NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
Note 1. Summary of Significant Accounting Policies
AmerisourceBergen Corporation and its subsidiaries, including less-than-wholly-owned subsidiaries in which AmerisourceBergen Corporation has a controlling financial interest (the "Company"), is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. The Company delivers innovative programs and services designed to improve the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health.
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, at the beginning 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 Distribuidora de Produtos Farmacêuticos S.A. ("Profarma")), MWI Animal Health ("MWI"), 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 prior period segment disclosures have been revised to reflect this change in reportable segments.
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations, and cash flows of the Company as of the dates and for the periods indicated. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("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 due to uncertainties inherent in such estimates. Management periodically evaluates estimates used in the preparation of the financial statements for continued reasonableness.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach was required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective.
The Company adopted ASU 2016-13 as of October 1, 2020. In connection with the adoption of ASU 2016-13, the Company recognized a $21.1 million, net of tax of $6.1 million, cumulative adjustment to retained earnings.
For the Company's credit loss policy, refer to the "Concentrations of Credit Risk and Allowance for Credit Losses" section of Note 1.
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.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of September 30, 2022, there were no recently issued accounting standards that may have a material impact on the Company's financial position, results of operations, or cash flows upon their adoption.
Business Combinations
The assets acquired and liabilities assumed from an acquired business are recorded at fair value, with the residual of the purchase price recorded as goodwill. The results of operations of an acquired businesses are included in the Company's operating results from the date of acquisition.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.
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, including opioid-related legal settlements.
The following represents a reconciliation of cash and cash equivalents in the Consolidated Balance Sheets to cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | | | | | | | |
| | September 30, |
(amounts in thousands) | | 2022 | | 2021 | | 2020 |
Cash and cash equivalents | | $ | 3,388,189 | | | $ | 2,547,142 | | | $ | 4,597,746 | |
Restricted cash (included in Prepaid Expenses and Other) | | 144,980 | | | 462,986 | | | — | |
Restricted cash (included in Other Assets) | | 60,370 | | | 60,000 | | | — | |
Cash, cash equivalents, and restricted cash | | $ | 3,593,539 | | | $ | 3,070,128 | | | $ | 4,597,746 | |
Concentrations of Credit Risk and Allowance for Credit Losses
The Company sells its inventories to a large number of customers in the healthcare industry that include institutional and retail healthcare providers. Institutional healthcare providers include acute care hospitals, health systems, mail order pharmacies, long-term care and other alternate care pharmacies and providers of pharmacy services to such facilities, and physician offices. Retail healthcare providers include national and regional retail drugstore chains, independent community pharmacies, pharmacy departments of supermarkets and mass merchandisers, and veterinarians. The financial condition of the Company's customers can be affected by changes in government reimbursement policies as well as by other economic pressures in the healthcare industry.
The Company's trade accounts receivables are exposed to credit risk. Revenue from the various agreements and arrangements with the Company's largest customer in the fiscal year ended September 30, 2022, Walgreens Boots Alliance, Inc. ("WBA"), accounted for approximately 27% of revenue and represented approximately 38% of accounts receivable, net of incentives, as of September 30, 2022. Express Scripts, Inc., the Company's second largest customer in the fiscal year ended September 30, 2022, accounted for approximately 13% of revenue and represented approximately 7% of accounts receivable as of September 30, 2022. The Company generally does not require collateral for trade receivables. The Company evaluates its receivables for risk of loss by grouping its receivables with similar risk characteristics. Expected losses are determined based on a combination of historical loss trends, current economic conditions, and forward-looking risk factors. Changes in these factors, among others, may lead to adjustments in the Company's allowance for credit losses. The calculation of the required allowance requires judgment by Company management as to the impact of those and other factors on the ultimate realization of its trade receivables. Each of the Company's business units performs ongoing credit evaluations of its customers' financial condition and maintains reserves for expected credit losses for specific credit problems when they arise. There were no significant changes to this process during the fiscal years ended September 30, 2022, 2021, and 2020, and bad debt expense was computed in a consistent manner during these periods.
The Company maintains cash, cash equivalents, and restricted cash with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and, therefore, bear minimal credit risk. The Company seeks to mitigate such risks by monitoring the risk profiles of these counterparties. The Company also seeks to mitigate risk by monitoring the investment strategy of money market accounts in which it is invested, which are classified as cash equivalents.
Contingencies
Loss 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 liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company also performs an assessment of the materiality of loss contingencies where a loss is either not probable or it is reasonably possible that a loss could be incurred in excess of amounts accrued. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the financial statements would be material, the Company provides disclosure of the loss contingency in the notes to its financial statements. The Company reviews all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made. Among the loss contingencies that the Company considered in accordance with the foregoing in connection with the preparation of the accompanying financial statements were the opioid matters described in Note 13.
Gain Contingencies: The Company records gain contingencies when they are realized. Gains from antitrust litigation settlements are realized upon the receipt of cash and recorded as a reduction to cost of goods sold because they represent a recovery of amounts historically paid to manufacturers to originally acquire the pharmaceuticals that were the subject of the antitrust litigation settlements (see Note 14).
Derivative Financial Instruments
The Company utilizes derivative financial instruments to manage exposures to foreign currency. The Company records all derivative financial instruments on the balance sheet at fair value and complies with established criteria for designation and effectiveness of hedging relationships. The Company's policy prohibits it from entering into derivative financial instruments for speculative or trading purposes.
Foreign Currency
When the functional currency of the Company's foreign operations is the applicable local currency, assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the weighted average exchange rates for the period. The resulting asset and liability translation adjustments are recorded as a component of Accumulated Other Comprehensive Loss within Stockholders' Equity.
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, Turkish Lira-denominated assets and liabilities are remeasured using the Company's reporting currency in accordance with ASC 830, "Foreign Currency Matters." Turkish Lira denominated monetary assets and liabilities (primarily 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 in the Statement of Operations. Turkish Lira-denominated nonmonetary assets and liabilities (primarily 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 fiscal year ended September 30, 2022, the Company recorded an incremental expense of $40.0 million in Cost of Goods Sold related to the consumption of inventory and an expense of $11.9 million within Other Income related to the currency remeasurement of monetary assets and liabilities.
Goodwill and Other Intangible Assets
Goodwill arises from acquisitions or consolidations of specific operating companies and is assigned to the reporting unit in which a particular operating company resides. The Company identifies its reporting units based upon the Company's management reporting structure, beginning with its operating segments. The Company aggregates two or more components within an operating segment that have similar economic characteristics. The Company evaluates whether the components within its operating segments have similar economic characteristics, which include the similarity of long-term gross margins, the nature of the components' products, services, and production processes, the types of customers and the methods by which products or services are delivered to customers, and the components' regulatory environment. The Company announced a strategic reorganization of its business and began reporting externally under the new structure as of October 1, 2021. As of September 30, 2022, the Company’s reporting units include Pharmaceutical Distribution Services, U.S. Consulting Services, MWI, Alliance Healthcare, Innomar, World Courier, and Profarma.
Goodwill and other intangible assets with indefinite lives, such as certain trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually. For the purpose of these impairment tests, the Company can elect to perform a qualitative assessment to determine if it is more likely than not that the fair values of its reporting units and indefinite-lived intangible assets are less than the respective carrying values of those reporting units and indefinite-lived intangible assets, respectively. Such qualitative factors can include, among others, industry and market conditions, overall financial performance, and relevant entity-specific events. If the Company concludes based on its qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, it performs a quantitative analysis. The Company elected to perform a quantitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2022. The Company elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2021, with the exception of its testing of goodwill in the AmerisourceBergen Consulting Services (the sum of U.S. Consulting Service and Innomar reporting units, under the Company’s prior reporting structure) and Profarma reporting units. The Company elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2020, with the exception of its testing of goodwill and indefinite-lived intangibles in the MWI and Profarma reporting units.
The quantitative goodwill impairment test requires the Company to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized. If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill allocated to the reporting unit.
When performing a quantitative impairment assessment, the Company utilizes an income-based approach to value its reporting units, with the exception of the Profarma reporting unit, the fair value of which is based upon its publicly-traded stock price, plus an estimated control premium. The income-based approach relies on a discounted cash flow analysis, which considers forecasted cash flows discounted at an appropriate discount rate, to determine the fair value of each reporting unit. The Company generally believes that market participants would use a discounted cash flow analysis to determine the fair value of the Company's reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization, capital expenditures, and working capital requirements, which are based upon the Company's long-range plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While the Company uses the best available information to prepare its forecasted cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, the Company's overall methodology and the population of assumptions used have remained unchanged.
The quantitative impairment test for indefinite-lived intangibles other than goodwill (certain trademarks and trade names) consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company estimates the fair value of its indefinite-lived intangibles using the relief from royalty method. The Company believes the relief from royalty method is a widely used valuation technique for such assets. The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from owning such indefinite-lived trademarks and trade names and not having to pay a royalty for their use.
The Company completed its required annual impairment tests relating to goodwill and indefinite-lived intangible assets in the fiscal years ended September 30, 2022, 2021, and 2020. The Company recorded goodwill impairments of $75.9 million and $6.4 million in its Profarma reporting unit in connection with its fiscal 2022 and 2021 impairment tests (see Note 5), respectively. No goodwill impairments were recorded in the fiscal years ended September 30, 2020, and no indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2022, 2021, or 2020.
Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets. The Company performs a recoverability assessment of its long-lived assets when impairment indicators are present.
The Company recorded impairments of intangible and tangible assets totaling $361.7 million in the fiscal year ended September 30, 2020 in connection with the permanent shutdown of its compounding business.
Held for Sale
Assets and liabilities to be disposed of by sale ("disposal groups") are reclassified into assets and liabilities held for sale on the Company's Consolidated Balance Sheet. The reclassification occurs when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying value or fair value less costs to sell and are not depreciated or amortized. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group.
Income Taxes
The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities (commonly known as the asset and liability method). In assessing the need to establish a valuation allowance on deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, including settlements with tax authorities or resolutions of any related appeals or litigation processes, based upon the technical merits of the position. Tax benefits associated with uncertain tax positions that have met the recognition criteria are measured and recorded based upon the highest probable outcome that is more than 50% likely to be realized after full disclosure and resolution of a tax examination.
Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 66% of the Company's inventories as of September 30, 2022 and 2021 has been determined using the last-in, first-out ("LIFO") method. If the Company had used the first-in, first-out method of inventory valuation, which approximates current replacement cost, inventories would have been approximately $1,383.4 million and $1,316.2 million higher than the amounts reported as of September 30, 2022 and 2021, respectively. The Company recorded LIFO expense of $67.2 million and $7.4 million in the fiscal years ended September 30, 2022 and 2020, respectively, and a LIFO credit of $203.0 million in the fiscal year ended September 30, 2021. The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory quantities, and product mix, many of which are difficult to predict. Changes to any of the above factors can have a material impact to the Company's annual LIFO provision.
Investments
The Company first evaluates its investments in accordance with the variable interest model to determine whether it has a controlling financial interest in an investment. This evaluation is made as of the date on which the Company makes its initial investment, and subsequent evaluations are made if the structure of the investment changes. If it has determined that an investment is a variable interest entity ("VIE"), the Company evaluates whether the VIE is required to be consolidated. When the Company holds rights that give it the power to direct the activities of an entity that most significantly impact the entity's economic performance, combined with the obligation to absorb an entity's losses and the right to receive benefits, the Company consolidates a VIE. If it is determined that an investment is not a VIE, the Company then evaluates its investments under the voting interest model and generally consolidates investments in which it holds an ownership interest of greater than 50%. When the Company consolidates less-than-wholly-owned subsidiaries, it presents its noncontrolling interest in its consolidated financial statements.
For equity securities without a readily determinable fair value, the Company uses the fair value measurement alternative and measures the securities at cost less impairment, if any, including adjustments for observable price changes in orderly transactions for an identical or similar investment of the same issuer. For investments in which the Company can exercise significant influence but does not control, it uses the equity method of accounting. The Company's share of earnings and losses of its investments is recorded in Other Income in the Consolidated Statements of Operations. The Company monitors its investments for impairment by considering factors such as the operating performance of the investment and current economic and market conditions.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. At the lease commencement date, operating and finance lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and, as such, the Company uses its incremental borrowing rate to discount the lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Certain adjustments to the right-of-use ("ROU") asset may be required for items such as incentives received. The Company does not recognize on the balance sheet leases with terms of one year or less.
The Company has operating leases that are primarily comprised of buildings, office equipment, distribution center equipment, and vehicles. Some of the Company's leases include options to extend or early terminate the lease, which are included in the lease term when it is reasonably certain to exercise and there is a significant economic incentive to exercise that option. Certain lease agreements contain provisions for future rent increases. Lease payments included in the measurement of the lease liability comprise fixed payments. The Company combines lease and non-lease components as a single component. Operating lease cost is recognized over the expected lease term on a straight-line basis and is recorded in Distribution, Selling, and Administrative in the Company's Consolidated Statements of Operations. Variable lease payments, which are primarily comprised of maintenance, taxes, and other payments based on usage, are recognized when the expense is incurred. The Company's leases do not contain residual value guarantees.
Manufacturer Incentives
The Company considers fees and other incentives received from its suppliers relating to the purchase and distribution of inventory to represent product discounts, and, as a result, they are recognized within cost of goods sold upon the sale of the related inventory.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years for buildings and improvements and from 3 to 10 years for machinery, equipment, and other. The costs of repairs and maintenance are charged to expense as incurred.
The Company capitalizes project costs relating to computer software developed or obtained for internal use when the activities related to the project reach the application development stage. Costs that are associated with preliminary stage activities, training, maintenance, and all other post-implementation stage activities are expensed as they are incurred. Software development costs are depreciated using the straight-line method over the estimated useful lives, which range from 3 to 10 years.
The following table summarizes the Company's property and equipment balances for the periods indicated:
| | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2022 | | 2021 |
Property and equipment, at cost: | | | | |
Land | | $ | 122,426 | | | $ | 129,944 | |
Buildings and improvements | | 840,852 | | | 838,615 | |
Machinery, equipment, and other | | 3,424,070 | | | 3,113,132 | |
Total property and equipment | | 4,387,348 | | | 4,081,691 | |
Less accumulated depreciation | | (2,252,345) | | | (1,918,730) | |
Property and equipment, net | | $ | 2,135,003 | | | $ | 2,162,961 | |
Revenue Recognition
The Company's revenues are primarily generated from the distribution of pharmaceutical products. The Company also generates revenues from global commercialization services, which include clinical trial support, post-approval and commercialization support, and global specialty transportation and logistics for the biopharmaceutical industry. See Note 15 for the Company's disaggregated revenue.
The Company recognizes revenue related to the distribution of products at a point in time when title and control transfers to customers and there is no further obligation to provide services related to such products. Service revenue is recognized over the period that services are provided to the customer. The Company is generally the principal in a transaction;
therefore, revenue is primarily recorded on a gross basis. When the Company is the principal in a transaction, it has determined that it controls the ability to direct the use of the product or service prior to the transfer to a customer, it is primarily responsible for fulfilling the promise to provide the product or service to its customer, it has discretion in establishing pricing, and it controls the relationship with the customer. Revenue is recognized at the amount of consideration expected to be received. For the distribution business, revenue is primarily generated from a contract related to a confirmed purchase order with a customer in a distribution arrangement and is net of estimated sales returns and allowances, other customer incentives, and sales tax.
When the Company is the agent in a transaction, the fee received from a manufacturer customer is recognized within revenue as the service is performed.
The Company's customer sales return policy generally allows customers to return products only if the products can be resold at full value or returned to suppliers for full credit. The Company records an accrual for estimated customer sales returns at the time of sale to the customer based upon historical return trends. As of September 30, 2022 and 2021, the Company's accrual for estimated customer sales returns was $1,532.1 million and $1,271.6 million, respectively.
Share-Based Compensation
The Company accounts for the compensation cost of all share-based payments at fair value. The fair value of restricted stock units and performance stock units is based upon the grant date market price of the Company’s common stock. The Company estimated the fair value of options granted in fiscal 2020 using a binomial option pricing model.
Share-based compensation expense is recognized over the requisite service period within Distribution, Selling, and Administrative in the Consolidated Statements of Operations to correspond with the same line item as the cash compensation paid to employees. Compensation expense associated with nonvested performance stock units is dependent upon the Company's periodic assessment of the probability of the targets being achieved and its estimate of the number of shares that will ultimately be issued.
The income tax effects of awards are recognized when the awards vest or are settled and are recognized in Income Tax Expense in the Company’s Consolidated Statements of Operations.
Shipping and Handling Costs
Shipping and handling costs include all costs to warehouse, pick, pack, and deliver inventory to customers. These costs, which were $1,040.8 million, $809.3 million, and $665.3 million for the fiscal years ended September 30, 2022, 2021, and 2020, respectively, are included in Distribution, Selling, and Administrative in the Company's Consolidated Statements of Operations.
Supplier Reserves
The Company establishes reserves against amounts due from its suppliers relating to various price and rebate incentives, including deductions or billings taken against payments otherwise due to them from the Company. These reserve estimates are established based upon the judgment of Company management after carefully considering the status of current outstanding claims, historical experience with the suppliers, the specific incentive programs, and any other pertinent information available to the Company. The Company evaluates the amounts due from its suppliers on a continual basis and adjusts the reserve estimates when appropriate based upon changes in factual circumstances. The ultimate outcome of any outstanding claim may be different than the Company's estimate.
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 fiscal year ended September 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 estimated fair value of the intangible assets acquired of $3.7 billion and the estimated 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 expected to be 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 are included in Acquisition, Integration, and Restructuring Expenses in the Company's Statements of Operations for the twelve months ended September 30, 2021.
See Part I. Other Information-Item 1A. Risk Factors of this Annual Report on Form 10-K for additional risk factors related to our strategic transactions with WBA.
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 International Healthcare Solutions reportable segment.
In connection with the held for sale classification, the Company recorded a total loss of $16.3 million 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 in the fiscal year ended September 30, 2022. The Company previously recorded a loss of $11.3 million in fiscal year ended September 30, 2021. The Company completed the sales of the disposal groups in the fiscal year ended September 30, 2022 and received total proceeds of $267.6 million, subject to final working capital adjustments. In connection with the sales of these disposal groups, the Company recorded a gain of $52.6 million, which is included in Other Income, Net in the Company's Consolidated Statements of Operations.
Total assets and liabilities of the combined disposal groups held for sale on the September 30, 2021 Consolidated Balance Sheet are comprised of the following:
| | | | | | | | |
(in thousands) | | |
Cash and cash equivalents | | $ | 1,751 | |
Accounts receivable, 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 a 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 that 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 Sheet for the periods indicated:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2022 | | September 30, 2021 |
Cash and cash equivalents | | $ | 23,144 | | | $ | 33,699 | |
Accounts receivables, net | | 192,930 | | | 148,485 | |
Inventories | | 207,858 | | | 168,229 | |
Prepaid expenses and other | | 63,982 | | | 62,545 | |
Property and equipment, net | | 35,554 | | | 31,920 | |
Goodwill | | — | | | 75,936 | |
Other intangible assets | | 66,568 | | | 70,840 | |
Other long-term assets | | 71,327 | | | 74,177 | |
Total assets | | $ | 661,363 | | | $ | 665,831 | |
| | | | |
Accounts payable | | $ | 215,515 | | | $ | 162,768 | |
Accrued expenses and other | | 47,952 | | | 38,477 | |
Short-term debt | | 60,851 | | | 64,215 | |
Long-term debt | | 64,918 | | | 52,613 | |
Deferred income taxes | | 25,801 | | | 37,041 | |
Other long-term liabilities | | 52,417 | | | 57,945 | |
Total liabilities | | $ | 467,454 | | | $ | 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.
Profarma Retail Equity Offering
In August 2020, Profarma received $66.4 million through an equity offering of its retail business. The equity offering decreased Profarma's voting ownership interest in the retail business from 100% to 53.5%. Profarma continues to consolidate the operating results of the retail business in its consolidated financial statements.
Note 4. Income Taxes
The following table summarizes the Company's income (loss) before income taxes for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Domestic | | $ | 1,351,696 | | | $ | 1,495,899 | | | $ | (5,961,269) | |
Foreign | | 831,361 | | | 725,960 | | | 667,438 | |
Total | | $ | 2,183,057 | | | $ | 2,221,859 | | | $ | (5,293,831) | |
The components of the Company's consolidated income tax expense (benefit) are summarized in the following table for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Current provision (benefit): | | | | | | |
Federal | | $ | 126,969 | | | $ | 184,375 | | | $ | (473,751) | |
State and local | | 39,282 | | | 30,659 | | | 30,236 | |
Foreign | | 154,082 | | | 127,351 | | | 94,213 | |
Total current provision (benefit) | | 320,333 | | | 342,385 | | | (349,302) | |
Deferred provision (benefit): | | | | | | |
Federal | | 150,328 | | | 111,428 | | | (914,613) | |
State and local | | 31,129 | | | 47,516 | | | (264,409) | |
Foreign | | 14,727 | | | 175,922 | | | (365,949) | |
Total deferred provision (benefit) | | 196,184 | | | 334,866 | | | (1,544,971) | |
Provision (benefit) for income taxes | | $ | 516,517 | | | $ | 677,251 | | | $ | (1,894,273) | |
A reconciliation of the statutory U.S. federal income tax rate to the Company's consolidated effective income tax rate is as follows for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended September 30, |
| 2022 | | 2021 | | 2020 |
Statutory U.S. federal income tax rate | 21.0% | | 21.0% | | 21.0% |
State and local income tax rate, net of federal tax benefit | 2.5 | | 2.8 | | (0.5) |
Tax effect of foreign operations | (1.9) | | (0.5) | | 1.0 |
Litigation settlements and accruals (see Note 13) | 0.4 | | 0.8 | | (6.2) |
Tax law changes 1 | — | | 7.3 | | 6.8 |
PharMEDium worthless stock deduction | — | | (1.1) | | 12.4 |
CARES Act | — | | — | | 1.2 |
Other, net | 1.7 | | 0.2 | | 0.1 |
Effective income tax rate | 23.7% | | 30.5% | | 35.8% |
| | | | | |
1 Tax law changes include 5.7% related to UK Tax Reform and 1.6% related to Swiss Tax Reform in fiscal 2021 and 6.8% in fiscal 2020 related to Swiss Tax Reform. |
United Kingdom Tax Reform
The United Kingdom ("UK") government delivered a Spring Budget in March 2021 that set out a plan to provide continuing support for jobs and businesses as the UK recovers from the COVID-19 pandemic. The UK government Finance Act 2021 includes a provision to increase the corporate tax rate from 19% to 25% beginning on April 1, 2023. As a result, the Company recognized a deferred tax expense of $127.6 million to increase its deferred tax liabilities for the change in the tax rate in the fiscal year ended September 30, 2021.
The Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act became law on March 27, 2020. The CARES Act was a response to the market volatility and instability resulting from the coronavirus pandemic and included provisions to support businesses in the form of loans, grants, and tax changes, among other types of relief that were not previously available under the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act"). The CARES Act provided the Company relief through adjustments to net operating loss rules and the acceleration of available refunds for alternative minimum tax credit carryforwards.
PharMEDium
The Company decided in January 2020 to shut down and permanently exit its compounding business. Following the decision to exit PharMEDium and in connection with the permanent shutdown of this business, PharMEDium underwent a voluntary change in tax status, which resulted in the Company recognizing a worthless stock ordinary income tax deduction of approximately $2.4 billion and, in turn, yielded a tax benefit of approximately $655 million. The estimated tax benefit was higher than it would have been prior to the enactment of the CARES Act as the net operating losses resulting from the worthless stock deduction could now be carried back to years with higher statutory tax rates.
In addition to the PharMEDium worthless stock deduction, the Company recognized other discrete tax benefits primarily resulting from the CARES Act. In the aggregate, the Company recognized discrete tax benefits of $720.6 million in the fiscal year ended September 30, 2020.
The Company's September 30, 2022 Consolidated Balance Sheet includes a current income tax receivable balance of $172.6 million primarily resulting from the recognition of the above discrete tax benefits.
Swiss Tax Reform
In August 2020, the Canton of Bern enacted tax reforms to comply with requirements imposed by earlier Swiss federal tax reforms, which were retroactively effective as of January 1, 2020. A key provision of the Swiss federal tax reforms was the elimination of cantonal preferential tax regimes, which had the effect of increasing overall tax rates on Swiss income. To phase in the tax rate increase, the canton of Bern granted a tax ruling to the Company that effectively reduces the Company's Swiss tax rate for a period of 10 years.
As a result of the aforementioned Swiss tax law change and ruling, the Company recorded a deferred tax asset in the fiscal year ended September 30, 2020 that is expected to be realized over the following 10 years. As of September 30, 2022, the deferred tax asset of $446.6 million was reduced by a $234.0 million valuation allowance for the amount that more likely than not will not be realized.
In November 2020, the Canton of Bern approved its Budget 2021, which called for lowering its corporate income tax rate applicable to the Company’s Swiss operations effective October 1, 2020. As a result, the Company recognized a deferred tax expense to reduce its Swiss deferred tax asset for the change in tax rate.
Opioid Legal Accrual
In the fiscal years ended September 30, 2022, 2021, and 2020 the Company recorded accruals related to the opioid litigation settlements of $36.6 million, $147.7 million, and $6.6 billion, respectively (see Note 13). The Company's September 30, 2022 Consolidated Balance Sheet includes a net deferred tax asset of $981.6 million in connection with the total expense accrued.
Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts. Significant components of the Company's deferred tax liabilities (assets) are as follows:
| | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2022 | | 2021 |
Inventories | | $ | 1,471,064 | | | $ | 1,388,913 | |
Property and equipment | | 149,896 | | | 167,974 | |
Goodwill and other intangible assets | | 1,184,477 | | | 1,409,296 | |
Right-of-use assets | | 219,616 | | | 249,920 | |
Other | | 61,148 | | | 57,450 | |
Gross deferred tax liabilities | | 3,086,201 | | | 3,273,553 | |
| | | | |
Net operating loss and tax credit carryforwards | | (426,651) | | | (389,724) | |
Allowance for credit losses | | (67,788) | | | (27,569) | |
Accrued expenses | | (24,435) | | | (13,411) | |
Accrued litigation liability | | (981,627) | | | (1,082,845) | |
Employee and retiree benefits | | (22,682) | | | (26,196) | |
Goodwill and other intangible assets | | (446,605) | | | (488,235) | |
Lease liabilities | | (241,469) | | | (263,278) | |
Share-based compensation | | (33,933) | | | (37,466) | |
Other | | (75,428) | | | (88,855) | |
Gross deferred tax assets | | (2,320,618) | | | (2,417,579) | |
Valuation allowance for deferred tax assets | | 617,259 | | | 538,531 | |
Deferred tax assets, net of valuation allowance | | (1,703,359) | | | (1,879,048) | |
Net deferred tax liabilities | | $ | 1,382,842 | | | $ | 1,394,505 | |
As of September 30, 2022, the Company had $2.6 million of potential tax benefits from federal net operating loss carryforwards, which expire in 15 years, $136.0 million of potential tax benefits from state net operating loss carryforwards and $297.2 million of potential tax benefits from foreign net operating loss carryforwards, which have varying expiration dates. The Company had $6.0 million of state tax credit carryforwards and $3.1 million in foreign alternative minimum tax credit carryforwards.
The Company assesses the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets. For the fiscal year ended September 30, 2022 and 2021, the Company increased the valuation allowance on deferred tax assets by $78.7 million and $126.9 million, respectively. The increase in the valuation allowance in the fiscal year ended September 30, 2022 was primarily due to the increase in the valuation allowance against foreign net operating loss carryforwards. The increase in the valuation allowance in the fiscal year ended September 30, 2021 was primarily due to the valuation allowance established in connection with purchase accounting associated with Alliance Healthcare acquisition.
In the fiscal years ended September 30, 2022, 2021, and 2020 tax benefits of $13.4 million, $8.2 million and $3.9 million, respectively, related to the exercise of employee stock options and lapses of restricted stock units were recorded in Income Tax Expense (Benefit) in the Company's Consolidated Statements of Operations. The tax benefits recognized in the fiscal years ended September 30, 2022, 2021, and 2020 are not necessarily indicative of amounts that may arise in future periods.
Income tax payments, net of refunds, were $244.4 million, $93.5 million, and $139.4 million in the fiscal years ended September 30, 2022, 2021, and 2020, respectively.
Cumulative undistributed earnings of international subsidiaries were $3.7 billion as of September 30, 2022, $2.1 billion of which is considered permanently reinvested. It is not practicable to estimate the taxes that would be due if such earnings were to be repatriated in the future.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is currently undergoing a U.S. federal income tax audit for fiscal years 2019 and 2018 and certain state and local income tax audits for various years. With few exceptions, the Company is no longer subject to U.S. federal tax
examinations for years before 2018, and state and local, or foreign income tax examinations by tax authorities for years before 2019. The Company believes it has adequate tax reserves to cover potential federal, state or foreign tax exposures.
As of September 30, 2022 and 2021, 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 $553.2 million and $522.8 million, respectively ($479.6 million and $467.9 million, net of federal tax benefit, respectively). If recognized in the fiscal years ended September 30, 2022 and 2021, $461.4 million and $449.7 million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. As of September 30, 2022 and 2021, included in the unrecognized tax benefits are $26.7 million and $22.4 million of interest and penalties, respectively, which the Company records in Income Tax Expense (Benefit) in the Company's Consolidated Statements of Operations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, for the periods indicated is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Unrecognized tax benefits at beginning of period | | $ | 500,399 | | | $ | 478,351 | | | $ | 105,657 | |
Additions of tax positions of the current year | | 21,074 | | | 20,515 | | | 385,797 | |
Additions to tax positions of the prior years | | 5,073 | | | 17,022 | | | 5,599 | |
Reductions of tax positions of the prior years | | — | | | — | | | (6,480) | |
| | | | | | |
Expiration of statutes of limitations | | (24) | | | (15,489) | | | (12,222) | |
Unrecognized tax benefits at end of period | | $ | 526,522 | | | $ | 500,399 | | | $ | 478,351 | |
Included in the additions of unrecognized tax benefits in the fiscal year ended September 30, 2020 is $371.5 million for an unrecognized tax benefit related to the $6.6 billion legal accrual for litigation related to the global opioid settlement, as well as other opioid-related litigation, as disclosed in Note 13. The Company has applied significant judgment in estimating the amount of the opioid settlements that will be deductible for U.S. federal and state purposes. In estimating the amount that would be deductible, the Company considered prior U.S. tax case law, the amount and character of the damages sought in litigation, and other relevant factors. During the next 12 months, it is reasonably possible that tax audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $21.2 million.
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 fiscal years ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | U.S. Healthcare Solutions | | International Healthcare Solutions | | Total |
Goodwill as of September 30, 2020 (as revised) | | $ | 6,267,502 | | | $ | 439,217 | | | $ | 6,706,719 | |
Goodwill recognized in connection with acquisitions (Note 2) | | 19,076 | | | 2,469,152 | | | 2,488,228 | |
Goodwill impairment | | — | | | (6,373) | | | (6,373) | |
Goodwill reclassified to assets held for sale (Note 2) | | (27,223) | | | (4,680) | | | (31,903) | |
Foreign currency translation | | 1,019 | | | (127,159) | | | (126,140) | |
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 | | 26,143 | | | — | | | 26,143 | |
Goodwill derecognized in connection with disposal | | (1,224) | | | — | | | (1,224) | |
Goodwill impairment | | — | | | (75,936) | | | (75,936) | |
Foreign currency translation | | (5,053) | | | (497,761) | | | (502,814) | |
Goodwill as of September 30, 2022 | | $ | 6,280,240 | | | $ | 2,223,646 | | | $ | 8,503,886 | |
In connection with the Company's annual goodwill impairment test as of July 1, 2021, the Company recorded a goodwill impairment of $6.4 million in its Profarma reporting unit. The fair value of the reporting unit was determined based upon Profarma's publicly-traded stock price, plus an estimated control premium. This represents a level 2 nonrecurring fair value measurement.
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 fiscal year ended September 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | September 30, 2021 |
(dollars 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 | | | | $ | 667,932 | | | $ | — | | | $ | 667,932 | | | $ | 668,119 | | | $ | — | | | $ | 668,119 | |
Finite-lived: | | | | | | | | | | | | | | |
Customer relationships | | 15 years | | 4,226,547 | | | (931,961) | | | 3,294,586 | | | 4,838,549 | | | (718,750) | | | 4,119,799 | |
Trade names and other | | 11 years | | 542,346 | | | (172,127) | | | 370,219 | | | 609,050 | | | (140,041) | | | 469,009 | |
Total other intangible assets | | | | $ | 5,436,825 | | | $ | (1,104,088) | | | $ | 4,332,737 | | | $ | 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 $307.3 million, $178.3 million, and $110.9 million in the fiscal years ended September 30, 2022, 2021, and 2020, respectively. Amortization expense for finite-lived intangible assets is estimated to be $275.5 million in fiscal 2023, $274.3 million in fiscal 2024, $273.3 million in fiscal 2025, $268.9 million in fiscal 2026, $264.2 million in 2027, and $2,308.6 million thereafter.
Note 6. Debt
Debt consisted of the following:
| | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2022 | | 2021 |
Revolving credit note | | $ | — | | | $ | — | |
Money market facility | | — | | | — | |
Receivables securitization facility due 2025 | | 350,000 | | | 350,000 | |
| | | | |
Term loan due June 2023 | | — | | | 249,640 | |
Overdraft facility due 2024 (£10,000) | | — | | | — | |
Multi-currency revolving credit facility due 2027 | | — | | | — | |
| | | | |
0.737% senior notes due 2023 | | 672,736 | | | 1,518,223 | |
$500,000, 3.400% senior notes due 2024 | | 499,195 | | | 498,714 | |
$500,000, 3.250% senior notes due 2025 | | 498,347 | | | 497,669 | |
$750,000, 3.450% senior notes due 2027 | | 745,622 | | | 744,781 | |
$500,000, 2.800% senior notes due 2030 | | 495,348 | | | 494,738 | |
$1,000,000, 2.700% senior notes due 2031 | | 990,480 | | | 989,366 | |
$500,000, 4.250% senior notes due 2045 | | 495,162 | | | 494,946 | |
$500,000, 4.300% senior notes due 2047 | | 493,288 | | | 493,021 | |
Alliance Healthcare debt | | 336,886 | | | 235,998 | |
Nonrecourse debt | | 125,769 | | | 116,828 | |
Total debt | | 5,702,833 | | | 6,683,924 | |
Less AmerisourceBergen Corporation current portion | | 672,736 | | | — | |
Less Alliance Healthcare current portion | | 336,886 | | | 235,998 | |
Less nonrecourse current portion | | 60,851 | | | 64,215 | |
Total, net of current portion | | $ | 4,632,360 | | | $ | 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 was scheduled to expire in November 2026. In October 2022, the Company amended the Multi-currecy Revolving Credit Facility to extend the expiration to October 2027 and to make certain changes to effect a transition from the LIBOR interest rate benchmark to Term SOFR. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon the Company's debt rating and ranges from 80.5 basis points to 122.5 basis points over SOFR/EURIBOR/CDOR/RFR, as applicable (101.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2022) and from 0 basis points to 22.5 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 7 basis points to 15 basis points, annually, of the total commitment (11 basis points as of September 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 September 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 September 30, 2022 and 2021.
Receivables Securitization Facility
The Company has a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire in November 2024. In October 2022, the Company amended the Receivables Securitization Facility (the “Receivables Amendment”) to extend the expiration for an additional one year to October 2025. In addition, the Receivables Amendment made certain changes to (i) substitute Term SOFR for LIBOR as a benchmark and establish procedures to choose a new benchmark if Term SOFR becomes unavailable, (ii) provide for the return of erroneous payments, if any, by purchasers, (iii) update provisions regarding compliance with sanctions and anti-money laundering laws, and (iv) implement certain other technical amendments. 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 30-day Term SOFR, 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.
In connection with the Receivables Securitization Facility, AmerisourceBergen Drug Corporation and a specialty distribution subsidiary sell on a revolving basis certain accounts receivable to Amerisource Receivables Financial Corporation, a wholly-owned special purpose entity, which in turn sells a percentage ownership interest in the receivables to financial institutions and commercial paper conduits sponsored by financial institutions. AmerisourceBergen Drug Corporation is the servicer of the accounts receivable under the Receivables Securitization Facility. As sold receivables are collected, additional receivables may be sold up to the maximum amount available under the facility. The facility is a financing vehicle utilized by the Company because it generally offers an attractive interest rate relative to other financing sources. The Company securitizes its trade accounts, which are generally non-interest bearing, in transactions that are accounted for as borrowings. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of September 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 an uncommitted U.K. overdraft facility ("Overdraft Facility") to fund short-term normal trading cycle fluctuations related to its MWI Animal Health business. In February 2021, the Company extended the Overdraft Facility to February 2024 and reduced the borrowing capacity from £30 million to £10 million. 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 Loans
The Company's $400 million October 2018 Term Loan matured and was repaid in October 2020.
In February 2021, the Company entered into a $1.0 billion variable-rate term loan (“February 2021 Term Loan”), which was available to be drawn on the closing date of the acquisition of Alliance Healthcare. In April 2021, the Company reduced its commitment under the February 2021 Term Loan to $500 million. In June 2021, the Company borrowed $500 million under the February 2021 Term Loan to finance a portion of the June 2021 Alliance Healthcare acquisition. The Company elected to make principal payments of $250 million in September 2021 and again in March 2022 to repay the loan that was scheduled to mature in 2023.
Senior Notes
In May 2020, the Company issued $500 million of 2.80% senior notes due May 15, 2030 (the "2030 Notes"). The 2030 Notes were sold at 99.71% of the principal amount and have an effective yield of 2.81%. Interest on the 2030 Notes is payable semi-annually in arrears, commencing on November 15, 2020. The 2030 Notes rank pari passu to the Company's other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility.
The Company used the proceeds from the 2030 Notes to finance the early retirement of the $500 million of 3.50% senior notes that were due in 2021 and made a $21.4 million prepayment premium in connection with this early retirement.
In March 2021, the Company issued $1,525 million of 0.737% senior notes due March 15, 2023 (the "2023 Notes"). The 2023 Notes were sold at 100.00% of the principal amount. Interest on the 2023 Notes is payable semi-annually in arrears, commencing on September 15, 2021. In March 2021, the Company issued $1,000 million of 2.700% senior notes due March 15, 2031 (the "2031 Notes"). The 2031 Notes were sold at 99.79% of the principal amount and have an effective yield of 2.706%. Interest on the 2031 Notes is payable semi-annually in arrears and commenced on September 15, 2021. The 2023 Notes and 2031 Notes rank pari passu to the Company's other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility. The Company used the proceeds from the 2023 Notes and the 2031 Notes to finance a portion of the June 2021 Alliance Healthcare acquisition.
In the fiscal year ended September 30, 2022, the Company elected to repay $850 million of 2023 Notes due in March 2023.
The senior notes discussed above and also illustrated in the above debt table are collectively referred to as the "Notes." Interest on the Notes is payable semiannually in arrears. Most of the Notes were sold at small discounts to the principal amounts and, therefore, have effective yields that are greater than the stated interest rates in the table above. Costs incurred in connection with the issuance of the Notes were deferred and are being amortized over the terms of the Notes. The indentures governing the Notes contain restrictions and covenants, which include limitations on additional indebtedness; distributions to stockholders; the repurchase of stock and the making of other restricted payments; issuance of preferred stock; creation of certain liens; transactions with subsidiaries and other affiliates; and certain corporate acts such as mergers, consolidations, and the sale of substantially all assets. An additional covenant requires compliance with a financial leverage ratio test. The Company was compliant with all covenants as of September 30, 2022.
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 September 30, 2022 and 2021. 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.
Other Information
Scheduled future principal payments of debt are $1,071.8 million in fiscal 2023, $526.3 million in fiscal 2024, $873.2 million in fiscal 2025, $12.1 million in fiscal 2026, $2.7 million in fiscal 2027, and $3,252.6 million thereafter.
Interest paid on the above indebtedness during the fiscal years ended September 30, 2022, 2021, and 2020 was $219.8 million, $170.9 million, and $150.7 million, respectively.
Total amortization of financing fees and the accretion of original issue discounts, which are recorded as components of Interest Expense, Net on the Consolidated Statements of Operations, were $11.9 million, $9.7 million, and $6.4 million, for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.
Note 7. Stockholders' Equity and Weighted Average Common Shares Outstanding
The authorized capital stock of the Company consists of 600,000,000 shares of common stock, par value $0.01 per share (the "common stock"), and 10,000,000 shares of preferred stock, par value $0.01 per share (the "preferred stock").
The holders of the Company's common stock are entitled to one vote per share and have the exclusive right to vote for the board of directors and for all other purposes as provided by law. Subject to the rights of holders of the Company's preferred stock, holders of common stock are entitled to receive ratably on a per share basis such dividends and other distributions in cash, stock, or property of the Company as may be declared by the board of directors from time to time out of the legally available assets or funds of the Company. The opioid litigation accrual discussed in Note 13 has not and is not expected to impact the Company's ability to pay dividends.
The following illustrates the components of Accumulated Other Comprehensive Loss, net of income taxes:
| | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2022 | | 2021 |
Pension and postretirement adjustments | | $ | (9,038) | | | $ | (5,750) | |
Foreign currency translation | | (1,820,292) | | | (439,692) | |
Other | | (1,640) | | | — | |
Total accumulated other comprehensive loss | | $ | (1,830,970) | | | $ | (445,442) | |
The increase in total accumulated other comprehensive loss from foreign currency translation primarily relates to the translation of the Company's Alliance Healthcare business' goodwill and intangible assets balances.
In October 2018, the Company's board of directors authorized a share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2019, the Company purchased 6.7 million shares of its common stock for a total of $538.9 million under this program, which included $14.8 million of September 2019 purchases that cash settled in October 2019. During the fiscal year ended September 30, 2020, the Company purchased 4.9 million shares of its common stock for a total of $405.6 million, which excluded $14.8 million of September 2019 purchases that cash settled in October 2019. During the fiscal year ended September 30, 2021, the Company purchased 0.6 million shares of its common stock for a total of $55.5 million to complete its authorization under this program.
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 fiscal year ended September 30, 2021, the Company purchased 0.3 million shares of its common stock for $26.6 million. During the fiscal year ended September 30, 2022, the Company purchased 3.3 million shares of its common stock for $473.4 million to complete its authorization 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. During the fiscal year ended September 30, 2022, the Company purchased 0.3 million shares of its common stock for a total of $38.7 million, which included $28.4 million of September 2022 purchases that cash settled in October 2022. As of September 30, 2022, the Company had $961.3 million of availability remaining under this program. In October 2022, under this program, the Company purchased 0.6 million shares of its common stock for $78.8 million. In November 2022, under this program, the Company purchased 3.2 million shares of its common stock from WBA for $500.0 million.
Common Shares Outstanding
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:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Weighted average common shares outstanding - basic | | 208,472 | | | 205,919 | | | 204,783 | |
Effect of dilutive securities - stock options and restricted stock units | | 2,738 | | | 2,546 | | | — | |
Weighted average common shares outstanding - diluted | | 211,210 | | | 208,465 | | | 204,783 | |
The potentially dilutive stock options and restricted stock units that were antidilutive were 0.1 million for the fiscal years ended September 30, 2022 and 2021 and 4.2 million for the fiscal year ended September 30, 2020.
Note 8. Related Party Transactions
WBA continues to own 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 will 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 $64.1 billion, $65.5 billion, and $63.1 billion in the fiscal years ended September 30, 2022, 2021, and 2020, respectively. The Company's receivable from WBA, net of incentives, was $7.0 billion as of September 30, 2022 and 2021.
Note 9. Retirement and Other Benefit Plans
The Company sponsors various retirement benefit plans and a deferred compensation plan covering eligible employees.
The Compensation and Succession Planning Committee ("Compensation Committee") of the Company's board of directors has delegated the administration of the Company's retirement and other benefit plans to its Benefits Committee, an internal committee, comprised of senior finance, human resources, and legal executives. The Benefits Committee is responsible for the investment options under the Company's savings plans, as well as performance of the investment advisers and plan administrators.
Retirement Benefit Plans
The Company sponsors the AmerisourceBergen Employee Investment Plan (the "Plan"), which is a defined contribution 401(k) plan covering salaried and certain hourly employees. Eligible participants may contribute to the plan from 1% to 50% of their regular compensation before taxes. The Company contributes $1.00 for each $1.00 invested by the participant up to the first 3% of the participant's salary and $0.50 for each additional $1.00 invested by the participant of up to an additional 2% of salary. An additional discretionary contribution, in an amount not to exceed the limits established by the Internal Revenue Code ("IRC"), may also be made depending upon the Company's performance. Based on the Company's performance in fiscal 2022, 2021, and 2020, the Company recognized expenses for discretionary contributions to the Plan in the fiscal years ended September 30, 2022, 2021, and 2020. All contributions are invested at the direction of the employee in one or more funds. All contributions vest immediately except for the discretionary contributions made by the Company, which vest in full after five years of credited service.
The Company's international businesses sponsor various country-specific retirement plans.
Costs of above retirement benefit plans charged to expense for the fiscal years ended September 30, 2022, 2021, and 2020 were $90.1 million, $62.3 million, and $45.9 million, respectively.
The Company also sponsors the AmerisourceBergen Corporation Benefit Restoration Plan. This unfunded plan provides benefits to selected key management, including each of the Company's executive officers. This plan provides eligible participants with an annual amount equal to 4% of the participant's total cash compensation to the extent that his or her compensation exceeds the annual compensation limit established by Section 401(a) (17) of the IRC.
Deferred Compensation Plan
The Company sponsors the AmerisourceBergen Corporation 2001 Deferred Compensation Plan. This unfunded plan allows eligible officers, directors, and key management employees to defer a portion of their annual compensation. The amount deferred may be allocated by the employee among a selection of mutual funds. The Company's liability relating to its deferred compensation plan as of September 30, 2022 and 2021 was $31.7 million and $38.1 million, respectively.
Note 10. Share-Based Compensation
The Company's stockholders approved the AmerisourceBergen Corporation 2022 Omnibus Incentive Plan (the "2022 Plan"). As of September 30, 2022, there were 25.4 million shares available to be granted for employee and non-employee director stock restricted stock units, performance stock units, and stock options under the 2022 Plan.
Stock Options
The Company's employee stock option plans provide for the granting of incentive and nonqualified stock options to acquire shares of common stock to employees at a price not less than the fair market value of the common stock on the dates options are granted. Option terms and vesting periods are determined at the date of grant by the Compensation Committee of the board of directors. Employee stock options generally vest ratably, in equal amounts, over a four-year service period and expire in seven years. The Company's non-employee director stock option plans provide for the granting of nonqualified stock options to acquire shares of common stock to non-employee directors at the fair market value of the common stock on the date of the grant. Non-employee director stock options vest ratably, in equal amounts, over a three-year service period and expire in ten years.
The estimated fair value of options granted is expensed on a straight-line basis over the requisite service periods of the awards and are net of estimated forfeitures. The Company estimates the fair values of option grants using a binomial option pricing model. Expected volatilities are based upon the historical volatility of the Company's common stock and other factors, such as implied market volatility. The Company uses historical exercise data, taking into consideration the optionees' ages at grant date, to estimate the terms for which the options are expected to be outstanding. The risk-free rates during the terms of such options are based upon the U.S. Treasury yield curve in effect at the time of grant.
The Company did not grant any stock options to employees in fiscal 2022 and 2021, and it does not expect to grant any stock options in fiscal 2023. The weighted average fair values of the options granted during the fiscal year ended September 30, 2020 was $16.61. The following weighted average assumptions were used to estimate the fair values of options granted:
| | | | | | | | |
| | 2020 |
Risk-free interest rate | | 1.66% |
Expected dividend yield | | 1.86% |
Volatility of common stock | | 28.17% |
Expected life of the options | | 3.79 years |
During the fiscal years ended September 30, 2022, 2021, and 2020, the Company recognized stock option expense of $2.2 million, $4.6 million and $13.0 million, respectively.
A summary of the Company's stock option activity and related information for its option plans for the fiscal year ended September 30, 2022 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except exercise price and contractual term) | | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
Outstanding as of September 30, 2021 | | 3,138 | | | $84 | | 3 years | | $ | 109,772 | |
Exercised | | (1,189) | | | $86 | | | | |
Forfeited | | (17) | | | $89 | | | | |
| | | | | | | | |
Outstanding as of September 30, 2022 | | 1,932 | | | $83 | | 3 years | | $ | 100,496 | |
Exercisable as of September 30, 2022 | | 1,521 | | | $82 | | 2 years | | $ | 81,000 | |
Expected to vest after September 30, 2022 | | 407 | | | $88 | | 4 years | | $ | 19,283 | |
The intrinsic value of stock options exercised during the fiscal years ended September 30, 2022, 2021, and 2020 was $60.3 million, $58.7 million, and $42.6 million, respectively.
A summary of the status of the Company's nonvested options as of September 30, 2022 and changes during the fiscal year ended September 30, 2022 is presented below:
| | | | | | | | | | | | | | |
(in thousands, except grant date fair value) | | Options | | Weighted Average Grant Date Fair Value |
Nonvested as of September 30, 2021 | | 1,046 | | | $17 |
Vested | | (617) | | | $16 |
Forfeited | | (17) | | | $18 |
Nonvested as of September 30, 2022 | | 412 | | | $18 |
During the fiscal years ended September 30, 2022, 2021, and 2020, the total fair values of options vested were $10.0 million, $15.5 million, and $21.3 million, respectively. Expected future compensation expense relating to the 0.4 million nonvested options outstanding as of September 30, 2022 is $0.4 million, which will be recognized through November 2023.
Restricted Stock Units
Restricted stock units granted prior to fiscal 2021 vest in full after three years. The majority of the restricted stock units granted beginning in fiscal 2021 and thereafter vest ratably over a three-year period. The estimated fair value of restricted stock units under the Company's restricted stock unit plans is determined by the product of the number of shares granted and the closing grant date market price of the Company's common stock. The estimated fair value of restricted stock units is expensed on a straight-line basis over the requisite service period, net of estimated forfeitures. During the fiscal years ended September 30, 2022, 2021, and 2020, the Company recognized restricted stock unit expense of $71.3 million, $55.8 million, and $39.8 million, respectively.
A summary of the status of the Company's nonvested restricted stock units as of September 30, 2022 and changes during the fiscal year ended September 30, 2022 are presented below:
| | | | | | | | | | | | | | |
(in thousands, except grant date fair value) | | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
Nonvested as of September 30, 2021 | | 1,838 | | | $98 |
Granted | | 726 | | | $127 |
Vested | | (592) | | | $98 |
Forfeited | | (166) | | | $106 |
Nonvested as of September 30, 2022 | | 1,806 | | | $108 |
During the fiscal years ended September 30, 2022, 2021, and 2020, the total fair values of restricted stock units vested were $58.1 million, $31.1 million, and $26.4 million, respectively. Expected future compensation expense relating to the 1.8 million restricted stock units outstanding as of September 30, 2022 is $71.2 million, which will be recognized over a weighted average period of 1.1 years.
Performance Stock Units
Performance stock units are granted to certain executive employees under the Plan and represent common stock potentially issuable in the future. Performance stock units vest at the end of a three-year performance period based upon achievement of specific performance goals. Based upon the extent to which the targets are achieved, vested shares may range from 0% to 200% of the target award amount. The fair value of performance stock units is determined by the grant date market price of the Company's common stock. Compensation expense associated with nonvested performance stock units is recognized over the requisite service period and is dependent on the Company's periodic assessment of the probability of the targets being achieved and its estimate of the number of shares that will ultimately be issued. During the fiscal years ended September 30, 2022, 2021, and 2020, the Company recognized performance stock expense of $19.7 million, $38.9 million, and $21.5 million, respectively.
A summary of the status of the Company's nonvested performance stock units as of September 30, 2022 and changes during the fiscal year ended September 30, 2022 is presented below (based upon target award amounts).
| | | | | | | | | | | | | | |
(in thousands, except grant date fair value) | | Performance Stock Units | | Weighted Average Grant Date Fair Value |
Nonvested as of September 30, 2021 | | 296 | | | $98 |
Granted | | 131 | | | $126 |
Vested | | (148) | | | $86 |
Forfeited | | (2) | | | $117 |
Nonvested as of September 30, 2022 | | 277 | | | $117 |
Shares that vested over the three-year performance period ended September 30, 2022 were distributed to employees in November 2022.
Note 11. Leases
The Company has long-term leases for facilities and equipment. In the normal course of business, leases are generally renewed or replaced by other leases. Certain leases include escalation clauses.
The following illustrates the components of lease cost for the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Operating lease cost | | $ | 220,935 | | | $ | 161,054 | | | $ | 118,144 | |
Short-term lease cost | | 11,257 | | | 5,901 | | | 4,632 | |
Variable lease cost | | 25,108 | | | 14,208 | | | 17,814 | |
Total lease cost | | $ | 257,300 | | | $ | 181,163 | | | $ | 140,590 | |
The following summarizes balance sheet information related to operating leases:
| | | | | | | | | | | | | | |
| | September 30, |
(in thousands, except for lease term and discount rate) | | 2022 | | 2021 |
Right of use assets | | | | |
Other assets | | $ | 944,974 | | | $ | 1,067,175 | |
| | | | |
Lease liabilities | | | | |
Accrued expenses and other | | $ | 158,184 | | | $ | 175,352 | |
Other long-term liabilities | | 864,288 | | | 946,155 | |
Total lease liabilities | | $ | 1,022,472 | | | $ | 1,121,507 | |
| | | | |
Weighted-average remaining lease term | | 8.37 years | | 8.75 years |
Weighted-average discount rate | | 3.22% | | 2.86% |
Other cash flow information related to operating leases is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating lease cash payments | | $ | 214,793 | | | $ | 148,385 | | | $ | 115,028 | |
| | | | | | |
Right-of-use assets obtained in exchange for lease liabilities | | | | | | |
New operating leases | | $ | 179,214 | | | $ | 770,858 | | | $ | 61,779 | |
Leases recognized upon adoption of ASC 842 | | $ | — | | | $ | — | | | $ | 526,281 | |
Future minimum rental payments under noncancellable operating leases were as follows:
| | | | | | | | |
Payments Due by Fiscal Year (in thousands) | | As of September 30, 2022 |
2023 | | $ | 192,031 | |
2024 | | 176,635 | |
2025 | | 156,578 | |
2026 | | 136,788 | |
2027 | | 120,302 | |
Thereafter | | 456,276 | |
Total future undiscounted lease payments | | 1,238,610 | |
Less: Future payments for leases that have not yet commenced 1 | | (19,141) | |
Less: Imputed interest | | (196,997) | |
Total lease liabilities | | $ | 1,022,472 | |
| | |
1 The Company has certain leases that it has executed of which it does not control the underlying assets; therefore, liabilities and ROU assets related to these leases were not recorded on the Company's Consolidated Balance Sheet as of September 30, 2022. |
Note 12. Acquisition, Integration, and Restructuring Expenses
The following illustrates the expenses incurred by the Company relating to Acquisition, Integration, and Restructuring Expenses for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Acquisition-related deal and integration | | $ | 119,561 | | | $ | 116,969 | | | $ | 15,958 | |
Employee severance | | 12,681 | | | 13,705 | | | 34,401 | |
Business transformation efforts | | 27,990 | | | 36,255 | | | 37,961 | |
Other restructuring initiatives | | 22,827 | | | 32,359 | | | (3,359) | |
Total | | $ | 183,059 | | | $ | 199,288 | | | $ | 84,961 | |
Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2022 primarily related to costs associated with the integration of Alliance Healthcare. Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2021 primarily related to the June 2021 acquisition of Alliance Healthcare.
Employee severance in the fiscal year ended September 30, 2022 included costs primarily related to restructuring activities within certain businesses in the U.S. Healthcare Solutions reportable segment. Employee severance in the fiscal year ended September 30, 2021 included costs primarily related to restructuring activities primarily within one business unit in the International Healthcare Solutions reportable segment. Employee severance in the fiscal year ended September 30, 2020 included costs primarily related to position eliminations resulting from the Company's decision to permanently exit the PharMEDium compounding business.
Business transformation efforts in the fiscal years ended September 30, 2022, 2021, and 2020 were primarily related to costs associated with reorganizing the Company to further align the organization to its customers' needs. The majority of these costs were related to services provided by third-party consultants, including certain technology initiatives.
Other restructuring initiatives in the fiscal year ended September 30, 2022 and 2021 primarily related to the write down and disposal of assets, respectively, related to the Company's office optimization plan. Other restructuring initiatives in the fiscal year ended September 30, 2020 included a $19.1 million gain on the sale of property.
Note 13. 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, 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.
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. In April 2018, the Court issued an order creating a litigation track, which included dispositive motion practice, discovery, and trials in certain bellwether jurisdictions. 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 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 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. The comprehensive settlement agreement became effective on April 2, 2022 and as of September 30, 2022, it included 48 of 49 eligible states (the “Settling States”) as well as 99% by population of the eligible political subdivisions in the Settling States. Pursuant to the comprehensive settlement agreement and related agreements with Settling States, the Company will pay up to approximately $6.4 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). West Virginia and its
subdivisions and Native American tribes are not a part of the comprehensive settlement agreement and the Company has reached separate agreements with these groups.
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.
The Company recorded accruals related to opioid litigation of $36.6 million, $147.7 million, and $6.6 billion in the fiscal years ended September 30, 2022, 2021, and 2020 in Litigation and Opioid-Related Expenses in its Consolidated Statements of Operations. The Company’s accrued litigation liability related to the comprehensive settlement, including an estimate for the State of Alabama (with whom the Company has not reached a settlement agreement), as well as other opioid-related litigation for which it has reached settlement agreements, as described above, was $6.0 billion as of September 30, 2022 and $6.7 billion as of September 30, 2021. The Company currently estimates that $528.7 million will be paid prior to September 30, 2023, which is recorded in Accrued Expenses and Other on the Company’s Consolidated Balance Sheet. The remaining long-term liability of $5.5 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 regularly reviews 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.
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. These 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. Motion practice and active discovery are ongoing in many of these cases. Ongoing and additional litigation is anticipated in cases filed by 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.
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 allegedclaims 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 ABDC and H.D. Smith (collectively, the “Company” for this matter description), 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 and other drug distributors and industry participants. On August 21, 2022, the Company and other industry participants filed a motion to dismiss the amended complaint.
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 14. 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 has not been a named a plaintiff in any of 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 has gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement funds. During the fiscal years ended September 30, 2022, 2021, and 2020, the Company recognized gains relating to these lawsuits of $1.8 million, $168.8 million, and $9.1 million, respectively. 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 15. Business Segment Information
The Company is organized geographically based upon the products and services it provides to its customers. The Company’s reporting structure is comprised of 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 realigned reporting structure.
The chief operating decision maker ("CODM") of the Company is the Chairman, President & Chief Executive Officer of the Company, whose function is to allocate resources to, and assess the performance of, the Company's operating segments. The CODM does not review assets by operating segment for the purpose of assessing performance or allocating resources.
The U.S. Healthcare Solutions reportable segment distributes a comprehensive offering of brand-name, specialty brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, and other customers. The U.S. Healthcare Solutions reportable segment also provides pharmaceutical distribution (including plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty pharmaceutical products) and additional services to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics. Additionally, the U.S. Healthcare Solutions reportable segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers. The U.S. Healthcare Solutions reportable segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers. It also provides a full suite of integrated manufacturer services that ranges from clinical trial support to product post-approval and commercialization support. Additionally, it delivers packaging solutions to institutional and retail healthcare providers. Through its animal health business, the U.S. Healthcare Solutions reportable segment sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets. It also offers demand-creating sales force services to manufacturers.
The International Healthcare Solutions reportable segment consists of businesses that focus on international pharmaceutical wholesale and related service operations and global commercialization services. The International Healthcare Solutions reportable segment distributes pharmaceuticals, other healthcare products, and related services to healthcare providers, including pharmacies, doctors, health centers and hospitals primarily in Europe. It also is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. In Canada, the business drives innovative partnerships with manufacturers, providers, and pharmacies to improve product access and efficiency throughout the healthcare supply chain.
The following illustrates reportable and operating segment disaggregated revenue as required by ASC 606, "Revenue from Contracts with Customers," for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
U.S. Healthcare Solutions | | | | | | |
Human Health | | $ | 207,284,444 | | | $ | 197,777,128 | | | $ | 182,171,487 | |
Animal Health | | 4,815,758 | | | 4,684,417 | | | 4,216,462 | |
Total U.S. Healthcare Solutions | | 212,100,202 | | | 202,461,545 | | | 186,387,949 | |
International Healthcare Solutions | | | | | | |
Alliance Healthcare | | 21,890,402 | | | 7,373,365 | | | — | |
Other Healthcare Solutions | | 4,601,271 | | | 4,156,264 | | | 3,508,106 | |
Total International Healthcare Solutions | | 26,491,673 | | | 11,529,629 | | | 3,508,106 | |
Intersegment eliminations | | (4,869) | | | (2,331) | | | (2,129) | |
Revenue | | $ | 238,587,006 | | | $ | 213,988,843 | | | $ | 189,893,926 | |
The following illustrates reportable segment operating income information for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
U.S. Healthcare Solutions | | $ | 2,456,972 | | | $ | 2,257,918 | | | $ | 2,020,067 | |
International Healthcare Solutions | | 706,458 | | | 390,286 | | | 184,380 | |
Total segment operating income | | $ | 3,163,430 | | | $ | 2,648,204 | | | $ | 2,204,447 | |
The following reconciles total segment operating income to income (loss) before income taxes for the periods indicated: | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
Total segment operating income | | $ | 3,163,430 | | | $ | 2,648,204 | | | $ | 2,204,447 | |
Gains from antitrust litigation settlements | | 1,835 | | | 168,794 | | | 9,076 | |
LIFO (expense) credit | | (67,171) | | | 203,028 | | | (7,422) | |
Turkey highly inflationary impact | | (40,033) | | | — | | | — | |
Acquisition-related intangibles amortization | | (304,551) | | | (176,221) | | | (110,478) | |
Litigation and opioid-related expenses | | (123,191) | | | (272,623) | | | (6,722,346) | |
Acquisition, integration, and restructuring expenses | | (183,059) | | | (199,288) | | | (84,961) | |
Goodwill impairment | | (75,936) | | | (6,373) | | | — | |
Impairment of assets | | (4,946) | | | (11,324) | | | (361,652) | |
PharMEDium remediation costs | | — | | | — | | | (16,165) | |
PharMEDium shutdown costs | | — | | | — | | | (43,206) | |
New York State Opioid Stewardship Act | | — | | | — | | | (14,800) | |
Contingent consideration adjustment | | — | | | — | | | 12,153 | |
Operating income (loss) | | 2,366,378 | | | 2,354,197 | | | (5,135,354) | |
Other income | | (27,352) | | | (41,736) | | | (1,581) | |
Interest expense, net | | 210,673 | | | 174,074 | | | 137,883 | |
Loss on early retirement of debt | | — | | | — | | | 22,175 | |
Income (loss) before income taxes | | $ | 2,183,057 | | | $ | 2,221,859 | | | $ | (5,293,831) | |
Segment operating income is evaluated by the CODM of the Company and excludes gains from antitrust litigation settlements; LIFO (expense) credit; Turkey highly inflationary impact; acquisition-related intangibles amortization; litigation and opioid-related expenses; acquisition, integration, and restructuring expenses; goodwill impairment; impairment of assets;
PharMEDium remediation costs; PharMEDium shutdown costs; New York State Opioid Stewardship Act; and contingent consideration adjustment. All corporate office expenses are allocated to the operating segment level.
The Company recognized a net gain of $56.2 million from sale of non-core businesses, an expense related to the impact of Turkey highly inflationary accounting of $11.9 million, a foreign currency loss of $14.4 million on the remeasurement of deferred tax assets relating to Swiss tax reform, and a $4.8 million gain on the remeasurement of an equity investment in Other Income in the Consolidated Statements of Operations in the fiscal year ended September 30, 2022. The Company recorded a $64.7 million gain on the remeasurement of an equity investment, a $14.0 million impairment of a non-customer note receivable related to a start-up venture, and a foreign currency loss of $3.4 million on the remeasurement of deferred tax assets relating to Swiss tax reform in Other Income in the Consolidated Statements of Operations in the fiscal year ended September 30, 2021.
The following illustrates depreciation and amortization by reportable segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
U.S. Healthcare Solutions | | $ | 274,554 | | | $ | 266,575 | | | $ | 253,687 | |
International Healthcare Solutions | | 114,790 | | | 62,376 | | | 26,897 | |
Acquisition-related intangibles amortization | | 304,551 | | | 176,221 | | | 110,478 | |
Total depreciation and amortization | | $ | 693,895 | | | $ | 505,172 | | | $ | 391,062 | |
Depreciation and amortization includes depreciation and amortization of property and equipment and intangible assets, but excludes amortization of deferred financing costs and other debt-related items, which are included in interest expense, net.
The following illustrates capital expenditures by reportable segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
(in thousands) | | 2022 | | 2021 | | 2020 |
U.S. Healthcare Solutions | | $ | 295,406 | | | $ | 310,525 | | | $ | 316,249 | |
International Healthcare Solutions | | 200,912 | | | 127,692 | | | 53,428 | |
Total capital expenditures | | $ | 496,318 | | | $ | 438,217 | | | $ | 369,677 | |
Note 16. Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable as of September 30, 2022 and 2021 approximate fair value based upon the relatively short-term nature of these financial instruments. Within Cash and Cash Equivalents, the Company had $1,602.0 million and $671.0 million of investments in money market accounts as of September 30, 2022 and 2021, respectively. 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 September 30, 2022 were $4,632.4 million and $4,130.3 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 17. Subsequent Event
In November 2022, the Company's board of directors increased the quarterly dividend paid on common stock by 5% and declared a regular quarterly cash dividend of $0.485 per share, payable on November 28, 2022 to shareholders of record on November 14, 2022.