Business context and reporting period
The filing is AmerisourceBergen Corporation’s unaudited Form 10-Q for the quarter ended June 30, 2010 (fiscal Q3) and the nine months then ended. The filing identifies the registrant as AmerisourceBergen, not Cencora. The company distributes pharmaceuticals and provides related healthcare and packaging services, primarily in the United States and Canada.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Three months ended June 30, 2010 | Nine months ended June 30, 2010 | Prior-year comparison |
|---|---|---|---|
| Revenue | $19,602 | $58,239 | Up 6.6% and 9.8% |
| Gross profit / margin | $588 / 3.00% | $1,764 / 3.03% | Profit up 13.3% and 13.0%; margin up 18 and 9 basis points |
| Operating income / margin | $282 / 1.44% | $855 / 1.47% | Income up 32.3% and 29.8% |
| Income from continuing operations | $163 | $496 | Up approximately 30% in both periods |
| Diluted EPS from continuing operations | $0.57 | $1.72 | Versus $0.42 and $1.25 |
| Operating cash flow | Not reported separately for the quarter | $559 | Compared with $438 from continuing operations in the prior-year period |
For the nine months, capital expenditures were $132 million, making operating cash flow less capital expenditures approximately $427 million. Cash and equivalents were $1,311 million at June 30, up from $1,009 million at September 30, 2009. Total debt was $1,360 million, up from $1,178 million; long-term debt was $1,360 million, with $0.5 million classified as current. The company reported $1,374 million of additional availability under revolving and receivables facilities, including $700 million under the receivables facility, which had no outstanding borrowings. The filing says cash, facility availability and supplier credit were sufficient for working-capital needs.
Total assets were $14,004 million and stockholders’ equity was $2,931 million at June 30, 2010. Dividends declared were $0.08 per share for the quarter. The company repurchased $350 million of shares during the nine months.
Material changes versus the prior comparable period
- Revenue growth reflected ABDC growth of 8% in the quarter and 11% year to date, including new customers and growth among large customers; ABSG grew 3% and 5%, respectively.
- Gross-profit growth benefited from strong generic programs, a particularly profitable generic oncology launch, higher manufacturer fee-for-service contributions, and antitrust settlement gains of $19.1 million in the quarter and $20.7 million year to date. A supplier rebate reconciliation added approximately $12 million to year-to-date gross profit.
- Operating expenses were nearly flat in the quarter and up 1% year to date. Lower expense ratios reflected operating leverage, partly offset by higher bad-debt expense, incentive compensation and other costs.
- Prior-year comparisons included discontinued-operation losses from the divested PMSI business and intangible-asset impairment charges. No discontinued-operation loss was reported in 2010.
- Interest expense increased year over year, reflecting higher average borrowings. Debt rose partly following issuance of $400 million of 4⅞% senior notes due 2019; proceeds repaid substantially all then-outstanding multi-currency facility borrowings.
Outlook, commentary and risks
Management expected fiscal 2010 revenue growth of 8%–9%, with fourth-quarter growth approximating market growth. It forecast fiscal 2010 capital expenditures of $165–$175 million, above its earlier estimate, primarily because of timing of Business Transformation project spending. Management expected approximately $40 million annually in incremental costs during the ERP transition, including depreciation and dual-system costs, and intended to offset them through reductions elsewhere; it cautioned that this might not be achieved.
Management cited generic launches as a source of significant earnings variability and said future launches may not deliver comparable benefits. Other risks discussed include generic price deflation and branded-price inflation, customer and supplier concentration or credit issues, reimbursement and regulatory changes, economic conditions, competition, interest-rate and foreign-currency exposure, and ERP implementation disruption or cost overruns. The company had $56 million of unrecognized tax benefits, including interest and penalties.
Legal matters include an Ontario rebate-payment order for C$5.8 million, which the company contested, and health-authority inquiries. In the Bergen Brunswig executive-benefit matter, a July 2010 appellate ruling favored the company and it reversed a $4.4 million reserve; the former executive sought rehearing. In the qui tam litigation, earlier complaints were dismissed, but a relator’s further amended complaint remained pending after dismissal motions were denied in July 2010. Related government investigation and shareholder derivative litigation also remained unresolved. The company stated it could not predict outcomes.
Important facts for investors to verify
- Confirm the issuer identity and reporting period: this source is an AmerisourceBergen 10-Q for the quarter ended June 30, 2010.
- Assess how much of gross-profit growth depended on the exceptional oncology generic launch, antitrust settlements and the rebate reconciliation, and whether those benefits recur.
- Review the ERP transition’s costs, implementation progress and expected expense offsets.
- Monitor debt and refinancing needs: major revolving and receivables facilities were due to mature in 2011, and debt increased year over year.
- Track the qui tam and related legal matters, the Ontario proceeding, and the uncertain tax positions for potential financial effects.