,656,914 | | | $ | (1,048,940) | | | $ | 4,607,974 | | | $ | 6,115,718 | | | $ | (858,791) | | | $ | 5,256,927 | |
The decreases in the gross amounts of finite-lived intangible assets since September 30, 2021 were primarily due to foreign currency translation.
Amortization expense for finite-lived intangible assets was $74.9 million and $44.8 million in the three months ended June 30, 2022 and 2021, respectively. Amortization expense for finite-lived intangible assets was $234.1 million and $95.9 million in the nine months ended June 30, 2022 and 2021, respectively. Amortization expense for finite-lived intangible assets is estimated to be $306.6 million in fiscal 2022, $288.5 million in fiscal 2023, $287.2 million in fiscal 2024, $286.2 million in fiscal 2025, $282.0 million in fiscal 2026, and $2,723.5 million thereafter.
Note 6. Debt
Debt consisted of the following:
| | | | | | | | | | | | | | |
(in thousands) | | June 30, 2022 | | September 30, 2021 |
Revolving credit note | | $ | — | | | $ | — | |
| | | | |
Money market facility | | — | | | — | |
Receivables securitization facility due 2024 | | 350,000 | | | 350,000 | |
| | | | |
Term loan due in June 2023 | | — | | | 249,640 | |
Overdraft facility due 2024 (£10,000) | | 7,273 | | | — | |
Multi-currency revolving credit facility due 2026 | | — | | | — | |
0.737% senior notes due 2023 | | 1,021,611 | | | 1,518,223 | |
$500,000, 3.400% senior notes due 2024 | | 499,075 | | | 498,714 | |
$500,000, 3.250% senior notes due 2025 | | 498,178 | | | 497,669 | |
$750,000, 3.450% senior notes due 2027 | | 745,412 | | | 744,781 | |
$500,000, 2.800% senior notes due 2030 | | 495,195 | | | 494,738 | |
$1,000,000, 2.700% senior notes due 2031 | | 990,206 | | | 989,366 | |
$500,000, 4.250% senior notes due 2045 | | 495,108 | | | 494,946 | |
$500,000, 4.300% senior notes due 2047 | | 493,221 | | | 493,021 | |
Alliance Healthcare debt | | 279,766 | | | 235,998 | |
Nonrecourse debt | | 186,652 | | | 116,828 | |
Total debt | | 6,061,697 | | | 6,683,924 | |
Less AmerisourceBergen Corporation current portion | | 1,028,884 | | | — | |
Less Alliance Healthcare current portion | | 279,766 | | | 235,998 | |
Less nonrecourse current portion | | 112,916 | | | 64,215 | |
Total, net of current portion | | $ | 4,640,131 | | | $ | 6,383,711 | |
Multi-Currency Revolving Credit Facility
The Company has a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility") with a syndicate of lenders, which is scheduled to expire in November 2026. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on the Company’s debt rating and ranges from 70 basis points to 112.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (101.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of June 30, 2022) and from 0 basis points to 12.5 basis points over the alternate base rate and Canadian prime rate, as applicable. The Company pays facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on its debt rating, ranging from 5 basis points to 12.5 basis points, annually, of the total commitment (11 basis points as of June 30, 2022). The Company may choose to repay or reduce its commitments under the Multi-Currency Revolving Credit Facility at any time. The Multi-Currency Revolving Credit Facility contains covenants, including compliance with a financial leverage ratio test, as well as others that impose limitations on, among other things, indebtedness of subsidiaries and asset sales, with which the Company was compliant as of June 30, 2022.
Commercial Paper Program
The Company has a commercial paper program whereby it may from time to time issue short-term promissory notes in an aggregate amount of up to $2.4 billion at any one time. Amounts available under the program may be borrowed, repaid, and re-borrowed from time to time. The maturities on the notes will vary, but may not exceed 365 days from the date of issuance. The notes will bear interest, if interest bearing, or will be sold at a discount from their face amounts. The commercial paper program does not increase the Company’s borrowing capacity as it is fully backed by the Company’s Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under the commercial paper program as of June 30, 2022.
Receivables Securitization Facility
The Company has a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which is scheduled to expire in November 2024. The Company has available to it an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to $250 million, subject to lender approval, for seasonal needs during the December and March quarters. Interest rates are based on prevailing market rates for short-term commercial paper or LIBOR, plus a program fee. The Company pays a customary unused fee at prevailing market rates, annually, to maintain the availability under the Receivables Securitization Facility. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of June 30, 2022.
Revolving Credit Note, Overdraft Facility, and Money Market Facility
The Company has an uncommitted, unsecured line of credit available to it pursuant to a revolving credit note ("Revolving Credit Note"). The Revolving Credit Note provides the Company with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $75 million. The Revolving Credit Note may be decreased or terminated by the bank or the Company at any time without prior notice. The Company also has a £10 million uncommitted U.K. overdraft facility ("Overdraft Facility"), which expires in February 2024, to fund short-term normal trading cycle fluctuations related to its MWI Animal Health business. The Company has an uncommitted, unsecured line of credit available to it pursuant to a money market credit agreement ("Money Market Facility"). The Money Market Facility provides the Company with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $100 million. The Money Market Facility may be decreased or terminated by the bank or the Company at any time without prior notice.
Term Loan
In March 2022, the Company elected to repay in full the $250 million term loan that was scheduled to mature in June 2023.
Senior Notes
In June 2022, the Company elected to repay $500 million of the original $1.5 billion, 0.737% senior notes. The remaining senior notes balance of $1.0 billion is due in March 2023.
Alliance Healthcare Debt
Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates. A majority of the outstanding borrowings were held in Egypt (which is 50% owned) as of June 30, 2022. These facilities are used to fund its working capital needs.
Nonrecourse Debt
Nonrecourse debt is comprised of short-term and long-term debt belonging to the Brazil subsidiaries and is repaid solely from the Brazil subsidiaries' cash flows and such debt agreements provide that the repayment of the loans (and interest thereon) is secured solely by the capital stock, physical assets, contracts, and cash flows of the Brazil subsidiaries.
Note 7. Stockholders’ Equity and Earnings per Share
In May 2020, the Company's board of directors authorized a share repurchase program allowing the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions. During the nine months ended June 30, 2022, the Company purchased 1.8 million shares of its common stock for a total of $260.1 million, which included $11.7 million of June 2022 purchases that cash settled in July 2022. As of June 30, 2022, the Company had $213.3 million of availability remaining under this program.
In May 2022, the Company's board of directors authorized a new share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions. As of June 30, 2022, the Company had $1.0 billion of availability remaining under this program as it did not purchase any shares of its common stock under this program.
Basic earnings per share is computed by dividing net income attributable to AmerisourceBergen Corporation by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed by dividing net income attributable to AmerisourceBergen Corporation by the weighted average number of shares of common stock outstanding, plus the dilutive effect of stock options and restricted stock units during the periods presented.
The following illustrates the components of diluted weighted average shares outstanding for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Weighted average common shares outstanding - basic | | 208,885 | | | 206,156 | | | 208,895 | | | 205,255 | |
Dilutive effect of stock options and restricted stock units | | 2,853 | | | 2,756 | | | 2,738 | | | 2,424 | |
Weighted average common shares outstanding - diluted | | 211,738 | | | 208,912 | | | 211,633 | | | 207,679 | |
There were no potentially dilutive stock options and restricted stock units that were antidilutive for the three months ended June 30, 2022 and 2021. The potentially dilutive stock options and restricted stock units that were antidilutive for the nine months ended June 30, 2022 and 2021 were 134 thousand and 129 thousand, respectively.
Note 8. Related Party Transactions
WBA owns more than 10% of the Company’s outstanding common stock and is, therefore, considered a related party. The Company operates under various agreements and arrangements with WBA, including a pharmaceutical distribution agreement pursuant to which the Company distributes pharmaceutical products to WBA and an agreement that provides the Company the ability to access favorable economic pricing and generic products through a generic purchasing services arrangement with Walgreens Boots Alliance Development GmbH (both through 2029) as well as a distribution agreement pursuant to which it supplies branded and generic pharmaceutical products to WBA’s Boots UK Ltd. subsidiary (through 2031).
Revenue from the various agreements and arrangements with WBA was $16.2 billion and $47.8 billion in the three and nine months ended June 30, 2022, respectively. Revenue from the various agreements and arrangements with WBA was $16.4 billion and $48.9 billion in the three and nine months ended June 30, 2021, respectively. The Company’s receivable from WBA, net of incentives, was $6.9 billion and $7.0 billion as of June 30, 2022 and September 30, 2021, respectively.
Note 9. Employee Severance, Litigation, and Other
The following illustrates the charges incurred by the Company relating to Employee Severance, Litigation, and Other for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended June 30, | | Nine months ended June 30, |
(in thousands) | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
Employee severance | | | | | | $ | 3,926 | | | $ | 6,720 | | | $ | 10,541 | | | $ | 6,720 | |
Litigation and opioid-related costs | | | | | | 23,442 | | | 153,225 | | | 108,167 | | | 227,275 | |
Acquisition-related deal and integration costs | | | | | | 36,570 | | | 54,674 | | | 69,710 | | | 97,149 | |
Business transformation efforts | | | | | | 3,190 | | | 14,654 | | | 11,468 | | | 37,738 | |
Other restructuring initiatives | | | | | | 742 | | | (2,309) | | | 9,348 | | | 6,619 | |
Total employee severance, litigation, and other | | | | | | $ | 67,870 | | | $ | 226,964 | | | $ | 209,234 | | | $ | 375,501 | |
Employee severance in the three and nine months ended June 30, 2022 included costs primarily related to restructuring activities in the Company's manufacturer services businesses. Employee severance in the three and nine months ended June 30, 2021 primarily relate to restructuring activities in the International Healthcare Solutions businesses.
Litigation and opioid-related costs in the three and nine months ended June 30, 2022 and 2021 related to legal fees in connection with opioid litigation lawsuits and investigations. The nine months ended June 30, 2022 also included an accrual of $36.6 million related to the opioid litigation settlements (see Note 10). Litigation and opioid-related costs in the three and nine months ended June 30, 2021 also included $124.3 million and $141.4 million, respectively, of accruals related to opioid litigation settlements.
Acquisition-related deal and integration costs in the three and nine months ended June 30, 2022 primarily related to costs associated with the integration of Alliance Healthcare. Acquisition-related deal and integration costs in the three and nine months ended June 30, 2021 primarily related to costs associated with the June 2021 acquisition of Alliance Healthcare.
Business transformation efforts in the three and nine months ended June 30, 2022 and 2021 primarily related to costs associated with reorganizing the Company to further align the organization to its customers' needs. The majority of these costs related to services provided by third-party consultants, including certain technology initiatives.
Note 10. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, government subpoenas, government investigations, stockholder demands, and other disputes, including antitrust, commercial, product liability, intellectual property, regulatory, employment discrimination, and other matters. Significant damages or penalties may be sought from the Company in some matters, and some matters may require years for the Company to resolve. The Company records a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
For those matters for which the Company has not recognized a liability, the Company cannot predict the outcome of their impact on the Company as uncertainty remains with regard to whether such matters will proceed to trial, whether settlements will be reached, and the amount and terms of any such settlements. Outcomes may include settlements in significant amounts that are not currently estimable, limitations on the Company's conduct, the imposition of corporate integrity agreement obligations, consent decrees, and/or other civil and criminal penalties. From time to time, the Company is also involved in disputes with its customers, which the Company generally seeks to resolve through commercial negotiations. If negotiations are unsuccessful, the parties may litigate the dispute or otherwise attempt to settle the matter.
With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company's results of operations or cash flows for that period or on the Company's financial condition.
Opioid Lawsuits and Investigations
A significant number of counties, municipalities, and other governmental entities in a majority of U.S. states and Puerto Rico, as well as numerous states and tribes, have filed lawsuits in various federal, state and other courts against pharmaceutical wholesale distributors (including the Company and certain subsidiaries, such as AmerisourceBergen Drug Corporation ("ABDC") and H.D. Smith), pharmaceutical manufacturers, retail pharmacy chains, medical practices, and physicians relating to the distribution of prescription opioid pain medications. Other lawsuits regarding the distribution of prescription opioid pain medications have been filed by: third-party payors and similar entities; hospitals; hospital groups; and individuals, including cases styled as putative class actions. The lawsuits, which have been and continue to be filed in federal, state, and other courts, generally allege violations of controlled substance laws and various other statutes as well as common law claims, including negligence, public nuisance, and unjust enrichment, and seek equitable relief and monetary damages. An initial group of cases was consolidated for Multidistrict Litigation ("MDL") proceedings before the United States District Court for the Northern District of Ohio (the "Court") in December 2017. Additional cases were added to the MDL from 2018 through 2022.
In April 2018, the Court issued an order creating a litigation track, which includes dispositive motion practice, discovery, and trials in certain bellwether jurisdictions. In December 2018, the Court issued an order selecting two cases for a second bellwether discovery and trial track. In November 2019 and January 2020, the Court filed Suggestions of Remand with the Judicial Panel on Multidistrict Litigation that identified four cases filed against the Company, including the two cases in the second bellwether trial track, for potential transfer from the MDL back to federal courts in California, Oklahoma, and West Virginia for the completion of discovery, motion practice, and trial. All four cases were remanded to those federal district courts. Trial in the two consolidated cases in West Virginia commenced in May 2021 and concluded in July 2021. On July 4, 2022, the court entered judgment in favor of the defendants, including the Company. The plaintiffs filed an appeal of the court's decision on August 2, 2022. The Oklahoma case, in which the plaintiff was the Cherokee Nation, was resolved through a settlement with the Cherokee Nation, as announced on September 28, 2021. The California case, in which the plaintiff was the City and County of San Francisco, was resolved pursuant to the comprehensive settlement reached with the majority of U.S. states, including California, as described below, and all claims against the Company have been dismissed in both cases.
On July 21, 2021, the Company announced that it and the two other national pharmaceutical distributors had negotiated a comprehensive settlement agreement that, if all conditions were satisfied, would result in the resolution of a substantial majority of opioid lawsuits filed by state and local governmental entities. On April 2, 2022, the settlement agreement became effective as to the Company and 46 settling states (the "Settling States"), as well as over 98% by population of the eligible political subdivisions in the Settling States. The States of Washington and Oklahoma intend to join the comprehensive settlement after certain conditions have been met in those states. Pursuant to the comprehensive settlement agreement and related agreements with Settling States, including previously disclosed settlement agreements with Florida, New York, Ohio, Rhode Island and Texas, the Company will pay approximately $5.9 billion over 18 years and comply with other requirements, including establishment of a clearinghouse that will consolidate data from all three national distributors. The exact payment amount will depend on several factors, including the extent to which states take action to foreclose opioid lawsuits by subdivisions (e.g., laws barring opioid lawsuits by subdivisions), and the extent to which subdivisions in Settling States file
additional opioid lawsuits against the distributors after a settlement agreement becomes effective. West Virginia subdivisions and Native American tribes are not a part of this settlement agreement and the Company has reached separate agreements with these groups, as described below. The settlement process does not contemplate participation by any non-governmental or non-political entities or individuals. The Company's estimated liability related to states and subdivisions that did not initially join the comprehensive settlement agreement (including West Virginia subdivisions) and the Native American Tribes is approximately $0.8 billion.
The Company's accrued litigation liability related to the comprehensive settlement as well as other opioid-related litigation was $6.4 billion as of June 30, 2022 and $6.7 billion as of September 30, 2021. The Company currently estimates that $516.1 million will be paid prior to June 30, 2023, which is recorded in Accrued Expenses and Other on the Company’s Consolidated Balance Sheet. The remaining long-term liability of $5.9 billion is recorded in Accrued Litigation Liability on the Company's Consolidated Balance Sheet. While the Company has accrued its estimated liability for opioid litigation, it is unable to estimate the range of possible loss associated with the matters that are not included in the settlement accrual. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The Company will regularly review opioid litigation matters to determine whether its accrual is adequate. The amount of ultimate loss may differ materially from the amount accrued to date. Until such time as otherwise resolved, the Company will continue to litigate and prepare for trial and to vigorously defend itself in all such matters. Since these matters are still developing, the Company is unable to predict the outcome, but the result of these lawsuits could include excessive monetary verdicts and/or injunctive relief that may affect the Company's operations.
On May 2, 2022, the Company and the two other distributors reached an agreement to pay up to $518 million in a settlement with the State of Washington and its participating subdivisions to resolve opioid-related claims, consistent with Washington’s allocations under the comprehensive settlement agreement, as well as certain attorneys’ fees and costs. On June 27, 2022, the Company and the two other distributors entered into an agreement with the State of Oklahoma to resolve opioid-related claims. Pursuant to the agreement, the three distributors will pay up to approximately $308 million, including attorneys’ fees and costs, to the State of Oklahoma and its participating subdivisions. This amount is consistent with Oklahoma’s allocation under the comprehensive settlement agreement. The Company's 31.0% share of both the Washington and Oklahoma settlement amounts is a component of its overall $6.4 billion total accrued liability. Both agreements are subject to certain contingencies, including related to the rate of subdivision participation. Subject to those contingencies, under both agreements, claims brought by municipalities in Washington and Oklahoma will be dismissed with prejudice as to the Company and the two other distributor defendants. The Washington and Oklahoma settlements bring the number of States with whom the Company has recently settled opioid-related claims to 48 of 49 eligible states.
On January 26, 2022, the Company and the two other national distributors reached an agreement in principle to pay approximately $440 million to settle the claims of the remaining federally recognized Native American tribes. The Company’s 31.0% share of the $440 million settlement amount is a component of its overall $6.4 billion total liability accrual. The exact payment amount will depend on the extent of participation by tribes, including those that have not sued. All participating tribes’ claims will be dismissed, and each participating tribe will release the distributors and their related entities from all applicable claims.
The first phase of a trial in West Virginia state court for a consolidated case brought by several dozen West Virginia counties and municipalities against ABDC and certain other pharmaceutical wholesale distributors was scheduled to begin on July 5, 2022. On July 5, 2022, the case was postponed. On July 31, 2022, the Company and the two other distributors reached an agreement to pay up to $400 million in a settlement with West Virginia subdivisions (excluding Cabell County and City of Huntington) to resolve opioid-related claims. The Company’s 31.0% share of the $400 million settlement amount is a component of its overall $6.4 billion total liability accrual. The agreement is subject to certain contingencies, including the rate of subdivision participation. Subject to those contingencies, claims brought by West Virginia’s counties and municipalities will be dismissed with prejudice as to the Company and the two other distributor defendants.
On July 22, 2022, the State of Alabama sought and was subsequently granted leave to amend its complaint in a pending state court action against another distributor in order to add the Company as a party. The amended Complaint was filed on July 25, 2022. Ongoing and additional litigation is anticipated in cases filed by states and/or subdivisions that are not participating in the global settlement agreement, as well as in cases filed by non-governmental or non-political entities, including hospitals, third-party payors, and individuals, among others. Certain cases related to opioids filed in various state courts have trial dates scheduled in January 2023 and later, although all such dates are subject to change. The Company is vigorously defending itself in the pending lawsuits and intends to vigorously defend itself against any threatened lawsuits or enforcement proceedings.
The Company has also received subpoenas, civil investigative demands, and other requests for information, requesting the production of documents regarding the distribution of prescription opioid pain medications from government agencies in other jurisdictions, including certain states. The Company has engaged in discussions with representatives from these
government agencies regarding the requests and has been producing responsive documents. The Company cannot predict how these matters would be affected by a comprehensive nationwide settlement.
Since July 2017, the Company has received subpoenas from several U.S. Attorney's Offices, including grand jury subpoenas from the U.S. Attorney's Office for the District of New Jersey ("USAO-NJ") and the U.S. Attorney's Office for the Eastern District of New York ("USAO-EDNY"). Those subpoenas request the production of a broad range of documents pertaining to the Company's distribution of controlled substances through its various subsidiaries, including ABDC, and its diversion control programs. The Company has produced documents in response to the subpoenas and continues to engage in discussions with the various U.S. Attorney’s Offices, including the Health Care and Government Fraud Unit of the Criminal Division of the USAO-NJ, the U.S. Department of Justice Consumer Protection Branch and the U.S. Drug Enforcement Administration, in an attempt to resolve these matters.
Shareholder Securities Litigation
On October 11, 2019, Teamsters Local 443 Health Services & Insurance Plan, St. Paul Electrical Construction Pension Plan, St. Paul Electrical Construction Workers Supplemental Pension Plan (2014 Restatement), Retirement Medical Funding Plan for the St. Paul Electrical Workers, and San Antonio Fire & Police Pension Fund filed a complaint for a purported derivative action in the Delaware Court of Chancery against the Company and certain of its current and former officers and directors (collectively, "Defendants"). The complaint alleges that the Defendants breached their fiduciary duties by failing to oversee the compliance by certain of the Company's subsidiaries (including the Company's former subsidiary Medical Initiatives, Inc. ("MII")) with federal regulations, allegedly resulting in the payment of fines and penalties in connection with the settlements with the USAO-EDNY in fiscal 2017 and 2018 that resolved claims arising from MII's pre-filled syringe program. In December 2019, Defendants filed a motion to dismiss the complaint. After briefing and oral argument, on August 24, 2020 the Delaware Court of Chancery denied Defendants' motion to dismiss. On September 24, 2020, the Board of Directors of the Company established a Special Litigation Committee to conduct an investigation concerning the plaintiffs’ allegations, and on November 10, 2020, the Delaware Court of Chancery granted the Special Litigation Committee’s motion to stay the litigation pending its investigation. On September 22, 2021, the Special Litigation Committee filed its report under seal and moved to dismiss the case. The Special Litigation Committee’s motion to dismiss the case is pending.
On July 17, 2020, CCAR Investments, Inc. filed a complaint for a purported derivative action in the United States District Court for the District of Delaware against the Company and certain of its current and former officers and directors (“CCAR Defendants”). The complaint alleges claims for breach of fiduciary duty, corporate waste and unjust enrichment allegedly arising from the Board's oversight of the Company’s controlled substance diversion control programs and violation of Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On August 14, 2020, the CCAR Defendants answered the complaint and filed a motion for judgment on the pleadings. On October 29, 2020 the parties filed a stipulation permitting CCAR Investments, Inc. to file an amended complaint on or before November 20, 2020. On December 4, 2020, the parties filed a stipulation tolling the deadline for CCAR Investments, Inc. to file an amended complaint pending the Company’s production of certain documents to CCAR Investments, Inc. The Company’s production was completed on January 29, 2021. On May 2, 2022, the Court entered a stipulation that the case will be dismissed without prejudice upon the Company providing notice to stockholders through the filing of a Current Report on Form 8-K and subsequent notification to the Court of such filing. On May 6, 2022, the Company provided notice to stockholders through the filing of a Current Report on Form 8-K that the case would be dismissed and gave notice to the Court of the Form 8-K filing.
On December 30, 2021, Lebanon County Employees' Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan filed a complaint for a purported derivative action in the Delaware Court of Chancery against the Company and certain of its current officers and directors. The complaint alleges claims for breach of fiduciary duty allegedly arising from the Board’s and certain officers’ oversight of the Company’s controlled substance diversion control programs. The defendants moved to dismiss the complaint on March 29, 2022. The motion is pending.
Subpoenas, Ongoing Investigations, and Other Contingencies
From time to time, the Company receives subpoenas or requests for information from various government agencies relating to the Company's business or to the business of a customer, supplier, or other industry participant. The Company's responses often require time and effort and can result in considerable costs being incurred. Most of these matters are resolved without incident; however, such subpoenas or requests can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the healthcare industry, as well as to substantial settlements.
In January 2017, U.S. Bioservices Corporation ("U.S. Bio"), a former subsidiary of the Company, received a subpoena for information from the USAO-EDNY relating to its activities in connection with billing for products and making returns of potential overpayments to government payers. A filed qui tam complaint related to the investigation was unsealed in April 2019
and the relator filed an amended complaint under seal in the U.S. District Court for the Eastern District of New York. In December 2019, the government filed a notice that it was declining to intervene. The court ordered that the relator's complaint against the Company and other defendants, including AmerisourceBergen Specialty Group, LLC, be unsealed. The relator’s complaint alleged violations of the federal False Claims Act and the false claims acts of various states. The relator filed a second amended complaint, removing one state false claims act count. The Company filed a motion to dismiss the second amended complaint and all briefing on the motion was filed with the court on October 9, 2020.
In December 2019, Reliable Pharmacy, together with other retail pharmacies and North Sunflower Medical Center, filed a civil antitrust complaint against multiple generic drug manufacturers, and also included claims against the Company, H.D. Smith, and other drug distributors and industry participants. The case is filed as a putative class action and plaintiffs purport to represent a class of drug purchasers including other retail pharmacies and healthcare providers. The case has been consolidated for multidistrict litigation proceedings before the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that the Company and others in the industry participated in a conspiracy to fix prices, allocate markets and rig bids regarding generic drugs. In March 2020, the plaintiffs filed a further amended complaint. On July 15, 2020, the Company and other industry participants filed a motion to dismiss the complaint. On May 25, 2022, the Court granted the motion to dismiss without prejudice. On July 1, 2022, the plaintiffs filed an amended complaint, again including claims against the Company, H.D. Smith, and other drug distributors and industry participants.
On March 3, 2022, the United States Attorney’s Office for the Western District of Virginia notified the Company of the existence of a criminal investigation into MWI Veterinary Supply Co., the Company’s animal health subsidiary, in connection with grand jury subpoenas to which MWI previously responded relating to compliance with state and federal regulatory requirements governing wholesale shipments of animal health products to customers in certain states. The Company is cooperating with the investigation.
Note 11. Litigation Settlements
Antitrust Settlements
Numerous lawsuits have been filed against certain brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. These lawsuits are generally brought as class actions. The Company is not typically named as a plaintiff in these lawsuits, but has been a member of the direct purchasers' class (i.e., those purchasers who purchase directly from these pharmaceutical manufacturers). None of the lawsuits have gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement funds. The Company recognized gains related to these lawsuits of $1.8 million the nine months ended June 30, 2022 and $147.4 million during the three and nine months ended June 30, 2021. These gains, which are net of attorney fees and estimated payments due to other parties, were recorded as reductions to cost of goods sold in the Company’s Consolidated Statements of Operations.
Note 12. Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable as of June 30, 2022 and September 30, 2021 approximate fair value based upon the relatively short-term nature of these financial instruments. Within Cash and Cash Equivalents, the Company had $970.0 million of investments in money market accounts as of June 30, 2022 and had $671.0 million of investments in money market accounts as of September 30, 2021. The fair value of the money market accounts was determined based upon unadjusted quoted prices in active markets for identical assets, otherwise known as Level 1 inputs.
The recorded amount of long-term debt (see Note 6) and the corresponding fair value as of June 30, 2022 were $4,640.1 million and $4,332.6 million, respectively. The recorded amount of long-term debt and the corresponding fair value as of September 30, 2021 were $6,383.8 million and $6,761.6 million, respectively. The fair value of long-term debt was determined based upon inputs other than quoted prices, otherwise known as Level 2 inputs.
Note 13. Business Segment Information
The Company is organized geographically based upon the products and services it provides to its customers. In the first quarter of fiscal 2022, the Company re-aligned its reporting structure under two reportable segments: U.S. Healthcare Solutions and International Healthcare Solutions. U.S. Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma), MWI Animal Health, Xcenda, Lash Group, and ICS 3PL. International Healthcare Solutions consists of Alliance Healthcare, World Courier, Innomar, Profarma, and Profarma Specialty (until it was divested in June 2022). Profarma had previously been included in the Pharmaceutical Distribution Services reportable segment. The Company's previously reported results have been revised to conform to its re-aligned reporting structure.
The following illustrates reportable and operating segment disaggregated revenue as required by Accounting Standards Codification 606 for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
U.S. Healthcare Solutions: | | | | | | | | |
Human Health | | $ | 52,168,130 | | | $ | 49,182,311 | | | $ | 153,721,040 | | | $ | 146,671,516 | |
Animal Health | | 1,221,215 | | | 1,193,531 | | | 3,590,715 | | | 3,442,494 | |
Total U.S. Healthcare Solutions | | 53,389,345 | | | 50,375,842 | | | 157,311,755 | | | 150,114,010 | |
International Healthcare Solutions: | | | | | | | | |
Alliance Healthcare | | 5,492,656 | | | 1,924,858 | | | 16,658,799 | | | 1,924,858 | |
Other Healthcare Solutions | | 1,184,070 | | | 1,105,911 | | | 3,445,400 | | | 3,039,254 | |
Total International Healthcare Solutions | | 6,676,726 | | | 3,030,769 | | | 20,104,199 | | | 4,964,112 | |
Intersegment eliminations | | (1,470) | | | (916) | | | (3,097) | | | (1,700) | |
Revenue | | $ | 60,064,601 | | | $ | 53,405,695 | | | $ | 177,412,857 | | | $ | 155,076,422 | |
The following illustrates reportable segment operating income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
U.S. Healthcare Solutions | | $ | 579,927 | | | $ | 529,790 | | | $ | 1,878,556 | | | $ | 1,750,432 | |
International Healthcare Solutions | | 176,272 | | | 100,831 | | | 543,400 | | | 203,663 | |
| | | | | | | | |
Total segment operating income | | $ | 756,199 | | | $ | 630,621 | | | $ | 2,421,956 | | | $ | 1,954,095 | |
The following reconciles total segment operating income to income before income taxes for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Total segment operating income | | $ | 756,199 | | | $ | 630,621 | | | $ | 2,421,956 | | | $ | 1,954,095 | |
Gains from antitrust litigation settlements | | — | | | 147,432 | | | 1,835 | | | 147,432 | |
LIFO (expense) credit | | (23,070) | | | 113,920 | | | 37,668 | | | 160,565 | |
Turkey highly inflationary impact | | (27,618) | | | — | | | (27,618) | | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Acquisition-related intangibles amortization | | (74,408) | | | (44,282) | | | (231,866) | | | (94,289) | |
Employee severance, litigation, and other | | (67,870) | | | (226,964) | | | (209,234) | | | (375,501) | |
Impairment of assets | | — | | | — | | | (4,946) | | | — | |
Goodwill impairment | | (75,936) | | | — | | | (75,936) | | | — | |
Operating income | | 487,297 | | | 620,727 | | | 1,911,859 | | | 1,792,302 | |
Other (income) loss, net | | (41,888) | | | (4,141) | | | (48,008) | | | 4,901 | |
Interest expense, net | | 52,862 | | | 51,338 | | | 159,150 | | | 119,478 | |
| | | | | | | | |
| | | | | | | | |
Income before income taxes | | $ | 476,323 | | | $ | 573,530 | | | $ | 1,800,717 | | | $ | 1,667,923 | |
Segment operating income is evaluated by the chief operating decision maker of the Company before gains from antitrust litigation settlements; LIFO (expense) credit; Turkey highly inflationary impact; acquisition-related intangibles amortization; employee severance, litigation, and other; impairment of assets; and goodwill impairment. All corporate office expenses are allocated to the operating segment level.
We recognized gains of $60.0 million from the sale of non-core businesses in the three and nine months ended June 30, 2022 in Other (Income) Loss, Net.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for our future operations; anticipated trends and prospects in the industries in which our business operates; and new products, services and related strategies. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly or historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “could,”, “estimate,” "expect," “intend,” “may,” “might,” “on track,” “opportunity,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “sustain,” “synergy,” “target,” “will,” “would” and similar expressions may identify are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances and speak only as of the date hereof. These statements are not guarantees of future performance and are based on assumptions and estimates that could prove incorrect or could cause actual results to vary materially from those indicated.
Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about the following:
•The effect of and uncertainties related to the ongoing COVID-19 pandemic (including any government responses thereto) and any continued recovery from the impact of the COVID-19 pandemic;
•our ability to achieve and maintain profitability in the future;
•our ability to respond to general economic conditions, including elevated levels of inflation;
•our ability to manage our growth effectively and our expectations regarding the development and expansion of our business;
•the impact on our business of the regulatory environment and complexities with compliance;
•unfavorable trends in brand and generic pharmaceutical pricing, including in rate or frequency of price inflation or deflation;
•competition and industry consolidation of both customers and suppliers resulting in increasing pressure to reduce prices for our products and services;
•changes in the United States healthcare and regulatory environment, including changes that could impact prescription drug reimbursement under Medicare and Medicaid and declining reimbursement rates for pharmaceuticals;
•increasing governmental regulations regarding the pharmaceutical supply channel;
•continued federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances;
•continued prosecution or suit by federal and state governmental entities and other parties (including third-party payors, hospitals, hospital groups and individuals) of alleged violations of laws and regulations regarding controlled substances, and any related disputes, including shareholder derivative lawsuits;
•increased federal scrutiny and litigation, including qui tam litigation, for alleged violations of laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services, and associated reserves and costs;
•failure to comply with the Corporate Integrity Agreement;
•the outcome of any legal or governmental proceedings that may be instituted against us, including material adverse resolution of pending legal proceedings;
•the retention of key customer or supplier relationships under less favorable economics or the adverse resolution of any contract or other dispute with customers or suppliers;
•changes to customer or supplier payment terms, including as a result of the COVID-19 impact on such payment terms;
•the integration of the Alliance Healthcare businesses into the Company being more difficult, time consuming or costly than expected;
•the Company's or Alliance Healthcare's failure to achieve expected or targeted future financial and operating performance and results;
•the effects of disruption from the acquisition and related strategic transactions on the respective businesses of the Company and Alliance Healthcare and the fact that the acquisition and related strategic transactions may make it more difficult to establish or maintain relationships with employees, suppliers and other business partners;
•the acquisition of businesses, including the acquisition of the Alliance Healthcare businesses and related strategic transactions, that do not perform as expected, or that are difficult to integrate or control, or the inability to capture all of the anticipated synergies related thereto or to capture the anticipated synergies within the expected time period;
•risks associated with the strategic, long-term relationship between WBA and the Company, including with respect to the pharmaceutical distribution agreement and/or the global generic purchasing services arrangement;
•managing foreign expansion, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws, economic sanctions and import laws and regulations;
•our ability to respond to financial market volatility and disruption;
•changes in tax laws or legislative initiatives that could adversely affect the Company's tax positions and/or the Company's tax liabilities or adverse resolution of challenges to the Company's tax positions;
•the loss, bankruptcy or insolvency of a major supplier, or substantial defaults in payment, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer, including as a result of COVID-19;
•financial and other impacts of COVID-19 on our operations or business continuity;
•changes to the customer or supplier mix;
•malfunction, failure or breach of sophisticated information systems to operate as designed, and risks generally associated with cybersecurity;
•risks generally associated with data privacy regulation and the international transfer of personal data;
•financial and other impacts of macroeconomic and geopolitical trends and events, including the unfolding situation in Russia and Ukraine and its regional and global ramifications;
•natural disasters or other unexpected events, such as additional pandemics, that affect the Company’s operations;
•the impairment of goodwill or other intangible assets (including any additional impairments with respect to foreign operations), resulting in a charge to earnings;
•the Company's ability to manage and complete divestitures;
•the disruption of the Company’s cash flow and ability to return value to its stockholders in accordance with its past practices;
•interest rate and foreign currency exchange rate fluctuations;
•declining economic conditions and increases in inflation in the United States and abroad; and
•other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting the Company’s business generally.
These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.