NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
Note 1. Summary of Significant Accounting Policies
AmerisourceBergen Corporation (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 increase the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of the dates and for the fiscal years indicated. All 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. Certain reclassifications have been made to prior-period amounts in order to conform to the current year presentation.
Recently Adopted Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-17, "Income Taxes (Topic 740) —Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"). ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance does not change the existing requirement that prohibits companies from offsetting deferred tax liabilities from one jurisdiction against deferred assets of another jurisdiction. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. As of October 1, 2015, the Company early adopted ASU 2015-17, which resulted in the reclassification of
$1,135.0 million
from current Deferred Income Taxes to long-term Deferred Income Taxes on the
September 30, 2015
Consolidated balance sheet.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification 605 — "Revenue Recognition" and most industry-specific guidance throughout the Codification. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard's core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 was originally scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the Financial Accounting Standards Board deferred the effective date of ASU 2014-09 by one year.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606) — Principal versus Agent Considerations" ("ASU 2016-08"), which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606) — Identifying Performance Obligations and Licensing" ("ASU 2016-10"), which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. The Company must adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09. Entities are permitted to adopt the standards as early as the original public entity effective date of ASU 2014-09, and either full or modified retrospective application is required. The Company has not yet selected an adoption date or a transition method for ASU 2014-09, 2016-08, and 2016-10 and is currently evaluating the impact of adopting this new accounting guidance and, therefore, cannot reasonably estimate the impact that the adoption of the above standards will have on its financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 specifies that debt issuance costs related to a note shall be reported on the balance sheet as a direct reduction from the face amount of the note. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those fiscal years. ASU 2015-03 will require the
Company to reclassify its capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets. ASU 2015-03 will have no effect on the Company's results of operations or liquidity.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842) ("ASU 2016-02")." ASU 2016-02 aims to increase transparency and comparability across organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet as well as key information to be disclosed regarding lease arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Entities are permitted to adopt the standard early, and a modified retrospective application is required. The Company is currently evaluating the impact of adopting this new accounting guidance and, therefore, cannot reasonably estimate the impact that the adoption of this standard will have on the its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee's shares than it may currently for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. Entities are permitted to adopt the standard early in any interim or annual period. The updated guidance provides companies with alternative methods of adoption, with certain items that are allowed to be applied retrospectively and certain other items that are only to be applied prospectively in the period of adoption. The Company has not yet selected a transition method and is currently evaluating the impact of adopting this new accounting guidance and, therefore, cannot reasonably estimate the impact that the adoption of this standard will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 aims to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. Entities are permitted to adopt the standard early in any interim or annual period, and a retrospective application is required. The Company is currently evaluating the impact of adopting this new accounting guidance and, therefore, cannot reasonably estimate the impact that the adoption of this standard will have on its financial statements.
As of
September 30, 2016
, there are no other 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 purchase price of an acquired company, including the fair value of contingent consideration, is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired businesses are included in the Company's operating results from the dates of acquisition.
Cash Equivalents
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.
Concentrations of Credit Risk and Allowance for Doubtful Accounts
The Company sells its merchandise 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 receivable are exposed to credit risk. Revenue from the various agreements and arrangements with the Company's largest customer in fiscal
2016
, Walgreens Boots Alliance, Inc. ("WBA"), accounted for
30%
of revenue and represented approximately
43%
of accounts receivable, net (after incentives owed to it) as of
September 30, 2016
. Express Scripts, Inc., the Company's second largest customer in fiscal
2016
, accounted for
16%
of revenue and represented approximately
10%
of accounts receivable, net as of
September 30, 2016
. The Company generally does not require collateral for trade receivables. In determining the appropriate allowance for doubtful accounts, the Company considers a combination of factors, such as the aging of trade receivables, industry trends, its customers' financial strength, credit standing, and payment and default history. Changes in these factors, among others, may lead to adjustments in the Company's allowance for doubtful accounts. 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 probable bad debt losses based on historical experience and for specific credit problems when they arise. There were no significant changes to this process during the fiscal years ended
September 30, 2016
,
2015
, and
2014
, and bad debt expense was computed in a consistent manner during these periods. The bad debt expense for any period presented is equal to the changes in the period end allowance for doubtful accounts, net of write-offs, recoveries, and other adjustments.
The Company maintains cash and cash equivalents 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, and government investigations, including antitrust, commercial, environmental, 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 probable that a loss has been incurred and the amount is reasonably estimable. 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 footnotes 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 (see Note 15).
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 16).
Derivative Financial Instruments
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.
The Company had
one
foreign currency denominated contract outstanding that hedges the foreign currency exchange risk of a
C$37.4 million
note outstanding as of
September 30, 2016
.
Equity Method Investments
The Company uses the equity method of accounting for its investments in entities in which it has significant influence; generally, this represents an ownership interest of between 20% and 50% (see Note 4). Declines in value that are determined to be other-than-temporary are recorded as impairment charges as a component of earnings in the period in which that determination is made.
The Company recorded an impairment charge of
$30.6 million
in fiscal 2015 related to its minority interest in a pharmaceutical wholesaler in Brazil. The impairment charge was based on the determination by the Company that the decline in the pharmaceutical wholesaler's stock price from the date on which the investment was made to September 30, 2015 was other-than temporary. There were no impairment charges on equity investments in fiscal 2016 or
2014
.
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 translation adjustments are recorded as a component of Accumulated Other Comprehensive Loss within Stockholders' Equity.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite lives, 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 analysis 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. The Company elected to bypass performing the qualitative analysis and went directly to performing the first step quantitative analysis of the goodwill and indefinite-lived intangible asset impairment tests in the current year. The Company may elect to perform the qualitative analysis in future periods.
The first step in the quantitative analysis for the goodwill impairment test is to compare the carrying amount 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, then the second step must be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The Company would be required to record any such impairment losses.
The Company identifies its reporting units based on its management reporting structure, and its reporting units are the same as its operating segments. Generally, goodwill arises from acquisitions of specific operating companies and is assigned to the reporting unit in which a particular operating company resides.
The Company uses an income-based approach to value its reporting units. The income-based approach relies on a discounted cash flow analysis to determine the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its 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 equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows 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 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 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 other intangible assets in the fiscal years ended
September 30, 2016
,
2015
, and
2014
, and, as a result, determined that there were no impairments.
Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets.
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 resolutions of any related appeals or litigation processes, based on the technical merits of the position. Tax benefits associated with uncertain tax positions that have met the recognition criteria are measured and recorded based on the highest probable outcome that is more than 50% likely to be realized after full disclosure and resolution of a tax examination.
Investment Securities Available-For-Sale
The Company's marketable debt securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument's underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term. The Company's marketable debt securities are carried at fair value, with unrealized gains and losses reported as a component of Accumulated Other Comprehensive Loss in Stockholders' Equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method. As of
September 30, 2016
, the fair value of the Company's investment securities available-for-sale was
$26.1 million
,
all
of which was within Prepaid Expenses and Other on the Company's consolidated balance sheets. As of
September 30, 2015
, the fair value of the Company's investment securities available-for-sale was
$86.2 million
,
$50.8 million
of which was within Prepaid Expenses and Other and
$35.4 million
of which was within Other Assets on the Company's consolidated balance sheets.
Leases
The Company is often involved in the construction of its distribution facilities. In certain cases, the Company makes payments for certain structural components included in the lessor's construction of the leased assets, which result in the Company being deemed the owner of the leased assets for accounting purposes. As a result, regardless of the significance of the payments, Accounting Standards Codification 840, Leases, ("ASC 840") defines those payments as automatic indicators of ownership and requires the Company to capitalize the lessor's total project cost with a corresponding financing obligation. Upon completion of the lessor's project, the Company performs a sale-leaseback analysis pursuant to ASC 840 to determine if these assets and the related financing obligations can be derecognized from the Company's consolidated balance sheet. If the Company is deemed to have "continuing involvement," the leased assets and the related financing obligations remain on the Company's consolidated balance sheet and are amortized over the life of the assets and the lease term, respectively. All other leases are considered operating leases in accordance with ASC 840. Assets subject to an operating lease and the related lease payments are not recorded on the Company's consolidated balance sheet. Rent expense is recognized on a straight-line basis over the expected lease term.
Manufacturer Incentives
The Company accounts for fees and other incentives received from its suppliers, relating to the purchase or distribution of inventory, as a reduction to cost of goods sold. The Company considers these fees and other incentives to represent product discounts, and, as a result, they are recognized within cost of goods sold upon the sale of the related inventory.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost for approximately
79%
and
80%
of the Company's inventories at
September 30, 2016
and
2015
, respectively, has been determined using the last-in, first-out (LIFO) method. If the Company had used the first-in, first-out (FIFO) method of inventory valuation, which approximates current replacement cost, inventories would have been approximately
$1,624.8 million
and
$1,424.6 million
higher than the amounts reported at
September 30, 2016
and
2015
, respectively. The Company recorded LIFO expense of
$200.2 million
,
$542.8 million
, and
$348.1 million
in fiscal
2016
,
2015
, and
2014
, respectively. The annual LIFO provision is affected by changes in inventory quantities, product mix, and manufacturing pricing practices, which may be impacted by market and other external influences, 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.
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.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, product has been delivered or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue, as reflected in the accompanying consolidated statements of operations, is net of estimated sales returns and allowances.
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. At
September 30, 2016
and
2015
, the Company's accrual for estimated customer sales returns was
$856.3 million
and
$841.3 million
, respectively.
The Company reports the gross dollar amount of bulk deliveries to customer warehouses in revenue and the related costs in cost of goods sold. Bulk delivery transactions are arranged by the Company at the express direction of the customer, and involve either drop shipments from the supplier directly to customers' warehouse sites or cross-dock shipments from the supplier to the Company for immediate shipment to the customers' warehouse sites. The Company is a principal to these transactions because it is the primary obligor and has the ultimate and contractual responsibility for fulfillment and acceptability of the products purchased, and it bears full risk of delivery and loss for products, whether the products are drop-shipped or shipped via cross-dock. The Company also bears full credit risk associated with the creditworthiness of any bulk delivery customer. As a result, the Company records bulk deliveries to customer warehouses as gross revenues. Gross profit earned by the Company on bulk deliveries was not material in any year presented.
Share-Based Compensation
The Company accounts for the compensation cost of all share-based payments at fair value and reports the related expense within distribution, selling and administrative expenses to correspond with the same line item as the cash compensation paid to employees. Share-based compensation expense is recognized over the requisite service period. The benefits of tax deductions in excess of recognized compensation expense ("excess tax benefits") are reported as a financing cash flow. There were
no
excess tax benefits related to share-based compensation for the fiscal year ended
September 30, 2016
. Excess tax benefits related to share-based compensation was
$88.1 million
and
$46.3 million
for the fiscal years ended September 30,
2015
and
2014
, respectively. The fair value of performance stock units is determined based upon the grant date market price of the Company's Common Stock, and the compensation expense associated with nonvested performance stock units 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.
Shipping and Handling Costs
Shipping and handling costs include all costs to warehouse, pick, pack, and deliver inventory to customers. These costs, which were
$494.7 million
,
$419.2 million
, and
$348.3 million
for the fiscal years ended
September 30, 2016
,
2015
, and
2014
, respectively, are included in distribution, selling, and administrative expenses.
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 on 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 on changes in factual circumstances. The ultimate outcome of any outstanding claim may be different than the Company's estimate.
Warrants
The Company accounted for the warrants issued to subsidiaries of WBA (collectively, the "Warrants") in accordance with the guidance for equity-based payments to non-employees. Using a binomial lattice model approach, the fair value of the Warrants was initially measured at the date of issuance, and the related expenses were recognized over the vesting period as an operating expense. The fair value of the Warrants was remeasured at the end of each reporting period, and an adjustment was recorded in the statement of operations to record the impact as if the newly measured fair value of the awards had been used in recognizing expense starting when the awards were originally issued and through the remeasurement date. In fiscal 2016, the Warrants were exercised by WBA in full (see Note 9).
Note 2. Revision of Previously Issued Financial Statements
As a result of the Company’s planned expansion of new distribution facilities, it engaged in a review of the accounting treatment of leases. As part of this review, the Company assessed its historical application of ASC 840 regarding lessee involvement in the construction of leased assets, and identified corrections to be made in its accounting for these leases. In a number of its leases, the Company made payments for certain structural components included in the lessor's construction of the leased assets, which result in the Company being deemed the owner of the leased assets for accounting purposes. As a result, regardless of the significance of the payments, ASC 840 defines those payments as automatic indicators of ownership and requires the Company to capitalize the lessor's total project cost on the balance sheet with a corresponding financing obligation. In these situations, the Company has not historically accounted for the total project costs of the lessor as owned assets. Additionally, upon completion of the lessor's project, the Company must perform a sale-leaseback analysis pursuant to ASC 840 to determine if it can derecognize these assets and the related financing obligations from its consolidated balance sheet. In a substantial number of its leases, due to many of the same factors that require it to account for the total project costs as owned assets during the construction period (for example, the Company funding a portion of the construction costs) it is deemed to have "continuing involvement," which precludes the Company from derecognizing these leased assets when construction is complete. In such cases, the leased assets and the related financing obligations remain on the consolidated balance sheet and are amortized over the life of the assets and the lease term, respectively.
Upon conclusion of its recently conducted lease review, the Company recorded a cumulative adjustment as of September 30, 2013 for all affected leases resulting in a
$104.0 million
increase to total assets, all of which were construction assets recorded as property and equipment, and a
$115.6 million
increase to total liabilities, primarily current and long-term financing obligations. Additionally, the Company recorded a cumulative, net of tax, impact to retained earnings of
$11.6 million
as of October 1, 2013. The Company revised prior years’ financial statements and reduced diluted earnings per share by
$0.01
in the fiscal years ended September 30, 2015 and 2014. The Company no longer reports rent expense for the leased facilities that are owned for accounting purposes. Instead, rental payments under the leases are recognized as a reduction of the financing obligation and as interest expense. Additionally, depreciation expense is recorded as construction assets are depreciated over their useful lives. These corrections had no impact on the net increase in cash and cash equivalents during the fiscal years 2015 and 2014.
The following illustrates the impact the aforementioned adjustments had on the Company's previously issued financial statements:
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
(in thousands, except share and per share data)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,167,442
|
|
|
$
|
—
|
|
|
$
|
2,167,442
|
|
Accounts receivable, less allowances for returns and doubtful accounts
|
|
8,222,951
|
|
|
—
|
|
|
8,222,951
|
|
Merchandise inventories
|
|
9,755,094
|
|
|
—
|
|
|
9,755,094
|
|
Prepaid expenses and other
|
|
189,001
|
|
|
—
|
|
|
189,001
|
|
Total current assets
|
|
20,334,488
|
|
|
—
|
|
|
20,334,488
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
39,499
|
|
|
—
|
|
|
39,499
|
|
Buildings and improvements
|
|
413,854
|
|
|
239,688
|
|
|
653,542
|
|
Machinery, equipment, and other
|
|
1,449,545
|
|
|
—
|
|
|
1,449,545
|
|
Total property and equipment
|
|
1,902,898
|
|
|
239,688
|
|
|
2,142,586
|
|
Less accumulated depreciation
|
|
(923,647
|
)
|
|
(26,429
|
)
|
|
(950,076
|
)
|
Property and equipment, net
|
|
979,251
|
|
|
213,259
|
|
|
1,192,510
|
|
|
|
|
|
|
|
|
Goodwill
1
|
|
4,130,825
|
|
|
13,566
|
|
|
4,144,391
|
|
Other intangible assets
1
|
|
1,993,119
|
|
|
—
|
|
|
1,993,119
|
|
Other assets
|
|
298,474
|
|
|
—
|
|
|
298,474
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
27,736,157
|
|
|
$
|
226,825
|
|
|
$
|
27,962,982
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
20,886,439
|
|
|
$
|
—
|
|
|
$
|
20,886,439
|
|
Accrued expenses and other
|
|
679,309
|
|
|
12,479
|
|
|
691,788
|
|
Total current liabilities
|
|
21,565,748
|
|
|
12,479
|
|
|
21,578,227
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
3,493,048
|
|
|
—
|
|
|
3,493,048
|
|
Long-term financing obligation
|
|
—
|
|
|
246,177
|
|
|
246,177
|
|
Deferred income taxes
2
|
|
1,954,205
|
|
|
(9,965
|
)
|
|
1,944,240
|
|
Other liabilities
|
|
89,636
|
|
|
(4,732
|
)
|
|
84,904
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
633,520
|
|
|
(17,134
|
)
|
|
616,386
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
27,736,157
|
|
|
$
|
226,825
|
|
|
$
|
27,962,982
|
|
1
Amounts as previously reported have been revised to report Goodwill separately from total intangible assets.
2
Amount as previously reported has been revised to give effect to the retrospective adjustment resulting from the adoption of ASU 2015-17.
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
(in thousands, except per share data)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
Revenue
|
|
$
|
135,961,803
|
|
|
$
|
—
|
|
|
$
|
135,961,803
|
|
Cost of goods sold
|
|
132,432,490
|
|
|
—
|
|
|
132,432,490
|
|
Gross profit
|
|
3,529,313
|
|
|
—
|
|
|
3,529,313
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Distribution, selling, and administrative
|
|
1,918,045
|
|
|
(10,205
|
)
|
|
1,907,840
|
|
Depreciation
|
|
186,789
|
|
|
5,355
|
|
|
192,144
|
|
Amortization
|
|
56,491
|
|
|
—
|
|
|
56,491
|
|
Warrants
|
|
912,724
|
|
|
—
|
|
|
912,724
|
|
Employee severance, litigation, and other
|
|
37,894
|
|
|
—
|
|
|
37,894
|
|
Operating income
|
|
417,370
|
|
|
4,850
|
|
|
422,220
|
|
Other loss
|
|
13,598
|
|
|
—
|
|
|
13,598
|
|
Impairment charge on equity investment
|
|
30,622
|
|
|
—
|
|
|
30,622
|
|
Interest expense, net
|
|
99,001
|
|
|
10,035
|
|
|
109,036
|
|
Income from operations before income taxes
|
|
274,149
|
|
|
(5,185
|
)
|
|
268,964
|
|
Income tax expense
|
|
409,036
|
|
|
(1,907
|
)
|
|
407,129
|
|
Net loss
|
|
$
|
(134,887
|
)
|
|
$
|
(3,278
|
)
|
|
$
|
(138,165
|
)
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.62
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.63
|
)
|
Diluted
|
|
$
|
(0.62
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
217,786
|
|
|
—
|
|
|
217,786
|
|
Diluted
|
|
217,786
|
|
|
—
|
|
|
217,786
|
|
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2014
|
(in thousands, except per share data)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
Revenue
|
|
$
|
119,569,127
|
|
|
$
|
—
|
|
|
$
|
119,569,127
|
|
Cost of goods sold
|
|
116,586,761
|
|
|
—
|
|
|
116,586,761
|
|
Gross profit
|
|
2,982,366
|
|
|
—
|
|
|
2,982,366
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Distribution, selling, and administrative
|
|
1,587,261
|
|
|
(6,597
|
)
|
|
1,580,664
|
|
Depreciation
|
|
159,328
|
|
|
3,390
|
|
|
162,718
|
|
Amortization
|
|
25,962
|
|
|
—
|
|
|
25,962
|
|
Warrants
|
|
422,739
|
|
|
—
|
|
|
422,739
|
|
Employee severance, litigation, and other
|
|
8,192
|
|
|
—
|
|
|
8,192
|
|
Operating income
|
|
778,884
|
|
|
3,207
|
|
|
782,091
|
|
Other income
|
|
(4,360
|
)
|
|
—
|
|
|
(4,360
|
)
|
Interest expense, net
|
|
76,862
|
|
|
6,772
|
|
|
83,634
|
|
Loss on early retirement of debt
|
|
32,954
|
|
|
—
|
|
|
32,954
|
|
Income from continuing operations before income taxes
|
|
673,428
|
|
|
(3,565
|
)
|
|
669,863
|
|
Income tax expense
|
|
389,398
|
|
|
(1,311
|
)
|
|
388,087
|
|
Income from continuing operations
|
|
284,030
|
|
|
(2,254
|
)
|
|
281,776
|
|
Loss from discontinued operations
|
|
(7,546
|
)
|
|
—
|
|
|
(7,546
|
)
|
Net income
|
|
$
|
276,484
|
|
|
$
|
(2,254
|
)
|
|
$
|
274,230
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.25
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.24
|
|
Discontinued operations
|
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
Total
|
|
$
|
1.22
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.21
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.20
|
|
Discontinued operations
|
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
Rounding
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
Total
|
|
$
|
1.17
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
227,367
|
|
|
—
|
|
|
227,367
|
|
Diluted
|
|
235,405
|
|
|
—
|
|
|
235,405
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
(in thousands)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
Net loss
|
|
$
|
(134,887
|
)
|
|
$
|
(3,278
|
)
|
|
$
|
(138,165
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Net change in foreign currency translation adjustments
|
|
(84,142
|
)
|
|
—
|
|
|
(84,142
|
)
|
Benefit plan funded status adjustments net of tax of $1,055
|
|
(4,607
|
)
|
|
—
|
|
|
(4,607
|
)
|
Other
|
|
4,462
|
|
|
—
|
|
|
4,462
|
|
Total other comprehensive loss
|
|
(84,287
|
)
|
|
—
|
|
|
(84,287
|
)
|
Total comprehensive loss
|
|
$
|
(219,174
|
)
|
|
$
|
(3,278
|
)
|
|
$
|
(222,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2014
|
(in thousands)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
Net income
|
|
$
|
276,484
|
|
|
$
|
(2,254
|
)
|
|
$
|
274,230
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Net change in foreign currency translation adjustments
|
|
(18,544
|
)
|
|
—
|
|
|
(18,544
|
)
|
Benefit plan funded status adjustments net of tax of $1,361
|
|
2,400
|
|
|
—
|
|
|
2,400
|
|
Other
|
|
(419
|
)
|
|
—
|
|
|
(419
|
)
|
Total other comprehensive loss
|
|
(16,563
|
)
|
|
—
|
|
|
(16,563
|
)
|
Total comprehensive income
|
|
$
|
259,921
|
|
|
$
|
(2,254
|
)
|
|
$
|
257,667
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
(in thousands)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(134,887
|
)
|
|
$
|
(3,278
|
)
|
|
$
|
(138,165
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, including amounts charged to cost of goods sold
|
|
187,935
|
|
|
5,355
|
|
|
193,290
|
|
Amortization, including amounts charged to interest expense
|
|
61,665
|
|
|
1,033
|
|
|
62,698
|
|
Provision for doubtful accounts
|
|
8,119
|
|
|
—
|
|
|
8,119
|
|
Provision for deferred income taxes
|
|
22,733
|
|
|
(1,907
|
)
|
|
20,826
|
|
Warrants expense
|
|
912,724
|
|
|
—
|
|
|
912,724
|
|
Share-based compensation
|
|
60,944
|
|
|
—
|
|
|
60,944
|
|
LIFO expense
1
|
|
542,807
|
|
|
—
|
|
|
542,807
|
|
Loss on sale of businesses
|
|
12,953
|
|
|
—
|
|
|
12,953
|
|
Impairment charge on equity investment
|
|
30,622
|
|
|
—
|
|
|
30,622
|
|
Other
|
|
(11,604
|
)
|
|
—
|
|
|
(11,604
|
)
|
Changes in operating assets and liabilities, excluding the effects of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(1,478,793
|
)
|
|
—
|
|
|
(1,478,793
|
)
|
Merchandise inventories
1
|
|
(1,379,189
|
)
|
|
—
|
|
|
(1,379,189
|
)
|
Prepaid expenses and other assets
|
|
(37,131
|
)
|
|
—
|
|
|
(37,131
|
)
|
Accounts payable
|
|
4,957,227
|
|
|
—
|
|
|
4,957,227
|
|
Accrued expenses, income taxes, and other liabilities
|
|
164,254
|
|
|
646
|
|
|
164,900
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
3,920,379
|
|
|
1,849
|
|
|
3,922,228
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(231,585
|
)
|
|
—
|
|
|
(231,585
|
)
|
Cost of acquired companies, net of cash acquired
|
|
(2,633,412
|
)
|
|
—
|
|
|
(2,633,412
|
)
|
Proceeds from sales of businesses
|
|
17,163
|
|
|
—
|
|
|
17,163
|
|
Purchases of investment securities available-for-sale
|
|
(86,214
|
)
|
|
—
|
|
|
(86,214
|
)
|
Other
|
|
2,883
|
|
|
—
|
|
|
2,883
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
(2,931,165
|
)
|
|
—
|
|
|
(2,931,165
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Term loan and senior note borrowings
|
|
1,996,390
|
|
|
—
|
|
|
1,996,390
|
|
Term loan repayments
|
|
(500,000
|
)
|
|
—
|
|
|
(500,000
|
)
|
Borrowings under revolving and securitization credit facilities
|
|
111,100
|
|
|
—
|
|
|
111,100
|
|
Repayments under revolving and securitization credit facilities
|
|
(111,100
|
)
|
|
—
|
|
|
(111,100
|
)
|
Purchases of common stock
|
|
(1,859,106
|
)
|
|
—
|
|
|
(1,859,106
|
)
|
Exercises of stock options, including excess tax benefits of $88,116
|
|
193,991
|
|
|
—
|
|
|
193,991
|
|
Cash dividends on common stock
|
|
(253,919
|
)
|
|
—
|
|
|
(253,919
|
)
|
Purchases of call options
|
|
(180,000
|
)
|
|
—
|
|
|
(180,000
|
)
|
Debt issuance costs and other
|
|
(27,641
|
)
|
|
(1,849
|
)
|
|
(29,490
|
)
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
(630,285
|
)
|
|
(1,849
|
)
|
|
(632,134
|
)
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
358,929
|
|
|
—
|
|
|
358,929
|
|
Cash and cash equivalents at beginning of year
|
|
1,808,513
|
|
|
—
|
|
|
1,808,513
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
2,167,442
|
|
|
$
|
—
|
|
|
$
|
2,167,442
|
|
1
Amounts as previously reported have been revised to report LIFO Expense separately from the change in Merchandise Inventories.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2014
|
(in thousands)
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
276,484
|
|
|
$
|
(2,254
|
)
|
|
$
|
274,230
|
|
Loss from discontinued operations
|
|
7,546
|
|
|
—
|
|
|
7,546
|
|
Income from continuing operations
|
|
284,030
|
|
|
(2,254
|
)
|
|
281,776
|
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation, including amounts charged to cost of goods sold
|
|
162,089
|
|
|
3,390
|
|
|
165,479
|
|
Amortization, including amounts charged to interest expense
|
|
30,644
|
|
|
494
|
|
|
31,138
|
|
Provision for doubtful accounts
|
|
26,634
|
|
|
—
|
|
|
26,634
|
|
Provision for deferred income taxes
|
|
39,312
|
|
|
(1,311
|
)
|
|
38,001
|
|
Warrants expense
|
|
422,739
|
|
|
—
|
|
|
422,739
|
|
Share-based compensation
|
|
43,107
|
|
|
—
|
|
|
43,107
|
|
LIFO expense
1
|
|
348,063
|
|
|
—
|
|
|
348,063
|
|
Loss on early retirement of debt
|
|
32,954
|
|
|
—
|
|
|
32,954
|
|
Other
|
|
(6,539
|
)
|
|
—
|
|
|
(6,539
|
)
|
Changes in operating assets and liabilities, excluding the effects of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(938,286
|
)
|
|
—
|
|
|
(938,286
|
)
|
Merchandise inventories
1
|
|
(1,304,569
|
)
|
|
—
|
|
|
(1,304,569
|
)
|
Prepaid expenses and other assets
|
|
21,107
|
|
|
—
|
|
|
21,107
|
|
Accounts payable
|
|
2,255,321
|
|
|
—
|
|
|
2,255,321
|
|
Accrued expenses, income taxes, and other liabilities
|
|
54,093
|
|
|
1,182
|
|
|
55,275
|
|
Net cash provided by operating activities-continuing operations
|
|
1,470,699
|
|
|
1,501
|
|
|
1,472,200
|
|
Net cash used in operating activities-discontinued operations
|
|
(7,546
|
)
|
|
—
|
|
|
(7,546
|
)
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
1,463,153
|
|
|
1,501
|
|
|
1,464,654
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(264,457
|
)
|
|
—
|
|
|
(264,457
|
)
|
Cost of acquired companies, net of cash acquired
|
|
(9,103
|
)
|
|
—
|
|
|
(9,103
|
)
|
Cost of equity investments
|
|
(117,794
|
)
|
|
—
|
|
|
(117,794
|
)
|
Other
|
|
7,199
|
|
|
—
|
|
|
7,199
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
(384,155
|
)
|
|
—
|
|
|
(384,155
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Senior note borrowings
|
|
1,097,927
|
|
|
—
|
|
|
1,097,927
|
|
Senior note repayments
|
|
(531,525
|
)
|
|
—
|
|
|
(531,525
|
)
|
Borrowings under revolving and securitization credit facilities
|
|
17,584,500
|
|
|
—
|
|
|
17,584,500
|
|
Repayments under revolving and securitization credit facilities
|
|
(17,584,500
|
)
|
|
—
|
|
|
(17,584,500
|
)
|
Purchases of common stock
|
|
(753,926
|
)
|
|
—
|
|
|
(753,926
|
)
|
Exercises of stock options, including excess tax benefits of $46,341
|
|
127,906
|
|
|
—
|
|
|
127,906
|
|
Cash dividends on common stock
|
|
(214,469
|
)
|
|
—
|
|
|
(214,469
|
)
|
Purchases of call options
|
|
(211,397
|
)
|
|
—
|
|
|
(211,397
|
)
|
Debt issuance costs and other
|
|
(16,007
|
)
|
|
(1,501
|
)
|
|
(17,508
|
)
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
(501,491
|
)
|
|
(1,501
|
)
|
|
(502,992
|
)
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
577,507
|
|
|
—
|
|
|
577,507
|
|
Cash and cash equivalents at beginning of year
|
|
1,231,006
|
|
|
—
|
|
|
1,231,006
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
1,808,513
|
|
|
$
|
—
|
|
|
$
|
1,808,513
|
|
1
Amounts as previously reported have been revised to report LIFO Expense separately from the change in Merchandise Inventories.
Note 3. Acquisitions
On February 24, 2015, the Company acquired MWI Veterinary Supply, Inc. ("MWI") for a purchase price of
$2.6 billion
. MWI is a leading animal health distribution company in the United States and in the United Kingdom. For reportable segment presentation, MWI's operating results are included within Other.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by
$1.2 billion
, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable acquired was
$346.9 million
,
$440.0 million
, and
$327.1 million
, respectively. The fair value of the intangible assets acquired totaled
$1.5 billion
and consisted of customer relationships of
$1.1 billion
, trade name of
$344.0 million
, and software technology of
$11.0 million
. The Company established a deferred tax liability of
$570.7 million
primarily in connection with the intangible assets acquired. The Company is amortizing the fair values of the acquired customer relationships and software technology over the remaining useful lives of
20 years
and
8 years
, respectively. The trade name has been determined to have an indefinite life. Goodwill and intangibles resulting from the acquisition are not deductible for income tax purposes.
On November 6, 2015, the Company acquired PharMEDium Healthcare Holdings, Inc. ("PharMEDium") for
$2.7 billion
in cash, which included certain purchase price adjustments. PharMEDium is a leading national provider of outsourced compounded sterile preparations ("CSPs") to acute care hospitals in the United States. PharMEDium is a component of AmerisourceBergen Drug Corporation ("ABDC") within the Pharmaceutical Distribution reportable segment.
The purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by
$1.8 billion
, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable acquired was
$63.2 million
,
$43.1 million
, and
$22.8 million
, respectively. The fair value of the intangible assets acquired of
$1.1 billion
consisted of customer relationships of
$882.7 million
, trade name of
$167.6 million
, and software technology of
$52.6 million
. The Company established a deferred tax liability of
$356.1 million
primarily in connection with the intangible assets acquired. The Company is amortizing the fair values of the acquired customer relationships and trade name over their useful lives of
15 years
. The fair value of the acquired software technology is being amortized over its estimated useful life of
10 years
. Goodwill and intangible assets resulting from the acquisition are not deductible for income tax purposes.
Note 4. Equity Method Investments
In June 2014, the Company completed the acquisition of a minority ownership interest in Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), a leading pharmaceutical wholesaler in Brazil. In addition, the Company and Profarma launched a joint venture to provide enhanced specialty distribution and services to the Brazilian marketplace. The Company invested a total of
$117.8 million
to acquire both a minority ownership interest in Profarma of approximately
19.9%
and a
50%
ownership interest in the specialty joint venture.
The Company accounts for its interest in both Profarma and the specialty joint venture as equity method investments, which are reported in the Other Assets line item on the consolidated balance sheet.
In fiscal 2015, the Company recorded an impairment charge of
$30.6 million
relating to its
19.9%
minority ownership interest in Profarma. The impairment charge was based on the determination by the Company that the decline in Profarma's stock price from the date on which the investment was made to September 30, 2015 was other-than-temporary.
In fiscal 2016, the Company invested an additional
$17.2 million
in Profarma and the specialty joint venture. As of
September 30, 2016
, the Company held a minority interest in Profarma of approximately
24.3%
and a
50%
ownership interest in the specialty joint venture.
As of
September 30, 2016
and 2015, the carrying value of the Company's equity method investments in Brazil was
$56.7 million
and
$30.5 million
, respectively, after adjusting for changes in exchange rates and earnings.
Note 5. Discontinued Operations
In May 2013, the Company completed the divestiture of AmerisourceBergen Canada Corporation ("ABCC"). ABCC's loss before income taxes in the fiscal year ended
September 30, 2014
was
$7.5 million
, which includes the impact of a final purchase price working capital adjustment.
The Company sold ABCC for
$67.9 million
, including a
C$50.0 million
note due from the buyer, with interest accruing at
3%
annually, and scheduled monthly payments to be made over a
seven
-year term that commenced in June 2013. The Company
entered into a foreign currency denominated contract to hedge the foreign currency exchange risk associated with the Canadian note.
Note 6. Income Taxes
The following illustrates domestic and foreign income from continuing operations before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Domestic
|
$
|
906,415
|
|
|
$
|
55,545
|
|
|
$
|
588,344
|
|
Foreign
|
484,495
|
|
|
213,419
|
|
|
81,519
|
|
Total
|
$
|
1,390,910
|
|
|
$
|
268,964
|
|
|
$
|
669,863
|
|
The income tax (benefit) provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Current provision:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
11,892
|
|
|
$
|
310,847
|
|
|
$
|
297,052
|
|
State and local
|
26,741
|
|
|
46,240
|
|
|
37,301
|
|
Foreign
|
55,275
|
|
|
29,216
|
|
|
15,733
|
|
|
93,908
|
|
|
386,303
|
|
|
350,086
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
Federal
|
(119,218
|
)
|
|
1,283
|
|
|
15,449
|
|
State and local
|
(11,490
|
)
|
|
18,201
|
|
|
22,658
|
|
Foreign
|
(219
|
)
|
|
1,342
|
|
|
(106
|
)
|
|
(130,927
|
)
|
|
20,826
|
|
|
38,001
|
|
(Benefit) provision for income taxes
|
$
|
(37,019
|
)
|
|
$
|
407,129
|
|
|
$
|
388,087
|
|
A reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate is as follows:
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Statutory U.S. federal income tax rate
|
35.0%
|
|
35.0%
|
|
35.0%
|
State and local income tax rate, net of federal tax benefit
|
0.6
|
|
10.4
|
|
4.1
|
Foreign
|
(8.4)
|
|
(20.4)
|
|
(1.9)
|
Warrants
|
(32.8)
|
|
109.7
|
|
18.4
|
Valuation allowance
|
2.2
|
|
9.2
|
|
1.7
|
Other
|
0.7
|
|
7.5
|
|
0.6
|
Effective income tax rate
|
(2.7)%
|
|
151.4%
|
|
57.9%
|
In March 2013, the Company issued Warrants (as defined in Note 9) in connection with various agreements and arrangements with WBA, as successor in interest to Walgreen Co. ("Walgreens") and Alliance Boots GmbH ("Alliance Boots"). At that time, the Company determined that the Warrants had a fair value of
$242.4 million
on the date of issuance, which approximated the tax deductible amount that would be deducted ratably on the Company's income tax return over the
10
-year term of the various agreements, and that any value in excess of the initial fair value of the Warrants on the date of issuance would not be tax deductible. In November 2015, the Company received a private letter ruling from the Internal Revenue Service ("IRS"), which entitles it to an income tax deduction equal to the fair value of the Warrants on the date of exercise. As a result, the Company recorded a deferred tax asset and recognized a tax benefit adjustment of approximately
$456 million
, which represented the estimated benefit from the tax deduction for the increase in the fair value of the Warrants from the issuance date through September 30, 2015. This tax benefit adjustment had a significant impact to the Company's effective tax rate in the fiscal year ended
September 30, 2016
. In March 2016 and August 2016, the Warrants were exercised by WBA. In the aggregate, the total fair value of the Warrants based on their respective exercise dates was
$1,565.9 million
. An additional tax benefit of approximately
$52
million
was recognized primarily related to the change in the fair value of the Warrants from September 30, 2015 to their respective exercise dates in fiscal 2016.
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
|
|
|
(As Revised)
|
Merchandise inventories
|
$
|
1,281,364
|
|
|
$
|
1,207,356
|
|
Property and equipment
|
123,443
|
|
|
106,572
|
|
Goodwill and other intangible assets
|
1,248,297
|
|
|
865,316
|
|
Other
|
6,709
|
|
|
1,107
|
|
Gross deferred tax liabilities
|
2,659,813
|
|
|
2,180,351
|
|
Net operating loss and tax credit carryforwards
|
(321,541
|
)
|
|
(73,691
|
)
|
Capital loss carryforwards
|
(65,535
|
)
|
|
(65,811
|
)
|
Allowance for doubtful accounts
|
(25,272
|
)
|
|
(30,549
|
)
|
Accrued expenses
|
(37,842
|
)
|
|
(24,248
|
)
|
Employee and retiree benefits
|
(17,759
|
)
|
|
(6,165
|
)
|
Stock options
|
(52,238
|
)
|
|
(41,233
|
)
|
Warrants
|
—
|
|
|
(59,917
|
)
|
Other
|
(90,383
|
)
|
|
(66,582
|
)
|
Gross deferred tax assets
|
(610,570
|
)
|
|
(368,196
|
)
|
Valuation allowance for deferred tax assets
|
165,531
|
|
|
132,085
|
|
Deferred tax assets, net of valuation allowance
|
(445,039
|
)
|
|
(236,111
|
)
|
Net deferred tax liabilities
|
$
|
2,214,774
|
|
|
$
|
1,944,240
|
|
The following tax carryforward information is presented as of
September 30, 2016
. The Company had
$243.6 million
of potential tax benefits from federal net operating loss carryforwards expiring in
2
to
20
years,
$110.9 million
of potential tax benefits from state net operating loss carryforwards expiring in
1
to
20
years, and
$20.9 million
of potential tax benefits from foreign net operating loss carryforwards, which have varying expiration dates. Included in the federal net operating loss carryforwards is
$45.8 million
of potential tax benefits that if realized would be an increase to additional paid-in-capital. Included in the state net operating loss carryforwards is
$15.1 million
of potential tax benefits that if realized would be an increase to additional paid-in-capital. The Company had
$65.5 million
of potential tax benefits from capital loss carryforwards expiring in
2
to
4
years. The Company had
$5.4 million
of foreign tax credit carryforwards expiring in
2
to
8
years. The Company had
$1.5 million
of state tax credit carryforwards and
$21.1 million
in federal alternative minimum tax credit carryforwards and
$2.1 million
in foreign alternative minimum tax credit carryforwards.
In fiscal
2016
, the Company increased the valuation allowance on deferred tax assets by
$33.4 million
primarily due to the addition of certain state and foreign net operating loss carryforwards. In fiscal
2015
, the Company increased the valuation allowance on deferred tax assets by
$26.7 million
, primarily due to the addition of certain state net operating loss carryforwards.
In fiscal
2016
, there were
no
tax benefits related to the exercise of employee stock options and lapses of restricted shares. In fiscal
2015
and
2014
, tax benefits of
$88.1 million
and
$46.3 million
, respectively, related to the exercise of employee stock options and lapses of restricted shares were recorded as additional paid-in capital.
Income tax payments, net of refunds, were
$17.5 million
in the fiscal year ended
September 30, 2016
. Income tax payments, net of refunds, were
$299.6 million
and
$197.0 million
in the fiscal years ended
September 30, 2015
and
2014
, respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years before 2012.
As of
September 30, 2016
and
2015
, 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
$88.2 million
and
$52.8 million
, respectively, (
$63.1 million
and
$37.2 million
, net of federal benefit, respectively). If recognized in the fiscal years ended
September 30, 2016
and
2015
,
$48.0 million
and
$22.2 million
, respectively, of these benefits would have reduced income
tax expense and the effective tax rate. As of
September 30, 2016
and
2015
, included in the unrecognized tax benefits are
$12.4 million
and
$8.1 million
of interest and penalties, respectively, which the Company records in income tax expense.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, in fiscal
2016
,
2015
, and
2014
is as follows (in thousands):
|
|
|
|
|
Balance at September 30, 2013
|
$
|
46,267
|
|
Additions of tax positions of the current year
|
6,127
|
|
Additions of tax positions of the prior years
|
1,249
|
|
Reductions of tax positions of the prior years
|
(4,167
|
)
|
Settlements with taxing authorities
|
(4,788
|
)
|
Expiration of statutes of limitations
|
(1,780
|
)
|
Balance at September 30, 2014
|
42,908
|
|
Additions of tax positions of the current year
|
3,616
|
|
Reductions of tax positions of the prior years
|
(871
|
)
|
Settlements with taxing authorities
|
(33
|
)
|
Expiration of statutes of limitations
|
(898
|
)
|
Balance at September 30, 2015
|
44,722
|
|
Additions of tax positions of the current year
|
24,145
|
|
Additions to tax positions of the prior years
|
11,840
|
|
Reductions of tax positions of the prior years
|
(1,407
|
)
|
Settlements with taxing authorities
|
(2,589
|
)
|
Expiration of statutes of limitations
|
(945
|
)
|
Balance at September 30, 2016
|
$
|
75,766
|
|
During the next 12 months, it is reasonably possible that state tax audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately
$6.4 million
.
Cumulative undistributed earnings of international subsidiaries were
$881.5 million
at
September 30, 2016
. No deferred federal income taxes were provided for the undistributed earnings as they are permanently reinvested in the Company's international operations. It is not practicable to estimate the amount of U.S. tax that would result upon the eventual repatriation of such earnings.
Note 7. Goodwill and Other Intangible Assets
Following is a summary of the changes in the carrying value of goodwill for the fiscal years ended
September 30, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
Distribution
|
|
Other
|
|
Total
|
Goodwill at September 30, 2014
|
$
|
2,400,926
|
|
|
$
|
547,576
|
|
|
$
|
2,948,502
|
|
Goodwill recognized in connection with acquisitions (As Revised)
|
35,051
|
|
|
1,171,199
|
|
|
1,206,250
|
|
Goodwill disposed in connection with divestitures
|
(3,605
|
)
|
|
(2,626
|
)
|
|
(6,231
|
)
|
Foreign currency translation
|
—
|
|
|
(4,130
|
)
|
|
(4,130
|
)
|
Goodwill at September 30, 2015 (As Revised)
|
2,432,372
|
|
|
1,712,019
|
|
|
4,144,391
|
|
Goodwill recognized in connection with acquisitions
|
1,832,113
|
|
|
18,196
|
|
|
1,850,309
|
|
Foreign currency translation
|
—
|
|
|
(3,203
|
)
|
|
(3,203
|
)
|
Goodwill at September 30, 2016
|
$
|
4,264,485
|
|
|
$
|
1,727,012
|
|
|
$
|
5,991,497
|
|
Following is a summary of other intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Indefinite-lived intangibles — trade
names
|
$
|
684,991
|
|
|
$
|
—
|
|
|
$
|
684,991
|
|
|
$
|
684,966
|
|
|
$
|
—
|
|
|
$
|
684,966
|
|
Finite-lived intangibles:
Customer relationships
|
2,322,404
|
|
|
(273,638
|
)
|
|
2,048,766
|
|
|
1,421,230
|
|
|
(146,227
|
)
|
|
1,275,003
|
|
Trade names and other
|
307,234
|
|
|
(73,142
|
)
|
|
234,092
|
|
|
81,241
|
|
|
(48,091
|
)
|
|
33,150
|
|
Total other intangible assets
|
$
|
3,314,629
|
|
|
$
|
(346,780
|
)
|
|
$
|
2,967,849
|
|
|
$
|
2,187,437
|
|
|
$
|
(194,318
|
)
|
|
$
|
1,993,119
|
|
Amortization expense for other intangible assets was
$152.5 million
,
$56.5 million
, and
$26.0 million
in the fiscal years ended
September 30, 2016
,
2015
, and
2014
, respectively. Amortization expense for finite-lived intangible assets is estimated to be
$158.3 million
in fiscal
2017
,
$156.2 million
in fiscal
2018
,
$153.1 million
in fiscal
2019
,
$149.2 million
in fiscal
2020
,
$148.4 million
in
2021
, and
$1,517.5 million
thereafter.
Note 8. Debt
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Revolving credit note
|
$
|
—
|
|
|
$
|
—
|
|
Receivables securitization facility due 2018
|
500,000
|
|
|
—
|
|
Term loans due in 2020
|
700,000
|
|
|
500,000
|
|
Multi-currency revolving credit facility due 2020
|
—
|
|
|
—
|
|
Overdraft facility due in 2021
|
11,275
|
|
|
—
|
|
$600,000, 1.15% senior notes due 2017
|
599,874
|
|
|
599,658
|
|
$400,000, 4.875% senior notes due 2019
|
398,808
|
|
|
398,456
|
|
$500,000, 3.50% senior notes due 2021
|
499,639
|
|
|
499,568
|
|
$500,000, 3.40% senior notes due 2024
|
498,919
|
|
|
498,777
|
|
$500,000, 3.25% senior notes due 2025
|
497,771
|
|
|
497,503
|
|
$500,000, 4.25% senior notes due 2045
|
499,116
|
|
|
499,086
|
|
Total debt
|
$
|
4,205,402
|
|
|
$
|
3,493,048
|
|
Less current portion
|
611,149
|
|
|
—
|
|
Total, net of current portion
|
$
|
3,594,253
|
|
|
$
|
3,493,048
|
|
Multi-Currency Revolving Credit Facility
The Company has a
$1.4 billion
multi-currency senior unsecured credit facility, which was scheduled to expire in November 2020 (the "Multi-Currency Revolving Credit Facility"), with a syndicate of lenders. In November 2016, the Company entered into an amendment with the syndicate of lenders to extend the maturity date to November 2021. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on the Company's debt rating and ranges from
69 basis points
to
110 basis points
over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (
91 basis points
over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at
September 30, 2016
) and from
0 basis points
to
10 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
6 basis points
to
15 basis points
, annually, of the total commitment (
9 basis points
at
September 30, 2016
). 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, 2016
.
Receivables Securitization Facility
The Company has a receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire in November 2018. In June 2016, the Company amended the Receivables Securitization Facility to increase the borrowing capacity from
$950 million
to
$1,450 million
and in November 2016, the Company extended the maturity date to November 2019. The Company has available to it an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to
$250 million
, subject to lender approval, for seasonal needs during the December and March quarters. Interest rates are based on prevailing market rates for short-term commercial paper or LIBOR, plus a program fee. The Company pays a customary unused fee at prevailing market rates, annually, to maintain the availability under the Receivables Securitization Facility.
In connection with the Receivables Securitization Facility, ABDC sells 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. ABDC 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, 2016
.
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
$1.4 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 rates, 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, 2016
and 2015.
Revolving Credit Note and Overdraft 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 business. In February 2016, the Company amended the overdraft Facility to extend the maturity date from November 2016 to February 2021 and increase the borrowing capacity from
£20 million
to
£30 million
.
Term Loans
In February 2015, the Company entered into a
$1.0 billion
variable-rate term loan ("February 2015 Term Loan"), which matures in 2020. Through September 30, 2016, the Company elected to make principal payments, prior to the scheduled repayment dates, totaling
$700 million
on the February 2015 Term Loan, and as a result, the Company's next required principal payment is due upon maturity. The February 2015 Term Loan bears interest at a rate equal either to a base rate plus a margin, or a LIBOR rate, plus a margin. The margin is based on the public debt ratings of the Company and ranges from
75
basis points to
125
basis points over a LIBOR rate (
100
basis points at
September 30, 2016
) and
0
to
25
basis points over a base rate. The February 2015 Term Loan contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of
September 30, 2016
.
In November 2015, the Company entered into a
$1.0 billion
variable-rate term loan ("November 2015 Term Loan"), which matures in 2020. In fiscal 2016, the Company elected to make principal payments, prior to the scheduled repayment dates, of
$575 million
on the November 2015 Term Loan, and as a result, the Company's next required principal payment is due upon maturity. The November 2015 Term Loan bears interest at a rate equal either to a base rate, plus a margin, or a LIBOR rate, plus a margin. The margin is based on the public debt ratings of the Company and ranges from
75
basis points to
125
basis points over a LIBOR rate (
100
basis points as of
September 30, 2016
) and
0
basis points to
25
basis points over a base rate. The November 2015 Term Loan contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of
September 30, 2016
.
Senior Notes
In February 2015, the Company issued
$500 million
of
3.25%
senior notes due March 1, 2025 (the "2025 Notes") and
$500 million
of
4.25%
senior notes due March 1, 2045 (the "2045 Notes"). The 2025 Notes were sold at
99.47%
of the principal amount and have an effective yield of
3.31%
. The 2045 Notes were sold at
99.81%
of the principal amount and have an effective yield of
4.26%
. Interest on the 2025 and 2045 Notes is payable semi-annually in arrears.
In May 2014, the Company issued
$600 million
of
1.15%
senior notes due May 15, 2017 (the "2017 Notes") and
$500 million
of
3.40%
senior notes due May 15, 2024 (the "2024 Notes"). The 2017 Notes were sold at
99.892%
of the principal amount and have an effective yield of
1.187%
. The 2024 Notes were sold at
99.715%
of the principal amount and have an effective yield of
3.434%
. Interest on the 2017 Notes and 2024 Notes is payable semiannually in arrears.
The Company used a portion of the net proceeds from the 2017 Notes and the 2024 Notes to finance the early retirement of the
$500 million
,
5.875%
senior notes due 2015 (the "2015 Notes"), including the payment of
$31.5 million
of premiums and other costs. The Company used the remaining amount for general corporate purposes, including the repurchases of shares of its common stock under its special share repurchase program.
The Company has
$400 million
of
4.875%
senior notes due November 15, 2019 (the "2019 Notes") and
$500 million
of
3.50%
senior notes due November 15, 2021 (the "2021 Notes"). The 2019 Notes and 2021 Notes were sold at
99.2%
and
99.858%
of the principal amount, respectively, and have effective interest yields of
4.98%
and
3.52%
, respectively. Interest on the 2019 and 2021 Notes is payable semiannually in arrears. The 2017 Notes, 2019 Notes, 2021 Notes, 2024 Notes, 2025 Notes, and 2045 Notes are collectively referred to as the "Notes." 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, with which the Company was compliant as of
September 30, 2016
.
Other Information
Scheduled future principal payments of debt are
$611.3 million
in fiscal 2017,
$500.0 million
in fiscal 2019,
$700.0 million
in fiscal 2020,
$400.0 million
in fiscal 2021, and
$2.0 billion
thereafter.
Interest paid on the above indebtedness during the fiscal years ended
September 30, 2016
,
2015
, and
2014
was
$123.5 million
,
$91.5 million
, and
$62.9 million
, respectively.
Total amortization of financing fees and the accretion of original issue discounts, which are recorded as components of interest expense, were
$6.3 million
,
$5.2 million
, and
$3.9 million
, for the fiscal years ended
September 30, 2016
,
2015
, and
2014
, respectively.
Note 9. Stockholders' Equity and Earnings per Share
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 board of directors is authorized to provide for the issuance of shares of Preferred Stock in one or more series with various designations and preferences and relative, participating, optional, or other special rights and qualifications, limitations, or restrictions. Except as required by law, or as otherwise provided by the board of directors of the Company, the holders of Preferred Stock will have no voting rights and will not be entitled to notice of meetings of stockholders. Holders of Preferred Stock will be entitled to receive, when declared by the board of directors, out of legally available funds, dividends at the rates fixed by the board of directors for the respective series of Preferred Stock, and no more, before any dividends will be declared and paid, or set apart for payment, on Common Stock with respect to the same dividend period.
No
shares of Preferred Stock have been issued as of
September 30, 2016
.
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 following table illustrates the components of accumulated other comprehensive loss, net of income taxes, as of
September 30, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Pension and postretirement adjustments (See Note 11)
|
$
|
(5,843
|
)
|
|
$
|
(36,819
|
)
|
Foreign currency translation
|
(108,704
|
)
|
|
(99,393
|
)
|
Other
|
239
|
|
|
(121
|
)
|
Total accumulated other comprehensive loss
|
$
|
(114,308
|
)
|
|
$
|
(136,333
|
)
|
In November 2012, the Company's board of directors authorized a program allowing the Company to purchase up to
$750 million
of its outstanding shares of Common Stock, subject to market conditions. During the fiscal year ended September 30, 2014, the Company purchased
5.5 million
shares of its Common Stock for a total of
$363.0 million
to complete its authorization under this program.
In August 2013, the Company's board of directors authorized a share repurchase program allowing the Company to purchase up to
$750 million
of its outstanding shares of Common Stock, subject to market conditions. During the fiscal year ended September 30, 2014, the Company purchased
2.4 million
shares of its Common Stock for a total of
$174.7 million
under this program, which included
$18.0 million
of fiscal 2014 purchases that cash settled in October 2014. During the fiscal year ended September 30, 2015, the Company purchased
3.3 million
shares of its Common Stock for a total of
$300.8 million
under this program. During the six months ended March 31, 2016, the Company purchased
1.1 million
shares of its Common Stock for a total of
$100.0 million
under this program. In May 2016, the Company's board of directors authorized a new share purchase program that, together with availability remaining under the existing August 2013 share repurchase program, permits the Company to purchase up to
$750 million
of its outstanding shares of Common Stock, subject to market conditions. In September 2016, the Company entered into an Accelerated Share Repurchase ("ASR") transaction with a financial institution and paid
$400.0 million
for the delivery of
4.5 million
shares of its Common Stock. The initial payment of
$400.0 million
funded stock purchases of
$380.0 million
and a share holdback of
$20.0 million
. The ASR transaction was settled in November 2016, at which time the financial institution delivered an additional
0.5 million
shares of the Company's Common Stock. The number of shares ultimately received was based on the volume-weighted average price of the Company's Common Stock during the term of the ASR. The Company applied the
4.5 million
shares from the ASR to the May 2016 share repurchase program. In addition to the ASR, the Company purchased
2.9 million
shares of its Common Stock for a total of
$231.2 million
under the May 2016 program. The Company had
$118.8 million
of availability remaining under this share repurchase program as of
September 30, 2016
.
In March 2013, the Company and WBA entered into various agreements and arrangements pursuant to which subsidiaries of WBA were granted the right to purchase a minority equity position in the Company, beginning with the right, but not the obligation, to purchase up to
19,859,795
shares of the Company's Common Stock in open market transactions (approximately
7%
of the Company's Common Stock on a fully diluted basis as of the date of issuance of the Warrants described below, assuming their exercise in full). In connection with these arrangements, wholly-owned subsidiaries of WBA were issued (a) warrants to purchase up to an aggregate of
22,696,912
shares of the Company's Common Stock at an exercise price of
$51.50
per share, exercisable during a
six
month period beginning in March 2016 (the "2016 Warrants"), and (b) warrants to purchase up to an aggregate of
22,696,912
shares of the Company's Common Stock at an exercise price of
$52.50
per share, exercisable during a
six
month period beginning in March 2017 (the "2017 Warrants" and, together with the 2016 Warrants, the "Warrants").
In June 2013, the Company commenced a hedging strategy by entering into a contract with a financial institution pursuant to which it executed a series of issuer capped call transactions ("Capped Calls"). The Capped Calls gave the Company the right to buy shares of its Common Stock subject to the Warrants at specified prices at maturity. This hedge transaction was completed in January 2014 and included the purchase of Capped Calls on a total of
27.2 million
shares of the Company's Common Stock for a total premium of
$368.7 million
.
Subsequently, the Company paid a premium of
$100.0 million
in January 2015 to increase the cap price on certain of the Capped Calls subject to the 2016 Warrants. The Capped Calls allowed the Company to acquire shares of its Common Stock at strike prices of
$51.50
and
$52.50
and had expiration dates ranging from February 2016 through October 2017. The Capped Calls permitted net share settlement, which was limited by caps on the market price of the Company's Common Stock. The Company accounted for the Capped Calls as equity contracts, and therefore, the above premium was recorded as a reduction to paid-in capital.
In May 2014, the Company's board of directors authorized a special program allowing the Company to purchase up to
$650 million
of its outstanding shares of Common Stock, subject to market conditions, as an opportunity to further mitigate the potentially dilutive effect of the Warrants and supplemented the Company's previously executed warrants hedging strategy. During
the fiscal year ended September 30, 2014, the Company purchased
3.4 million
shares of its Common Stock for a total of
$252.0 million
under this program, which included
$18.0 million
of purchases that cash settled in October 2014. During the fiscal year ended September 30, 2015, the Company purchased
4.3 million
shares (
1.6 million
under the Call Options for a total of
$151.2 million
, as defined below) of its Common Stock for a total of
$398.0 million
under this program, which excluded
$18.0 million
of purchases that cash settled in October 2014, to complete its authorization under this program.
In March 2015, the Company further supplemented its hedging strategy by entering into a contract with a financial institution pursuant to which it executed a series of issuer call options ("Call Options"). The Call Options gave the Company the right to buy shares of its Common Stock subject to the Warrants at specified prices between April 2015 and October 2015. In total, the Company purchased Call Options on
six million
shares of its Common Stock for a total premium of
$80.0 million
. The Company accounted for the Call Options as equity contracts, and therefore, the above premium was recorded as a reduction to paid-in capital.
In April 2015, the Company's board of directors authorized the second special share repurchase program allowing it to repurchase up to
$1.0 billion
in shares of its Common Stock, subject to market conditions, to further mitigate the potentially dilutive effect of the Warrants as part of its warrants hedging strategy. During the fiscal year ended September 30, 2015, the Company purchased
10.0 million
shares (
2.9 million
under the Call Options for a total of
$276.3 million
) of its Common Stock for a total of
$1.0 billion
to complete its authorization under this program.
In September 2015, the Company's board of directors authorized a new special share repurchase program allowing the Company to repurchase up to
$2.4 billion
in shares of its Common Stock, subject to market conditions. During the fiscal year ended September 30, 2015, the Company purchased
1.2 million
shares of its Common Stock for a total of
$124.1 million
under this program. During the fiscal year ended September 30, 2016, the Company purchased
26.3 million
shares of its Common Stock for a total of
$1,535.1 million
under this program. The Company had
$740.9 million
of availability remaining under this special share repurchase program as of
September 30, 2016
. However, this availability will not be utilized subsequent to September 30, 2016 as the earnings per share dilution effect of the Warrants was fully mitigated by the Company concurrent with the August 2016 exercise of the 2017 Warrants (see below).
In March 2016, the 2016 Warrants were exercised by WBA for
$1,168.9 million
in cash. The shares issued for the 2016 Warrants were from the Company's treasury stock on a first-in, first-out basis, and were originally purchased for
$866.0 million
. The Company recognized a reissuance gain in paid-in capital of
$302.9 million
.
In August 2016, the Company and WBA amended the 2017 Warrants so that they became exercisable in whole or in part during the
six
month period beginning in August 2016 at an exercise price of
$52.50
. In August 2016, the 2017 Warrants were exercised by WBA for
$1,191.6 million
in cash. The shares issued for the 2017 Warrants were from the Company's treasury stock on a first-in, first-out basis, and were originally purchased for
$1,157.5 million
. The Company recognized a reissuance gain in paid-in capital of
$34.1 million
.
The earnings per share dilutive effect of the Warrants was fully mitigated by the Company hedging a portion of its obligation to deliver Common Stock with a financial institution and repurchasing additional shares of its Common Stock under the special share repurchase programs, as described above, for the Company's own account over time.
Basic earnings per share is computed on the basis of the weighted average number of shares of Common Stock outstanding during the periods presented. Diluted earnings per share is computed on the basis of the weighted average number of shares of Common Stock outstanding during the periods presented plus the dilutive effect of stock options, restricted stock, restricted stock units, the unsettled ASR transaction, and the Warrants.
The following table illustrates the components of diluted weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average common shares outstanding — basic
|
212,206
|
|
|
217,786
|
|
|
227,367
|
|
Effect of dilutive securities — stock options, restricted stock, restricted stock units, and the unsettled September 2016 ASR transaction
|
3,338
|
|
|
—
|
|
|
4,787
|
|
Dilutive effect of the Warrants
|
10,415
|
|
|
—
|
|
|
3,251
|
|
Weighted average common shares outstanding — diluted
|
225,959
|
|
|
217,786
|
|
|
235,405
|
|
The potentially dilutive shares from employee stock options, restricted stock, restricted stock units, the unsettled September 2016 ASR transaction, and the Warrants that were antidilutive for fiscal
2016
,
2015
, and
2014
were
3.1 million
,
18.6 million
, and
2.0 million
, respectively.
Note 10. Related Party Transactions
As a result of WBA's exercise of the Warrants (see Note 9), it owns more than
10%
of the Company's 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 branded and generic pharmaceutical products to WBA and an agreement that provides the Company the ability to access generics and related pharmaceutical products through a global sourcing arrangement with Walgreens Boots Alliance Development GmbH. Both of these agreements expire in 2026.
Revenue from the various agreements and arrangements with WBA was
$43.4 billion
,
$40.5 billion
, and
$33.1 billion
in the fiscal years ended
September 30, 2016
,
2015
, and
2014
, respectively. The Company's receivable from WBA (after incentives owed to it) was
$4.0 billion
and
$3.1 billion
at
September 30, 2016
and
2015
, respectively.
Note 11. 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, composed 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.
Defined Benefit Plans
The Company approved the termination, effective August 1, 2014, of a salaried defined benefit pension plan, under which approximately
3,200
participants, including
500
active employees, had accrued benefits. In fiscal 2015, the Company obtained regulatory approval from the IRS to settle the plan.
In December 2015, the Company completed the settlement of plan benefits through the combination of lump-sum distributions to participants and the purchase of a nonparticipating annuity contract, which transferred the remaining obligation from the plan. Plan assets were sufficient to satisfy the obligations of the plan. During the fiscal year ended September 30, 2016, the Company recorded a pension settlement charge of
$47.6 million
, which primarily consisted of the recognition of unrecognized actuarial losses that were included in Accumulated Other Comprehensive Loss, net of the related deferred tax assets.
In June 2016, the Company transferred the surplus plan assets to its defined contribution 401(k) plan and recorded a charge of
$17.1 million
to Employee Severance, Litigation and Other in the Company's consolidated statements of operations.
Defined Contribution Plans
The Company sponsors the AmerisourceBergen Employee Investment 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
25%
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, may also be made depending upon the Company's performance. In connection with the termination of the salaried defined benefit plan, as discussed above,
$17.1 million
was transferred to the 401(k) plan, and the Company has committed to allocating these funds to participants who were active in the 401(k) plan as of December 31, 2015, based upon their eligible calendar 2016 earnings. There were
no
discretionary contributions made for the fiscal year ended September 30, 2015. A discretionary contribution was made for the fiscal year ended September 30, 2014. 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 also sponsors the AmerisourceBergen Corporation Benefit Restoration Plan. This unfunded plan provides benefits to selected key management, including all of the Company's executive officers. This plan provides eligible participants with an annual amount equal to
4%
of the participant's base salary to the extent that his or her compensation exceeds the annual compensation limit established by Section 401(a) (17) of the Internal Revenue Code.
Costs of the defined contribution plans charged to expense for the fiscal years ended
September 30, 2016
,
2015
, and
2014
were
$34.4 million
,
$23.5 million
, and
$22.5 million
, respectively.
Deferred Compensation Plan
The Company sponsors the AmerisourceBergen Corporation 2001 Deferred Compensation Plan. This unfunded plan, under which
2.96 million
shares of Common Stock are authorized for issuance, 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 to cash, mutual funds, or stock credits. Stock credits, including dividend equivalents, are equal to the full and fractional number of shares of Common Stock that could be purchased with the participant's compensation allocated to stock credits based on the average of closing prices of Common Stock during each month, plus, at the discretion of the board of directors, up to one-half of a share of Common Stock for each full share credited. Stock credit distributions are made in shares of Common Stock.
No
shares of Common Stock have been issued under the deferred compensation plan through
September 30, 2016
. The Company's liability relating to its deferred compensation plan as of
September 30, 2016
and
2015
was
$23.6 million
and
$18.0 million
, respectively.
Note 12. Share-Based Compensation
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 date the option is granted. Option terms and vesting periods are determined at the date of grant by the Compensation Committee of the board of directors. Employee options generally vest ratably, in equal amounts, over a
four
-year service period and expire in
seven
years (
ten
years for all grants issued prior to February 2008). 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 options vest ratably, in equal amounts, over a
three
-year service period and expire in
ten
years.
At
September 30, 2016
, employee and non-employee director stock options for an additional
22.6 million
shares may be granted under the AmerisourceBergen Corporation Omnibus Incentive Plan (the "Plan").
The estimated fair values of options granted are expensed as compensation 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 on 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 Company anticipates that the terms of options granted in the future will be similar to those granted in the past. The risk-free rates during the terms of such options are based on the U.S. Treasury yield curve in effect at the time of grant.
The weighted average fair values of the options granted during the fiscal years ended
September 30, 2016
,
2015
, and
2014
were
$17.43
,
$14.91
, and
$11.22
, respectively. The following weighted average assumptions were used to estimate the fair values of options granted:
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1.40%
|
|
1.23%
|
|
0.89%
|
Expected dividend yield
|
1.38%
|
|
1.29%
|
|
1.37%
|
Volatility of Common Stock
|
25.05%
|
|
23.12%
|
|
23.91%
|
Expected life of the options
|
3.72 years
|
|
3.73 years
|
|
3.69 years
|
Changes to the above valuation assumptions could have a significant impact on share-based compensation expense. During the fiscal years ended
September 30, 2016
,
2015
, and
2014
, the Company recorded stock option expense of
$33.1 million
,
$30.2 million
, and
$21.5 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, 2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
(000s)
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(000s)
|
Outstanding at September 30, 2015
|
11,887
|
|
|
$53
|
|
4 years
|
|
|
|
Granted
|
1,892
|
|
|
$98
|
|
|
|
|
|
Exercised
|
(2,189
|
)
|
|
$35
|
|
|
|
|
|
Forfeited
|
(586
|
)
|
|
$77
|
|
|
|
|
|
Outstanding at September 30, 2016
|
11,004
|
|
|
$63
|
|
4 years
|
|
$
|
247,586
|
|
Exercisable at September 30, 2016
|
5,943
|
|
|
$47
|
|
3 years
|
|
$
|
207,593
|
|
Expected to vest after September 30, 2016
|
4,896
|
|
|
$82
|
|
5 years
|
|
$
|
39,641
|
|
The intrinsic value of stock option exercises during fiscal
2016
,
2015
, and
2014
was
$120.9 million
,
$240.2 million
, and
$132.4 million
, respectively.
A summary of the status of the Company's nonvested options as of
September 30, 2016
and changes during the fiscal year ended
September 30, 2016
is presented below:
|
|
|
|
|
|
|
Options
(000s)
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at September 30, 2015
|
6,385
|
|
|
$11
|
Granted
|
1,892
|
|
|
$17
|
Vested
|
(2,630
|
)
|
|
$9
|
Forfeited
|
(586
|
)
|
|
$13
|
Nonvested at September 30, 2016
|
5,061
|
|
|
$14
|
During the fiscal years ended
September 30, 2016
,
2015
, and
2014
, the total fair values of options vested were
$24.4 million
,
$20.7 million
, and
$19.1 million
, respectively. Expected future compensation expense relating to the
5.1 million
nonvested options outstanding as of
September 30, 2016
is
$35.3 million
, which will be recognized over a weighted average period of
2.0
years.
Restricted Stock and Restricted Stock Units
Restricted shares vest in full after
three
years. The estimated fair value of restricted shares under the Company's restricted stock plans is determined by the product of the number of shares granted and the grant date market price of the Company's Common Stock. The estimated fair value of restricted shares is expensed on a straight-line basis over the requisite service period. During the fiscal years ended
September 30, 2016
,
2015
, and
2014
, the Company recorded restricted stock expense of
$19.5 million
,
$20.1 million
, and
$14.7 million
, respectively.
A summary of the status of the Company's nonvested restricted shares as of
September 30, 2016
and changes during the fiscal year ended
September 30, 2016
are presented below:
|
|
|
|
|
|
|
Restricted
Shares
(000s)
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at September 30, 2015
|
868
|
|
|
$63
|
Granted
|
220
|
|
|
$96
|
Vested
|
(406
|
)
|
|
$44
|
Forfeited
|
(74
|
)
|
|
$79
|
Nonvested at September 30, 2016
|
608
|
|
|
$85
|
During the fiscal years ended
September 30, 2016
,
2015
, and
2014
, the total fair values of restricted shares vested were
$17.8 million
,
$10.9 million
, and
$10.5 million
, respectively. Expected future compensation expense relating to the
0.6 million
restricted shares outstanding as of
September 30, 2016
is
$16.0 million
, which will be recognized over a weighted average period of
1.2
years.
Performance Stock Units
Performance stock units are granted to certain executive employees under the Plan, which represent Common Stock potentially issuable in the future. Performance stock units vest at the end of a
three
-year performance period based on achievement of specific performance goals. Based on the extent to which the targets are achieved, vested shares may range from
0
percent to
150
percent 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, and the 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, 2016
,
2015
, and
2014
, the Company recognized
$12.3 million
,
$10.6 million
, and
$6.8 million
of compensation expense, respectively, related to these performance stock units.
A summary of the status of the Company's nonvested performance stock units as of
September 30, 2016
and changes during the fiscal year ended
September 30, 2016
is presented below (based on target award amounts).
|
|
|
|
|
|
|
Performance
Stock
Units
(000s)
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at September 30, 2015
|
180
|
|
|
$78
|
Granted
|
90
|
|
|
$98
|
Vested
|
(94
|
)
|
|
$68
|
Forfeited
|
(12
|
)
|
|
$94
|
Nonvested at September 30, 2016
|
164
|
|
|
$93
|
Shares vested over the
three
-year performance period ended September 30, 2016 were distributed to employees in November 2016.
Employee Stock Purchase Plan
The AmerisourceBergen Corporation Employee Stock Purchase Plan provides for an aggregate of
4,000,000
shares of Common Stock that may be sold to eligible employees (generally defined as employees with at least
30
days of service with the Company). The participants may elect to have the Company withhold up to
25%
of base salary to purchase shares of the Company's Common Stock at a price equal to
95%
of the fair market value of the stock on the last business day of each
six
month purchase period. Each participant is limited to
$25,000
of purchases during each calendar year. During the fiscal years ended
September 30, 2016
,
2015
, and
2014
, the Company acquired
71,016
shares,
53,434
shares, and
68,700
shares, respectively, from the open market for issuance to participants in this plan. As of
September 30, 2016
, the Company has withheld
$1.8 million
from eligible employees for the purchase of additional shares of Common Stock.
Note 13. Leases and Other Commitments
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. Total rental expense was
$88.8 million
in fiscal
2016
,
$78.6 million
in fiscal
2015
, and
$75.2 million
in fiscal
2014
.
At September 30, 2016, future minimum rental payments under noncancelable operating leases and financing obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Operating
Leases
|
|
Financing Obligations
1
|
|
Total
|
2017
|
$
|
63,072
|
|
|
$
|
23,062
|
|
|
$
|
86,134
|
|
2018
|
56,747
|
|
|
25,074
|
|
|
81,821
|
|
2019
|
46,809
|
|
|
22,376
|
|
|
69,185
|
|
2020
|
39,445
|
|
|
20,727
|
|
|
60,172
|
|
2021
|
31,622
|
|
|
17,895
|
|
|
49,517
|
|
Thereafter
|
77,916
|
|
|
72,008
|
|
|
149,924
|
|
Total minimum lease payments
|
$
|
315,611
|
|
|
$
|
181,142
|
|
|
$
|
496,753
|
|
|
|
|
|
|
|
1
Represents the portion of future minimum lease payments relating to facility leases where the Company was determined to be the accounting owner (see Note 1). These payments are recognized as reductions to the financing obligation and as interest expense and exclude the future noncash termination of the financing obligation.
|
The Company outsources to IBM Global Services a significant portion of its corporate and ABDC information technology activities. The remaining commitment under the Company's arrangement, as amended in February 2016, which expires in
January 2021
, is approximately
$112.8 million
as of
September 30, 2016
, of which
$45.1 million
represents the Company's commitment in fiscal
2017
.
Note 14. Employee Severance, Litigation, and Other
The following table illustrates the charges incurred by the Company relating to employee severance, litigation, and other for the three fiscal years ended
September 30, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Employee severance and other costs
|
$
|
53,519
|
|
|
$
|
5,336
|
|
|
$
|
1,913
|
|
Deal-related transaction costs
|
19,243
|
|
|
32,558
|
|
|
6,279
|
|
Transfer of surplus assets from a settled salaried defined benefit pension plan to a defined contribution 401(k) plan
|
17,149
|
|
|
—
|
|
|
—
|
|
Customer contract dispute settlements
|
13,000
|
|
|
—
|
|
|
—
|
|
Total employee severance, litigation, and other
|
$
|
102,911
|
|
|
$
|
37,894
|
|
|
$
|
8,192
|
|
During fiscal
2014
, the Company incurred
$6.3 million
of deal-related transaction costs and
$1.9 million
of employee severance and other costs. During fiscal
2015
, the Company incurred
$32.6 million
of deal-related transaction costs (primarily related to professional fees in connection with the MWI acquisition) and
$5.3 million
of employee severance and other costs. During fiscal
2016
, the Company incurred
$53.5 million
of employee severance and other costs,
$19.2 million
of deal-related transaction costs (primarily related to professional fees with respect to the PharMEDium acquisition), a
$17.1 million
charge related to the transfer of surplus assets from a settled salaried defined benefit pension plan to the Company's defined contribution 401(k) plan, and
$13.0 million
of costs related to customer contract extensions (primarily related to the settlement of certain disputed items). During fiscal 2016, the Company reorganized certain of its business units and corporate functions to improve operating efficiency, and as a result, numerous positions were eliminated.
Employees receive their severance benefits over a period of time, generally not in excess of 12 months, or in the form of a lump-sum payment.
Note 15. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, government subpoenas, and government investigations, including antitrust, commercial, environmental, 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. With respect to the specific legal proceedings and claims described below, 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 for that period or on the Company's financial condition.
Government Enforcement and Related Litigation Matters
The Company is involved in government investigations and litigation arising from the marketing, promotion, sale and dispensing of pharmaceutical products in the United States. Some of these investigations originate through what are known as
qui tam
complaints of the federal False Claims Act. The qui tam provisions of the federal civil False Claims Act and various state and local civil False Claims Acts permit a private person, known as a "relator" or whistleblower, to file civil actions under these statutes on behalf of the federal, state and local governments. Qui tam complaints are initially filed by the relator under seal (or on a confidential basis) and the filing of the complaint imposes obligations on government authorities to investigate the allegations in the complaint and to determine whether or not to intervene in the action. Qui tam complaints remain sealed until the court in which the case was filed orders otherwise.
Under the federal False Claims Act, the government (or relators who pursue the claims without the participation of the government in the case) may seek to recover up to three times the amount of damages in addition to a civil penalty for each allegedly false claim submitted to the government for payment. Generally speaking, these cases take several years for the investigation to be completed and, ultimately, to be resolved (either through litigation or settlement) after the complaint is unsealed. In addition, some states have pursued investigations under state false claims statutes or consumer protection laws, either in conjunction with a government investigation or separately. There is often collateral litigation that arises from public disclosures of government investigations, including the filing of class action lawsuits by third party payors or by shareholders alleging violations of the securities laws.
The federal Food, Drug and Cosmetic Act (“FDCA”) contains provisions relating to the sale and distribution of pharmaceutical products that are alleged to be adulterated or misbranded. The FDCA includes strict-liability criminal offenses that can be pursued by the government for violations of the FDCA and which can result in the imposition of substantial fines and penalties against corporations and individuals.
The Company has learned that there are filings in one or more federal district courts, including a qui tam complaint filed by one of its former employees, that are under seal and may involve allegations against the Company (and/or subsidiaries or businesses of the Company, including its group purchasing organization for oncologists and its oncology distribution business) relating to its distribution of certain pharmaceutical products to providers.
Subpoenas and Ongoing Investigations
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 generally responds to such subpoenas and requests in a cooperative manner. These responses often require time and effort and can result in considerable costs being incurred by the Company. 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 health care industry, as well as to substantial settlements.
Since fiscal 2012, the Company and AmerisourceBergen Specialty Group ("ABSG") have been responding to subpoenas from the United States Attorney's Office for the Eastern District of New York ("USAO-EDNY") requesting production of documents and information relating to ABSG's oncology distribution center and former pharmacy in Dothan, Alabama (including the practices and procedures of the former pharmacy's pre-filled syringe program), its group purchasing organization for oncologists, and intercompany transfers of certain oncology products, which the Company believes could be related in whole or in part to one or more of the qui tam actions that remain under seal. The Company has produced documents and has engaged in ongoing dialogue with the USAO-EDNY. The USAO-EDNY has expressed an intention to pursue potential civil and criminal charges based upon
the FDCA and the False Claims Act. The Company is engaged in discussions with USAO-EDNY to attempt to reach a negotiated settlement. No conclusion can be drawn at this time as to any likely outcome in this matter.
In fiscal 2012, the Company's subsidiary, AmerisourceBergen Drug Corporation ("ABDC"), received a subpoena from the United States Attorney's Office in New Jersey (the "USAO-NJ") in connection with a grand jury proceeding requesting documents concerning ABDC's program for controlling and monitoring diversion of controlled substances into channels other than for legitimate medical, scientific, and industrial purposes. ABDC also received a subpoena from the Drug Enforcement Administration ("DEA") in connection with the matter. Since fiscal 2012, ABDC has received and responded to a number of subpoenas from both the USAO-NJ and DEA requesting grand jury testimony and additional information related to electronically stored information, documents concerning specific customers' purchases of controlled substances, and DEA audits. The Company continues to engage in dialogue with the USAO-NJ.
Since fiscal 2013, the Company or ABDC has received subpoenas from the United States Attorney's Office in the District of Kansas and the United States Attorney's Office in the Northern District of Ohio in connection with grand jury proceedings requesting documents concerning ABDC's program for controlling and monitoring diversion of controlled substances into channels other than for legitimate medical, scientific and industrial purposes. As in the New Jersey matter described above, in addition to requesting information on ABDC's diversion control program generally, the subpoenas have also requested documents concerning specific customers' purchases of controlled substances. The Company has responded to the subpoenas and requests for information.
Since fiscal 2016, the Company’s subsidiary U.S. Bioservices has received requests for information from the United States Attorney’s Office for the Southern District of New York (“USAO-SDNY”) relating to its dispensing of one product and its relationship with the manufacturer of the product. The Company is engaged in discussions with the USAO-SDNY.
The Company cannot predict the outcome of these ongoing investigations, or the impact on the Company as a result of these matters, which may include settlements in significant amounts that are not currently estimable, limitations on the Company's conduct, the imposition of corporate integrity obligations and/or other civil and criminal penalties.
State Proceedings
In June 2012, the Attorney General of the State of West Virginia ("West Virginia") filed complaints, which have been amended, in the Circuit Court of Boone County, West Virginia, against a number of pharmaceutical wholesale distributors, including the Company's subsidiary, ABDC, alleging, among other claims, that the distributors failed to provide effective controls and procedures to guard against diversion of controlled substances for illegitimate purposes in West Virginia, acted negligently by distributing controlled substances to pharmacies that serve individuals who abuse controlled substances, and failed to report suspicious orders of uncontrolled substances in accordance with state regulations. West Virginia is seeking monetary damages and injunctive and other equitable relief. On April 6, 2015, ABDC filed a motion to dismiss, which was subsequently denied on September 8, 2015. On October 23, 2015, ABDC, together with all other defendants, filed a writ of prohibition to the Supreme Court of Appeals of West Virginia. On October 30, 2015, ABDC filed an answer to West Virginia's second amended complaint. The writ of prohibition filed on October 23, 2015 was denied on January 5, 2016. Trial is currently scheduled for January 2017. ABDC anticipates undertaking efforts to try to resolve this matter prior to trial; however, ABDC cannot predict the outcome of this matter.
Other Litigation
On September 10, 2014, PharMerica Corp., Pharmacy Corporation of America and Chem Rx Pharmacy Services, LLC (collectively, “PMC”), customers of ABDC until March 3, 2015, filed a Complaint in Jefferson Circuit Court in Louisville, Kentucky against ABDC. The original Complaint alleged that ABDC failed to pay in excess of
$8 million
in rebates pursuant to a prime vendor agreement between PMC and ABDC under which ABDC distributed pharmaceuticals and other products to PMC. PMC subsequently amended its Complaint
three
times. PMC’s current complaint alleges unpaid-rebate claims in excess of
$33 million
and additional breaches and damages for unspecified amounts, which amounts may exceed
$100 million
.
ABDC answered all of the complaints, denied PMC’s allegations, and filed counterclaims alleging, among other things, that PMC failed to pay nearly
$50 million
in invoices from ABDC. On April 1, 2016, the Jefferson Circuit Court granted ABDC’s motion for partial summary judgment on one counterclaim and entered judgment in the amount of
$48.6 million
against PMC. No trial date is set for the remaining claims. The Company expects the parties to conclude discovery in early 2017. The Company is not in a position to assess the likely outcome or its exposure, if any, with respect to this matter.
Note 16. Litigation Settlements
Antitrust Settlements
Numerous class action 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. The Company has not been a named plaintiff in any of these class actions, but has been a member of the direct purchasers' class (i.e., those purchasers who purchase directly from these pharmaceutical manufacturers). None of the class actions 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, 2016
,
2015
, and
2014
, the Company recognized gains of
$133.8 million
,
$65.5 million
, and
$24.4 million
, respectively, relating to the above-mentioned class action lawsuits. 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 17. Business Segment Information
The Company is organized based upon the products and services it provides to its customers. The Company's operations are comprised of the Pharmaceutical Distribution reportable segment and Other. The Pharmaceutical Distribution reportable segment consists of the ABDC and ABSG operating segments. Other consists of the AmerisourceBergen Consulting Services ("ABCS"), World Courier Group, Inc. ("World Courier"), and MWI operating segments.
The Company has aggregated the operating segments of ABDC and ABSG into
one
reportable segment, the Pharmaceutical Distribution segment. The results of operations of the ABCS, World Courier, and MWI operating segments are not significant enough to require separate reportable segment disclosure, and, therefore, have been included in Other for the purpose of reportable segment presentation.
The Company's ability to aggregate ABDC and ABSG into
one
reportable segment was based on the following:
|
|
•
|
the objective and basic principles of ASC 280;
|
|
|
•
|
the aggregation criteria as noted in ASC 280; and
|
|
|
•
|
the fact that ABDC and ABSG have similar economic characteristics.
|
The chief operating decision maker ("CODM") for the Company is the Chairman, President, and Chief Executive Officer of the Company whose function is to allocate resources to, and assess the performance of, the ABDC and ABSG operating segments. ABDC and ABSG each has an executive who functions as an operating segment manager whose role includes reporting directly to the Chairman, President, and Chief Executive Officer of the Company on their respective operating segment's business activities, financial results, and operating plans.
The businesses of the Pharmaceutical Distribution operating segments are similar in that they service both healthcare providers and pharmaceutical manufacturers in the pharmaceutical supply channel. The distribution of pharmaceutical drugs has historically represented more than
95%
of the Company's revenues. ABDC and ABSG each operate in a high volume and low margin environment and, as a result, their economic characteristics are similar. Each operating segment warehouses and distributes products in a similar manner. Additionally, each operating segment is subject, in whole or in part, to the same extensive regulatory environment under which the pharmaceutical distribution industry operates.
ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals (including specialty pharmaceutical products), over-the-counter healthcare products, home healthcare supplies and equipment, outsourced CSPs, 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. ABDC also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers. Additionally, ABDC delivers packaging solutions to institutional and retail healthcare providers.
ABSG, through a number of operating businesses, provides distribution 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. ABSG also distributes plasma and other blood products, injectible pharmaceuticals, vaccines, and other specialty products. Additionally, ABSG provides third party logistics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers.
The Company's use of the terms "specialty" and "specialty pharmaceutical products" refers to drugs used to treat complex diseases, such as cancer, diabetes, and multiple sclerosis. Specialty pharmaceutical products are part of complex treatment regimens for serious conditions and diseases that generally require ongoing clinical monitoring. The Company believes the terms "specialty"
and "specialty pharmaceutical products" are used consistently by industry participants and its competitors. However, the Company cannot be certain that other distributors of specialty products define these and other similar terms in exactly the same manner as the Company does.
Both ABDC and ABSG distribute specialty drugs to their customers, with the principal difference between these
two
operating segments being that ABSG operates distribution facilities that focus primarily on complex disease treatment regimens. Therefore, a product distributed from one of ABSG's distribution facilities results in revenue reported under ABSG, and a product distributed from one of ABDC's distribution centers results in revenue reported under ABDC. Essentially, all of ABSG's sales consist of specialty pharmaceutical products. ABDC sales of specialty pharmaceutical products have historically been a relatively small component of its overall revenue.
As noted above, Other consists of the ABCS, World Courier, and MWI operating segments. ABCS, through a number of operating businesses, provides commercialization support services including reimbursement support programs, outcomes research, contract field staffing, patient assistance and co-pay assistance programs, adherence programs, risk mitigation services, and other market access programs to pharmaceutical and biotechnology manufacturers. World Courier, which operates in over
50
countries, is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. MWI is a leading animal health distribution company in the United States and in the United Kingdom. MWI sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets.
The following tables illustrate reportable segment information for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Pharmaceutical Distribution
|
|
$
|
140,731,224
|
|
|
$
|
131,480,550
|
|
|
$
|
117,383,967
|
|
Other
|
|
6,386,917
|
|
|
4,772,178
|
|
|
2,449,149
|
|
Intersegment eliminations
|
|
(268,455
|
)
|
|
(290,925
|
)
|
|
(263,989
|
)
|
Revenue
|
|
$
|
146,849,686
|
|
|
$
|
135,961,803
|
|
|
$
|
119,569,127
|
|
Intersegment eliminations primarily represent the elimination of certain ABCS sales to the Pharmaceutical Distribution reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Pharmaceutical Distribution
|
|
$
|
1,688,055
|
|
|
$
|
1,649,741
|
|
|
$
|
1,409,199
|
|
Other
|
|
342,416
|
|
|
254,506
|
|
|
150,617
|
|
Intersegment eliminations
|
|
(103
|
)
|
|
—
|
|
|
—
|
|
Total segment operating income
|
|
$
|
2,030,368
|
|
|
$
|
1,904,247
|
|
|
$
|
1,559,816
|
|
The following table reconciles total segment operating income to income from continuing operations before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations
Before Income Taxes
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Total segment operating income
|
|
$
|
2,030,368
|
|
|
$
|
1,904,247
|
|
|
$
|
1,559,816
|
|
Gain from antitrust litigation settlements
|
|
133,758
|
|
|
65,493
|
|
|
24,436
|
|
LIFO expense
|
|
(200,230
|
)
|
|
(542,807
|
)
|
|
(348,063
|
)
|
Acquisition-related intangibles amortization
|
|
(147,262
|
)
|
|
(54,095
|
)
|
|
(23,167
|
)
|
Warrants expense
|
|
(140,342
|
)
|
|
(912,724
|
)
|
|
(422,739
|
)
|
Employee severance, litigation, and other
|
|
(102,911
|
)
|
|
(37,894
|
)
|
|
(8,192
|
)
|
Pension settlement
|
|
(47,607
|
)
|
|
—
|
|
|
—
|
|
Operating income
|
|
1,525,774
|
|
|
422,220
|
|
|
782,091
|
|
Other (income) loss
|
|
(5,048
|
)
|
|
13,598
|
|
|
(4,360
|
)
|
Impairment charge on equity investment
|
|
—
|
|
|
30,622
|
|
|
—
|
|
Interest expense, net
|
|
139,912
|
|
|
109,036
|
|
|
83,634
|
|
Loss on early retirement of debt
|
|
—
|
|
|
—
|
|
|
32,954
|
|
Income from continuing operations before income taxes
|
|
$
|
1,390,910
|
|
|
$
|
268,964
|
|
|
$
|
669,863
|
|
Segment operating income is evaluated by the CODM of the Company before gain from antitrust litigation settlements; LIFO expense; acquisition-related intangibles amortization; Warrants expense; employee severance, litigation, and other; pension settlement; other (income) loss; impairment charge on equity investment; interest expense, net; and loss on early retirement of debt. All corporate office expenses are allocated to each operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
At September 30,
|
|
2016
|
|
2015
|
|
|
|
|
(As Revised)
|
Pharmaceutical Distribution
|
|
$
|
28,233,214
|
|
|
$
|
22,696,383
|
|
Other
|
|
5,422,986
|
|
|
5,266,599
|
|
Total assets
|
|
$
|
33,656,200
|
|
|
$
|
27,962,982
|
|
The CODM does not review assets by operating segment for purposes of assessing performance or allocating resources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
(As Revised)
|
|
(As Revised)
|
Pharmaceutical Distribution
|
|
$
|
173,293
|
|
|
$
|
155,553
|
|
|
$
|
135,173
|
|
Other
|
|
44,180
|
|
|
38,987
|
|
|
30,340
|
|
Acquisition-related intangibles amortization
|
|
147,262
|
|
|
54,095
|
|
|
23,167
|
|
Total depreciation and amortization
|
|
$
|
364,735
|
|
|
$
|
248,635
|
|
|
$
|
188,680
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
Fiscal year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Pharmaceutical Distribution
|
|
$
|
359,356
|
|
|
$
|
179,870
|
|
|
$
|
222,985
|
|
Other
|
|
105,260
|
|
|
51,715
|
|
|
41,472
|
|
Total capital expenditures
|
|
$
|
464,616
|
|
|
$
|
231,585
|
|
|
$
|
264,457
|
|
Note 18. Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable at
September 30, 2016
and
2015
approximate fair value based upon the relatively short-term nature of these financial instruments. Within cash and cash equivalents, the Company had
$650.0 million
investments in money market accounts as of
September 30, 2016
. The Company had
no
investments in money market accounts as of
September 30, 2015
. The fair value of the money market accounts was determined based on unadjusted quoted prices in active markets for identical assets, otherwise known as Level 1 inputs.
The Company had
$39.1 million
of investment securities available-for-sale,
$13.0 million
of which were within cash and cash equivalents, at
September 30, 2016
. The amortized cost of the investments was
$39.1 million
at
September 30, 2016
. The Company had
$213.1 million
of investment securities available-for-sale,
$126.9 million
of which were within cash and cash equivalents, at September 30,
2015
. The amortized cost of the investments was
$213.1 million
at September 30,
2015
. The fair value of the investments was based on inputs other than quoted prices, otherwise known as Level 2 inputs. The investments consist of fixed-income securities with maturities ranging from October 2016 to July 2017.
The recorded amount of long-term debt (see Note 8) and the corresponding fair value as of
September 30, 2016
were
$3,594.3 million
and
$3,750.9 million
, respectively. The recorded amount of long-term debt and the corresponding fair value as of
September 30, 2015
were
$3,493.0 million
and
$3,515.1 million
, respectively. The fair value of long-term debt was determined based on inputs other than quoted market prices, otherwise known as Level 2 inputs.
Note 19. Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2016
|
(in thousands, except per share amounts)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal Year
|
|
|
(As Revised)
|
|
(As Revised)
|
|
(As Revised)
|
|
|
|
|
Revenue
|
|
$
|
36,709,046
|
|
|
$
|
35,698,357
|
|
|
$
|
36,881,680
|
|
|
$
|
37,560,603
|
|
|
$
|
146,849,686
|
|
Gross profit (a)
|
|
$
|
964,877
|
|
|
$
|
1,075,331
|
|
|
$
|
1,107,863
|
|
|
$
|
1,124,535
|
|
|
$
|
4,272,606
|
|
Distribution, selling, and administrative expenses; depreciation; and amortization
|
|
608,039
|
|
|
612,302
|
|
|
610,706
|
|
|
624,925
|
|
|
2,455,972
|
|
Warrants expense (income)
|
|
467,375
|
|
|
(503,946
|
)
|
|
(83,704
|
)
|
|
260,617
|
|
|
140,342
|
|
Employee severance, litigation, and other and pension settlement
|
|
67,599
|
|
|
16,493
|
|
|
52,234
|
|
|
14,192
|
|
|
150,518
|
|
Operating (loss) income
|
|
$
|
(178,136
|
)
|
|
$
|
950,482
|
|
|
$
|
528,627
|
|
|
$
|
224,801
|
|
|
$
|
1,525,774
|
|
Net income
|
|
$
|
329,639
|
|
|
$
|
603,450
|
|
|
$
|
349,155
|
|
|
$
|
145,685
|
|
|
$
|
1,427,929
|
|
Earnings per share operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.60
|
|
|
$
|
2.90
|
|
|
$
|
1.62
|
|
|
$
|
0.66
|
|
|
$
|
6.73
|
|
Diluted
|
|
$
|
1.45
|
|
|
$
|
2.68
|
|
|
$
|
1.55
|
|
|
$
|
0.64
|
|
|
$
|
6.32
|
|
__________________________________________________________
|
|
(a)
|
The first and third quarters of fiscal
2016
include gains of
$12.8 million
and
$121.0 million
, respectively, from antitrust litigation settlements. The first, second, and third quarters of fiscal
2016
include LIFO charges of
$101.6 million
,
$92.4 million
, and
$80.4 million
, respectively. The fourth quarter of fiscal
2016
includes a LIFO credit of
$74.1 million
.
|
|
|
(b)
|
The Company revised its previously reported quarterly financial information to correct its accounting for certain leases (see Note 2).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
(in thousands, except per share amounts)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal
Year
|
|
|
(As Revised)
|
|
(As Revised)
|
|
(As Revised)
|
|
(As Revised)
|
|
(As Revised)
|
Revenue
|
|
$
|
33,588,602
|
|
|
$
|
32,669,267
|
|
|
$
|
34,233,556
|
|
|
$
|
35,470,378
|
|
|
$
|
135,961,803
|
|
Gross profit (a)
|
|
$
|
752,299
|
|
|
$
|
911,976
|
|
|
$
|
891,464
|
|
|
$
|
973,574
|
|
|
$
|
3,529,313
|
|
Distribution, selling, and administrative expenses; depreciation; and amortization
|
|
464,761
|
|
|
497,461
|
|
|
569,563
|
|
|
624,690
|
|
|
2,156,475
|
|
Warrants expense (income)
|
|
371,405
|
|
|
752,706
|
|
|
(14,900
|
)
|
|
(196,487
|
)
|
|
912,724
|
|
Employee severance, litigation, and other
|
|
3,503
|
|
|
24,871
|
|
|
2,625
|
|
|
6,895
|
|
|
37,894
|
|
Operating (loss) income
|
|
$
|
(87,370
|
)
|
|
$
|
(363,062
|
)
|
|
$
|
334,176
|
|
|
$
|
538,476
|
|
|
$
|
422,220
|
|
Net (loss) income
|
|
$
|
(200,542
|
)
|
|
$
|
(514,105
|
)
|
|
$
|
213,362
|
|
|
$
|
363,120
|
|
|
$
|
(138,165
|
)
|
Earnings per share operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.91
|
)
|
|
$
|
(2.33
|
)
|
|
$
|
0.97
|
|
|
$
|
1.71
|
|
|
$
|
(0.63
|
)
|
Diluted
|
|
$
|
(0.91
|
)
|
|
$
|
(2.33
|
)
|
|
$
|
0.89
|
|
|
$
|
1.56
|
|
|
$
|
(0.63
|
)
|
__________________________________________________________
|
|
(a)
|
The second, third, and fourth quarters of fiscal
2015
include gains of
$21.5 million
,
$43.6 million
, and
$0.4 million
, respectively, from antitrust litigation settlements. The first, second, third, and fourth quarters of fiscal
2015
include LIFO charges of
$144.0 million
,
$151.1 million
,
$158.7 million
, and
$88.9 million
, respectively.
|
|
|
(b)
|
The Company revised its previously reported quarterly financial information to correct its accounting for certain leases (see Note 2).
|
Note 20. Subsequent Events
Dividend Increase
In November 2016, the Company's board of directors increased the quarterly dividend paid on Common Stock by
7%
and declared a regular quarterly cash dividend of
$0.365
payable on December 5, 2016 to shareholders of record on November 21, 2016.
Share Repurchase Program
In November 2016, the Company's board of directors authorized a new share repurchase program allowing the Company to repurchase up to
$1.0 billion
in shares of its Common Stock, subject to market conditions.