Filing summary: AmerisourceBergen Corporation fiscal 2010 Form 10-K
Entity and period: The supplied filing is for AmerisourceBergen Corporation, not Cencora, Inc. It is an annual report for the fiscal year ended September 30, 2010—not a standalone fourth-quarter filing. Amounts below are U.S. dollars unless noted.
Business context and reporting period
AmerisourceBergen distributed pharmaceuticals and provided related services to healthcare providers and manufacturers, primarily in the United States and Canada. Its single reportable segment, Pharmaceutical Distribution, comprised drug distribution, specialty distribution and services, and pharmaceutical packaging. Fiscal 2010 revenue was 70% institutional and 30% retail.
Financial performance and liquidity
| Metric | FY 2010 | FY 2009 | Change |
|---|---|---|---|
| Revenue | $77.954 billion | $71.760 billion | +8.6% |
| Gross profit | $2.357 billion | $2.100 billion | +12% |
| Gross margin | 3.02% | 2.93% | +9 basis points |
| Operating income | $1.104 billion | $883.7 million | +25% |
| Operating margin | 1.42% | 1.23% | +19 basis points |
| Income from continuing operations | $636.7 million | $511.9 million | +24% |
| Net income | $636.7 million | $503.4 million | +26% |
| Diluted EPS from continuing operations | $2.22 | $1.69 | +31% |
| Net interest expense | $72.5 million | $58.3 million | Increased |
Operating cash flow was $1.109 billion, up from $783.8 million; capital expenditures were $184.6 million, implying approximately $924 million of operating cash flow after capital expenditures. Cash and equivalents at year-end were $1.658 billion, versus $1.009 billion. Total debt was $1.344 billion, up from $1.178 billion; cash exceeded debt by approximately $315 million. The company reported $1.384 billion of additional availability under revolving and receivables facilities, subject to facility terms. Current facilities were due to expire in 2011 and were to be renewed.
At September 30, 2010, total assets were $14.435 billion, accounts receivable $3.827 billion, inventories $5.210 billion, accounts payable $8.833 billion, and stockholders’ equity $2.954 billion. The $400 million issuance of 4.875% senior notes due 2019 contributed to higher debt. The board raised the quarterly dividend to $0.10 per share in November 2010; management expected about $400 million of fiscal 2011 share repurchases, subject to market conditions.
Material changes versus the prior comparable period
- ABDC revenue grew 10% and ABSG revenue grew 5%; total revenue increased 8.6% after 2% growth in fiscal 2009.
- Generic revenue rose 17%. A generic oncology drug launch, Oxaliplatin, accounted for roughly one-third of the annual gross-profit increase; a supplier rebate reconciliation added about $12 million.
- Antitrust litigation settlements contributed $20.7 million to gross profit in fiscal 2010. These and other identified unusual items aided reported results; future settlement gains were not predictable.
- Operating expenses rose 3%, but declined as a share of revenue, reflecting operating leverage. Bad-debt expense increased to $43.1 million from $31.8 million.
- Operating cash flow improved, supported by higher payables and accrued liabilities, lower receivables, and earnings; inventory growth was a partial offset. Share repurchases totaled about $470 million.
- Fiscal 2009 included $8.5 million of discontinued-operation losses; fiscal 2010 had no discontinued-operation result. The former workers’ compensation business PMSI had been sold in October 2008.
Outlook, commentary, risks, contingencies and unusual items
Management expected fiscal 2011 revenue growth of 2%–4%, reflecting market growth and a lost third-party logistics customer contract. The loss was expected to reduce company growth by about 1 percentage point and ABSG growth by about 5 percentage points. Management also forecast approximately $150 million of fiscal 2011 capital spending. The ERP/business transformation rollout was expected to continue through 2012; maintaining parallel systems was expected to cost about $40 million annually during the transition, with mitigation plans not assured.
Key exposures include intense competition and thin distribution margins; customer concentration (Medco was 18% of fiscal 2010 revenue; top ten customers about 42%); reimbursement and healthcare-law changes; generic price deflation and branded price inflation; controlled-substance regulation; and customer or supplier credit failures. Anemia-drug sales were about 5% of revenue and faced reimbursement and usage pressures. The company also disclosed a pending qui tam case and related government investigation involving allegations concerning Aranesp promotion and false claims; the company disputed the allegations, and a trial was set for July 2011. An Ontario rebate-payment order sought C$5.8 million, which the company appealed; outcomes were uncertain. A California employment-benefit litigation reserve was reversed after a favorable ruling, with no further payment then due.
Management and Ernst & Young reported effective internal control over financial reporting as of September 30, 2010. The financial statement audit opinion was unqualified.
Most important facts for investors to verify
- Confirm that the intended issuer and period are AmerisourceBergen fiscal 2010, rather than Cencora or a standalone 2010 fourth quarter.
- Assess how much of the gross-profit and EPS improvement depended on the unusually favorable Oxaliplatin launch, supplier reconciliation, antitrust settlements, and share repurchases.
- Track renewal terms and pricing for the revolving and receivables facilities due in 2011, alongside debt maturities and covenant compliance.
- Monitor the ERP transition’s execution, incremental costs, and promised expense savings.
- Review developments in the qui tam litigation, Ontario matter, reimbursement rules, and the expected effect of the lost logistics contract.