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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
<TABLE>
<CAPTION>
COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
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<S> <C> <C>
33-27835-01 AmeriSource Health Corporation 23-2546940
(a Delaware Corporation)
P.O. Box 959, Valley Forge,
Pennsylvania 19482
(610) 296-4480
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: AMERISOURCE
HEALTH CORPORATION:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: AMERISOURCE HEALTH
CORPORATION:
COMMON STOCK, $.01
PAR VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Non-affiliates of AmeriSource Health Corporation, as of December 8, 1995, held
10,351,558 shares of voting stock. The registrant's voting stock is traded on
the Nasdaq National Market under the trading symbol "ASHC". The aggregate
market value of the registrant's voting stock held by non-affiliates of the
registrant (based upon the closing price of such stock on the Nasdaq National
Market on December 8, 1995 and the assumption for this computation only that
399 Venture Partners, Inc. and all directors and officers of the registrant
are affiliates) was $326,074,077.
The number of shares of common stock of AmeriSource Health Corporation
outstanding as of December 8, 1995 was: Class A--11,791,894; Class B--
9,987,345; Class C--391,447.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in the Part
of this report indicated below:
Part III--Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders to be held February 28, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
AmeriSource Health Corporation, through its direct wholly-owned subsidiary
AmeriSource Corporation (referred to interchangeably as "AmeriSource" and the
"Company"), is the fifth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
The Company services its customers nationwide through 19 drug distribution
facilities and one specialty products distribution facility. AmeriSource is
typically the primary source of supply to its customers and offers a broad
range of services designed to enhance the operating efficiencies and
competitive position of its customers and suppliers. The Company benefits from
a diverse customer base that includes hospitals and managed care facilities
(47%), independent community pharmacies including retail drug stores, nursing
homes and clinics (35%) and chain drug stores including pharmacy departments
of supermarkets and mass merchandisers (18%).
Over the past five years, AmeriSource has achieved significant growth in
revenues and operating income before unusual items. The Company's revenues
have increased from $2.5 billion in fiscal 1990 to $4.7 billion in fiscal
1995, a compound annual growth rate of 13.5%, while operating income before
unusual items and amortization increased from $43.8 million in fiscal 1990 to
$98.0 million in fiscal 1995, a compound annual growth rate of 17.5%. The
Company's growth is primarily the result of market share gains in existing
markets, geographic expansion and overall industry growth.
AmeriSource Health Corporation was incorporated in Delaware in 1988. The
address of the principal executive office of the Company is P.O. Box 959,
Valley Forge, Pennsylvania 19482. The telephone number is (610) 296-4480.
BUSINESS STRATEGY
Over the past five years, AmeriSource has significantly expanded its
national presence as a leading, innovative wholesale distributor of
pharmaceutical products and related health care services. The Company believes
it is well-positioned to continue its revenue growth and increase operating
income through the execution of the following key elements of its business
strategy:
. Expanding into New Geographic Markets. The Company believes that there
are substantial opportunities to grow by expanding into new geographic
areas through opening new distribution facilities and making selective,
complementary acquisitions. Since October 1993, the Company has opened
six new distribution facilities. In October 1993, the Company opened a
facility in Dallas, Texas, and in November 1994, the Company opened two
additional facilities in Portland, Oregon and Springfield, Massachusetts.
In June 1995 the Company opened a new facility in Sacramento, California
and in October 1995, a new facility in Phoenix, Arizona was opened. On
December 1, 1995, the Company opened its newest facility in Orlando,
Florida. Each of these new facilities began operations with an existing
customer base in its regional marketplace. In addition, in July 1995, the
Company acquired Newbro Drug Company, a regional wholesale pharmaceutical
distributor based in Idaho Falls, Idaho. The Company believes that as
industry consolidation pressures continue, additional opportunities may
arise to selectively acquire additional local and regional drug wholesale
companies facilitating expansion into new geographic areas and
enhancement of its competitive position in existing markets.
. Increasing Market Share in Existing Markets. The Company believes that it
is well positioned to continue to grow in its existing markets by: (i)
providing superior distribution services and specialty value-added
programs which reduce its customers' cost of operations; (ii) maintaining
its low cost operating structure to ensure that the Company's services
are priced competitively in the marketplace; (iii) continuing to focus on
the higher growth hospital and managed care market segment through the
use of dedicated facilities and advanced information systems; and (iv)
maintaining its decentralized operating structure to respond to
customers' needs more quickly and efficiently and to ensure the continued
development of local and regional management talent. These factors have
allowed AmeriSource to compete effectively in the marketplace, generate
above-average industry sales growth over the last two years and develop
new customers, such as the federal government. For example, over the past
two years the Company
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has been awarded contracts to provide approximately 75% of the
pharmaceuticals purchased by federal government hospital facilities
nationwide. In addition, the Company continues to grow with its existing
customers. The Company was selected by VHA Inc. as one of its three
primary providers and has been chosen as the preferred provider for
SunHealth. Both customers are among the nation's largest healthcare
providers.
. Continuing Growth of Specialty Services. The Company works closely with
both customers and suppliers to develop an extensive range of specialty
services. In addition to enhancing the Company's profitability, these
services increase customer loyalty and strengthen the Company's overall
role in the healthcare distribution channel. These services include:
--ECHO(TM), the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. In addition to facilitating the primary
supply arrangement between the Company and its customers, ECHO(TM)
enables the Company's customers to reduce their costs through ordering
more efficiently, selecting from best price alternatives and
maintaining formulary compliance. In fiscal 1995, the Company acquired
Liberty Drug Systems, a software developer based in Greensboro, North
Carolina. The technology acquired with this acquisition is being
combined with the ECHO(TM) system to provide customers with a complete
system for tracking usage, reordering products and managing records.
Since the introduction of ECHO(TM) in early fiscal 1991, the Company
has installed approximately 3,000 systems nationwide, and believes that
its installed base of systems is one of the largest in the wholesale
drug industry.
--Family Pharmacy(R) enables small chain and independent community
pharmacies to compete more effectively through: (i) innovative
advertising, marketing and promotional campaigns; (ii) value-added
merchandising programs including private label product lines; and (iii)
enhanced access to pharmaceutical benefit programs of large health care
groups, including third party payor programs. Family Pharmacy(R) has
grown dramatically in recent years. With approximately 2,000 Family
Pharmacy(R) member-stores, Family Pharmacy(R) in effect constitutes one
of the largest drugstore chains in the United States.
--The Company's Income Rx(R) program provides an integral value-added
service to its hospital and retail pharmacist customers by continually
reviewing the marketplace for generic products that offer the best
price, quality and availability. With the increasing importance of
generic pharmaceuticals this program represents a significant
opportunity for growth and profitability. Revenues attributable to
AmeriSource's sale of generic and multi-source pharmaceuticals
(including through the Income Rx(R) program) have increased to
approximately $500 million in fiscal 1995, more than twice what they
were in fiscal 1992.
--AmeriSource operates a pharmaceutical repackaging business that
markets products through its Income RePax(R) program. Repackaging
pharmaceuticals from bulk quantities into smaller units provides the
Company's customers with lower product, inventory and dispensing
(labor) costs.
--The Company's Health Services Plus business distributes oncology and
other specialty products to clinics and physician groups on a national
basis. Rita Ann Distributors markets cosmetics and fragrances to chain
drugstores and independent retail customers.
. Maintain Low Cost Operating Structure. AmeriSource has the lowest
operating cost structure among its four major national competitors. Over
the past five years, the Company has significantly reduced operating
expenses and investment in net working capital as a percentage of
revenues. Specifically, the Company has reduced its selling and
administrative expenses and depreciation as a percentage of revenues from
4.78% in fiscal 1990 to 3.61% in fiscal 1995. In addition, the Company
continues to achieve productivity and operating income gains from
continued investments in advanced management information systems,
warehouse automation technology, and from operating leverage due to above
industry average volume per facility. In fiscal 1995, the Company's
average revenue per facility was $246 million compared to a calendar 1994
industry average of $213 million. The addition of new facilities was
accomplished with minimal incremental investment in corporate overhead.
As these facilities continue to expand in their regional markets, the
Company believes that its growth and profitability will be further
enhanced.
2
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INDUSTRY OVERVIEW
The Company has benefited from the significant growth of the full-service
drug wholesale industry in the United States. Industry sales grew from $30
billion in 1990 to an estimated $52 billion in 1994. The factors contributing
to this growth, and the sources of future growth for the industry, include (i)
an aging population, (ii) the introduction of new pharmaceuticals, (iii) the
increased use of outpatient drug therapies, (iv) a higher concentration of
distribution through wholesalers by both manufacturers and customers, and (v)
rising pharmaceutical prices.
Aging Population. The number of individuals over age 65 in the United States
has grown 23% from approximately 26 million in 1980 to approximately 32
million in 1990 and is projected to increase an additional 9% to more than 35
million by the year 2000. This age group suffers from a greater incidence of
chronic illnesses and disabilities than the rest of the population and is
estimated to account for approximately two-thirds of total health care
expenditures in the United States.
Introduction of New Pharmaceuticals. Traditional research and development as
well as the advent of new research and production methods, such as
biotechnology, continue to generate new compounds that are more effective in
treating diseases. These compounds have been responsible for significant
increases in pharmaceutical sales. The Company believes that ongoing research
and development expenditures by the leading pharmaceutical manufacturers will
contribute to continued growth of the industry.
Cost Containment Efforts. In response to rising health care costs,
governmental and private payors have adopted cost containment measures that
encourage the use of efficient drug therapies to prevent or treat diseases.
While national attention has been focused on the overall increase in aggregate
health care costs, the Company believes drug therapy has had a beneficial
impact on overall health care costs by reducing expensive surgeries and
prolonged hospital stays. Pharmaceuticals currently account for less than 9%
of overall healthcare costs, and manufacturers' emphasis on research and
development is expected to continue the introduction of cost effective drug
therapies.
Higher Concentration of Distribution Through Wholesalers. Over the past
decade, manufacturers of pharmaceuticals have significantly increased the
distribution of their products through wholesalers as the cost and complexity
of maintaining inventories and arranging for delivery of pharmaceutical
products has risen. Drug wholesalers offer their customers and suppliers more
efficient distribution and inventory management. As a result, from 1980 to
1994, the percentage of pharmaceutical sales through wholesale drug
distributors increased from approximately 57% to approximately 78%. Order
processing, inventory management and product delivery by wholesale drug
distributors allow manufacturers to allocate their resources to research and
development, manufacturing and marketing their products. Customers benefit
from this shift by having a single source of supply for a full line of
pharmaceutical products as well as lower inventory costs, more timely and
efficient delivery, and improved purchasing and inventory information. In
addition, customers also benefit from the range of value-added programs
developed by wholesale drug distributors that are targeted to the specific
needs of these customers, which, in turn, reduce their costs and increase
their operating efficiencies.
Pharmaceutical Price Increases By Drug Manufacturers. The Company believes
that price increases by pharmaceutical manufacturers will continue to equal or
exceed the overall Consumer Price Index. The Company believes that this
increase will be due in large part to the relatively inelastic demand in the
face of higher prices charged for patented drugs as manufacturers have
attempted to recoup costs associated with the development, clinical testing
and Food and Drug Administration ("FDA") approval of new products.
At the same time that sales through the wholesale drug industry have grown,
the number of pharmaceutical wholesalers in the United States has decreased
from 139 at the end of 1980 to approximately 48 as of December 1995. Industry
analysts expect this consolidation trend to continue, with the industry's
largest companies increasing their percentage of total industry sales.
3
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OPERATIONS
Decentralized Structure. The Company believes that operating economies of
scale exist principally at the distribution facility level. Beginning in fiscal
1989, the Company undertook an extensive consolidation program, which closed 17
of the 31 facilities open on October 1, 1988. During the course of this
consolidation program, the Company continued to significantly increase its
revenues in each fiscal year. During fiscal 1995, the Company's average revenue
per facility was approximately $246 million, compared to the calendar 1994
industry average of $213 million. Five AmeriSource facilities each have annual
volume of over $400 million and an additional five facilities each have annual
volume in excess of $213 million, which provides the Company with continued
opportunities for significant leverage of fixed overhead and other costs.
To expand into new geographic markets, AmeriSource has opened six new
facilities since October 1993, and currently operates 19 drug wholesale
distribution facilities and one specialty products distribution facility,
organized into four regions across the United States. Several operating units
of the Company have over 100 years of history in the business and are among the
nation's first drug distribution businesses. Unlike its more centralized
competitors, the Company is structured as an organization of locally managed
profit centers. Management of each operating unit has fiscal responsibility for
its unit, and each operating unit has an established executive, sales and
operations staff. The operating unit's results, including earnings and asset
management goals, have a direct impact on management compensation. The
operating units utilize the Company's corporate staff for marketing, financial,
legal and executive management resources and corporate coordination of asset
and working capital management.
Sales and Marketing. The Company has an organization of over 200 sales
professionals. A specially trained group of telemarketing/customer service
representatives makes regular contact with customers regarding special offers.
Within the sales organization, there is also a field force of approximately 50
hospital representatives, including regional hospital directors. The Company's
corporate marketing department works with manufacturer suppliers to develop
national programs and promotions. Tailored to specific customer classes, these
programs can be further customized at the operating unit level to adapt to
local market conditions. The marketing department gathers and disseminates
information to each operating unit's purchasing and sales organization in order
to enhance their competitive effectiveness.
Facilities. Each of the Company's operating units carries an inventory line
necessary for its local market. The efficient distribution of small orders is
possible through the extensive use of computerization and modern warehouse
techniques. These include computerized warehouse product location, routing and
inventory replenishment systems, gravity-flow racking, mechanized order
selection and efficient truck loading and routing. The Company delivers its
products on a scheduled basis, including on a daily basis where required. It
utilizes a fleet of owned and leased vans and trucks and contract carriers.
Night picking operations in its distribution facilities have further reduced
delivery time. According to customer need, orders can be delivered in fewer
than 24 hours.
The Company's 19 full service distribution facilities and one specialty
products facility as of December, 1995, are organized into four regions
throughout the United States. The following table presents certain information
regarding the Company's operating units in the aggregate.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1991 1992 1993 1994 1995
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(DOLLARS IN MILLIONS; SQUARE FEET IN
THOUSANDS)
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Revenue............................ $2,743.8 $3,237.7 $3,658.9 $4,182.2 $4,668.9
Number of facilities............... 19 18 16 15 19
Average revenue/facility........... $ 144.4 $ 179.9 $ 228.7 $ 278.8 $ 245.7
Total square feet.................. 1,476.5 1,486.0 1,444.3 1,394.1 1,518.9
Average revenue/square feet........ $1,858.0 $2,179.0 $2,533.0 $3,000.0 $3,074.0
</TABLE>
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Customers and Markets. The Company has a diverse customer base that includes
hospitals and managed care facilities, independent community pharmacies
including retail drug stores, nursing homes and clinics and chain drug stores
including pharmacy departments of supermarkets and mass merchandisers. The
Company offers a broad range of services designed to enhance the operating
efficiencies and competitive position of its customers and manufacturers. In
addition, AmeriSource is typically the primary source of supply for its
customers, delivering on a daily basis. The table below summarizes how the
Company's customer sales mix has changed over the last five fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
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1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hospitals and Managed
Care Facilities........ $1,001 36% $1,253 39% $1,554 42% $1,968 47% $2,182 47%
Independents............ 1,203 44% 1,356 42% 1,397 38% 1,450 35% 1,636 35%
Chains.................. 540 20% 629 19% 708 20% 764 18% 851 18%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total................ $2,744 100% $3,238 100% $3,659 100% $4,182 100% $4,669 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
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No single customer represented more than 4% of the Company's total revenues
during fiscal 1995 other than the federal government which, in the aggregate,
accounted for approximately 10%. Excluding the federal government, the
Company's top ten customers represented approximately 15% of total revenues
during fiscal 1995. The Company believes it is less dependent on any single
customer than its four largest competitors. A profile of each customer segment
follows:
. Hospitals and Managed Care Facilities. AmeriSource is one of the nation's
top three distributors in serving the hospital and managed care market
segment, which is currently the fastest growing customer segment in the
industry. Because hospitals and managed care facilities purchase large
volumes of high priced, easily handled pharmaceuticals, the Company
benefits from quick turnover of both inventory and receivables and lower
than average operating expenses. The Company intends to continue to focus
on the higher growth hospital and managed care market segment through the
use of dedicated facilities and advanced information systems such as
ECHO(TM). As a percentage of total revenues, sales to hospitals and
managed care facilities increased from 36% in fiscal 1991 to 47% in
fiscal 1995, and have grown at a compound rate of 21.5% over this period.
. Independents. Independent community pharmacy owners represent the largest
segment of the industry and provide the greatest opportunity for the
Company's value-added services. The Company's sales to independent
customers have risen at a compound rate of 8.0% from fiscal 1991 through
fiscal 1995 due to the general growth of this customer segment and to the
success of the Company's customized marketing and merchandising programs,
such as its Family Pharmacy(R) program.
. Chains. This category includes chain drug stores, including pharmacy
departments of supermarkets and mass merchandisers. The Company's sales
to chains have risen at a compound rate of 12.0% from fiscal 1991 through
fiscal 1995. This growth rate reflects the results from the Company
entering into new contracts with several drug store chains.
Suppliers. AmeriSource obtains pharmaceutical and other products from a
number of manufacturers, none of which account for more than approximately 6%
of its net sales in fiscal 1995. The five largest suppliers in fiscal 1995
accounted for approximately 23% of net sales. Historically, the Company has
not experienced difficulty in purchasing desired products from suppliers. The
Company has agreements with many of its suppliers which generally require the
Company to maintain an adequate quantity of a supplier's products in
inventory. The majority of contracts with suppliers are terminable upon 30
days notice by either party. The loss of certain suppliers could adversely
affect the Company's business if alternative sources of supply were
unavailable. The Company believes that its relationships with its suppliers
are good.
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Management Information Systems. The Company has continually invested in
advanced management information systems and automated warehouse technology. In
fiscal 1994, AmeriSource introduced its BOSS warehouse automation system, a
paperless warehouse production program customized to AmeriSource's unique
requirements. First installed at its Paducah, Kentucky distribution center,
the second BOSS system will be installed at the Company's newly opened
facility in Orlando, Florida. Under the BOSS system, merchandise is received,
placed in inventory, retrieved and shipped utilizing customized radio
frequency equipment. The Company's management information systems also provide
for, among other things, electronic order entry by customers, invoice
preparation and purchasing and inventory tracking. As a result of electronic
order entry, the cost of receiving and processing orders have not increased as
rapidly as sales volume. The Company's customized systems strengthen customer
relationships by allowing the customer to lower its operating costs and by
providing the basis for a number of the value-added services the Company
provides to its customers, including marketing data, inventory replenishment,
single-source billing, computer price updates and price labels. AmeriSource
believes that its management information systems are capable of serving its
needs for the foreseeable future.
COMPETITION
The Company engages in the wholesale distribution of pharmaceuticals, health
and beauty aids and other products in a highly competitive environment. The
Company competes with numerous national and regional distributors, some of
which are larger and have substantially greater financial resources than the
Company. The Company's national competitors include McKesson Corporation,
Bergen Brunswig Corporation, Cardinal Health, Inc. and FoxMeyer Health
Corporation. In addition, the Company competes with local distributors,
direct-selling manufacturers and other specialty distributors. Competitive
factors include price, service and delivery, credit terms, breadth of product
line, customer support and marketing programs. There can be no assurance that
the Company will not encounter increased competition in the future that could
adversely affect the Company's business. The drug wholesale industry continues
to undergo significant consolidation, with the number of wholesalers in the
continental United States reduced from 139 at the end of 1980 to approximately
48 as of December 1995.
EMPLOYEES
As of September 30, 1995, the Company employed approximately 2,600 persons,
of which approximately 2,400 were full-time employees. Approximately 11% of
full and part-time employees are covered by collective bargaining agreements.
The Company believes that its relationship with its employees is good.
REGULATORY MATTERS
The United States Drug Enforcement Administration, the FDA and various state
boards of pharmacy regulate the distribution of pharmaceutical products and
controlled substances, requiring wholesale distributors of these substances to
register for permits and to meet various security and operating standards. As
a wholesale distributor of pharmaceuticals and certain medical/surgical
products, the Company is subject to these regulations. The Company has
received all necessary regulatory approvals and believes that it is in
substantial compliance with all applicable wholesale distribution
requirements.
The Company is aware that at its former Charleston, South Carolina
distribution center there is evidence of residual soil contamination remaining
from the fertilizer manufacturing process operated on that site over thirty
years ago. The Company's environmental consulting firm conducted a soil survey
and a groundwater study during fiscal 1994 and 1995. The results of the
studies indicate that there is lead on-site at levels requiring further
investigation and potential remediation. A preliminary engineering analysis
was prepared by outside consultants during the third quarter of fiscal 1994,
and indicated that if both soil and groundwater remediation are required, the
most likely cost is estimated to be $4.1 million. Accordingly, a liability of
$4.1 million was recorded during
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fiscal 1994 to cover future consulting, legal and remediation and ongoing
monitoring costs. The Company is working with the appropriate state regulatory
agency regarding further tests and potential site remediation. That
negotiation, investigation and remediation could take several years and the
actual costs may differ from the liability that has been recorded. The accrued
liability ($3.9 million at September 30, 1995), which is reflected in other
long-term liabilities on the Company's consolidated balance sheet, is based on
the present estimate of the extent of contamination, choice of remedy, and
enacted laws and regulations, including remedial standards; however, changes
in any of these could affect the estimated liability. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time, although the Company intends to vigorously enforce its
rights and remedies.
ITEM 2. PROPERTIES
As of December 1995, the Company conducted its business from office and
operating unit facilities at 33 locations throughout the United States. In the
aggregate, the Company's operating units occupy approximately 1.9 million
square feet of office and warehouse space, of which approximately 782,000
square feet is owned and the balance is leased under lease agreements with
expiration dates ranging from 1996 to 2009. The Company's 21 drug distribution
facilities range in size from approximately 43,600 square feet to 213,000
square feet. Leased facilities are located in the following states: Arizona,
California, Florida, Idaho, Kentucky, Massachusetts, Minnesota, New Jersey,
North Carolina, Ohio, Oregon, Pennsylvania, Tennessee and Texas. Owned
facilities are located in the following states: Georgia, Indiana, Kentucky,
Maryland, Missouri, Ohio, Pennsylvania, Tennessee and Virginia. The Company
utilizes a fleet of owned and leased vans and trucks, as well as contract
carriers to deliver its products. The Company believes that its properties are
adequate to serve the Company's current and anticipated needs without making
capital expenditures materially higher than historical levels.
ITEM 3. LEGAL PROCEEDINGS
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in a
series of purported class action antitrust lawsuits alleging violations of
various antitrust laws associated with the chargeback pricing system. In
addition, the Company is a party to a parallel suit filed in state court in
Minnesota. The actions were originally filed in the United States District
Court for the Southern District of New York, and have been transferred to the
United States District Court for the Northern District of Illinois for
consolidated and coordinated pretrial proceedings. In essence, these lawsuits
all claim that the manufacturer and wholesaler defendants have combined,
contracted and conspired to fix the prices charged to plaintiff independent
retail pharmacies and class members for prescription brand name
pharmaceuticals. Specifically, plaintiffs claim that the defendants use
"chargeback agreements" to give some institutional pharmacies discounts that
are not made available to retail drug stores. Plaintiffs seek injunctive
relief, treble damages, attorneys' fees and costs. In October, 1994, the
Company entered into a Judgement Sharing Agreement with other wholesaler and
pharmaceutical manufacturer defendants. Under the Judgement Sharing Agreement:
(a) the manufacturer defendants agreed to reimburse the wholesaler defendants
for litigation costs incurred, up to an aggregate of $9 million; and (b) if a
judgement is entered into against both manufacturers and wholesalers, the
total exposure for joint and several liability of the Company is limited to
the lesser of 1% of such judgement or $1 million. In addition, the Company has
released any claims which it might have had against the manufacturers for the
claims presented by the plaintiffs in these lawsuits. The Judgement Sharing
Agreement covers the federal court litigation as well as the cases which have
been filed in various state courts. The Company believes it has meritorious
defenses to the claims asserted in these lawsuits and intends to vigorously
defend itself in all of these cases.
In October 1995, a proceeding was instituted before the Massachusetts Board
of Registration in Pharmacy (the "Board") against the Company. The Board
alleges that the Company's application for the licensure of its facility in
Springfield, Massachusetts submitted in September 1994 was inaccurate and
insufficient. The Company is contesting this allegation. The Company cannot
predict the outcome of the proceeding; however, it does not believe that the
outcome will have a material adverse effect on its business or financial
condition.
7
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The Company is a party to various lawsuits arising in the ordinary course of
business. The Company, however, does not believe that the outcome of these
lawsuits, individually or in the aggregate, will have a material adverse
effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(No response to this Item is required.)
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions, as of December 8, 1995. Each executive officer serves at the
pleasure of the Company's Board of Directors.
<TABLE>
<CAPTION>
CURRENT POSITION WITH THE COMPANY AND OTHER POSITION HELD IN THE LAST FIVE
NAME AGE PERIOD OF SERVICE YEARS
---- --- ------------------------------------- ------------------------------------
<S> <C> <C> <C>
John F. McNamara........ 60 Chairman, President and Chief --
Executive Officer (1989-Present)
David M. Flowers........ 48 Executive Vice President-- Group President--Eastern Region
Marketing (1995-Present) (1989-1995)
Kurt J. Hilzinger....... 35 Vice President, Chief Financial Vice President, Finance and
Officer and Treasurer (1995-Present) Treasurer
(1993-1995); Vice President,
Financial Planning (1991-1993); Vice
President, Citicorp (1986-1991).
R. David Yost........... 48 Executive Vice President-- Group President--Central Region
Operations (1995-Present) (1989-1995)
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since April 10, 1995, the Company's Class A Common Stock has been traded
over-the-counter in the National Market System of the National Association of
Securities Dealers, Inc. (Nasdaq symbol ASHC). Prior to that date, there was
no established public trading market for the Company's Class A Common Stock.
As of December 8, 1995, there were 313 record holders of the Company's Class A
Common Stock. The quarterly high and low closing prices for the Company's
Class A Common Stock since April 1995 ranged from $24 1/2 to $20 3/4,
respectively, in the third quarter and from $27 3/4 to $19 3/4, respectively,
in the fourth quarter.
There is no established public trading market for the Company's Class B
Common Stock. As of December 8, 1995, there were 11 record holders of the
Company's Class B Common Stock.
The Company's Class C Common Stock was held by 14 holders of record as of
December 8, 1995. The Class C Common Stock trades on a limited basis in the
over-the-counter market, and information concerning the historical trading
prices for the Class C Common Stock is not published by nationally-recognized
independent sources.
The Company has not paid any cash dividends to its stockholders on any class
of its Common Stock, and anticipates that for the forseeable future its
earnings will be retained for use in its business. Payment of dividends is
within the discretion of the Company's Board of Directors and will depend,
among other factors, upon the Company's earnings, financial condition and
capital requirements and the terms of the Company's financing agreements. A
credit agreement between the Company and a syndicate of senior lenders
provides a secured credit facility of $380 million, and restricts the
Company's ability to make dividend payments unless certain financial tests are
met.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table should be read in conjunction with the Consolidated
Financial Statements, including
the notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1995 1994(A) 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $4,668,948 $4,182,193 $3,658,871 $3,237,708 $2,743,828 $2,474,425
Gross profit............ 266,355 235,191 209,438 199,723 178,769 162,120
Operating expenses (b).. 168,343 149,137 136,147 131,080 120,921 118,305
Operating income (loss). 97,835 (101,992) 65,601 60,850 45,887 37,342
Operating income,
excluding unusual items
and amortization ...... 98,012 86,054 73,291 68,643 57,848 43,815
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes in
1994................... 28,218 (172,417) (7,474) (12,824) (23,319) (29,489)
Net income (loss) ...... 10,181 (207,671) (18,618) (6,476) (23,319) (29,489)
Earnings (loss) per
share (fully diluted):
Income (loss) before
extraordinary items
and cumulative effect
of accounting changes
in 1994............... 1.53 (11.69) (.51) (.87) (1.58) (2.00)
Net income (loss) per
share................. .55 (14.08) (1.26) (.44) (1.58) (2.00)
Weighted average common
shares outstanding
(fully diluted)........ 18,396 14,750 14,750 14,750 14,750 14,750
Balance Sheet:
Cash and cash equiva-
lents and restricted
cash.................. $ 46,809 $ 25,311 $ 27,136 $ 13,806 $ 33,796 $ 21,787
Accounts receivable--
net................... 318,652 272,281 251,999 249,070 221,383 181,074
Merchandise invento-
ries.................. 404,522 351,676 346,371 336,025 270,977 286,094
Property and equip-
ment--net............. 45,244 41,182 36,106 38,105 36,203 36,247
Total assets........... $ 838,673 $ 711,644 $ 867,944 $ 848,474 $ 783,145 $ 756,932
Accounts payable....... $ 462,804 $ 449,991 $ 379,826 $ 308,097 $ 254,013 $ 241,711
Long-term debt......... 435,764 487,575 549,220 587,983 570,939 539,682
Stockholders' equity... (135,724) (300,726) (93,040) (74,747) (68,271) (44,946)
Total liabilities and
stockholders' equity.. $ 838,673 $ 711,644 $ 867,944 $ 848,474 $ 783,145 $ 756,932
</TABLE>
(a) Includes the effect of: the cumulative effect of accounting changes for
income taxes of $33,399 and postretirement benefits other than pensions of
$1,199; and the $180 million write-off of goodwill.
(b) Represents selling and administrative expenses and depreciation, and
excludes amortization and unusual items.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AMERISOURCE HEALTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements contained herein.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1994
Revenues of $4.7 billion for the fiscal year ended September 30, 1995
represented an increase of 11.6% over revenues for the fiscal year ended
September 30, 1994. The year-to-year revenue gains reflect increases across
all customer groups, the impact of the Company's expansion into new geographic
markets, especially in the northeastern and western United States, and price
increases. During the fiscal year ended September 30, 1995, sales to hospitals
increased 11%, sales to independent drug store customers increased 13%, and
sales to the chain drug store customer group increased 11%, as compared with
the prior fiscal year. During the twelve months ended September 30, 1995,
sales to hospitals accounted for 47% of total revenues, while sales to
independent drug stores represented 35% and sales to chain drug stores, 18% of
the total.
Gross profit of $266.4 million for fiscal 1995 increased by 13.3% over 1994,
primarily due to the increase in revenues. As a percentage of revenues, the
Company's gross profit margin expanded to 5.70% from 5.62% in 1994. The gross
profit margin improvement was a result of increased sales of higher margin
generic drugs, the continued introduction of new marketing programs with
manufacturers, and growth of higher margin specialty businesses, such as
pharmaceutical packaging. Increased purchase discounts and a greater level of
price increases from manufacturers resulting in greater inventory appreciation
also benefited the gross profit margin.
9
<PAGE>
Selling and administrative expenses and depreciation for 1995 were $168.3
million compared to $149.1 million for 1994, an increase of 12.9%. The
increase in 1995 is due primarily to increases in warehouse and delivery
expenses relating to the volume increases, development expenses of value-added
programs, and one-time costs associated with the opening of new distribution
facilities in Springfield, Massachusetts, Portland, Oregon, Sacramento,
California, and Phoenix, Arizona. As a result of these factors, selling and
administrative expenses and depreciation increased slightly to 3.61% of
revenues compared to 3.57% in fiscal 1994.
The decrease in amortization in fiscal 1995 was as a result of the write-off
of the value of the excess of cost over net assets acquired ("goodwill") which
the Company recorded in the third quarter of fiscal 1994.
Operating income, excluding unusual items and amortization, of $98.0 million
for fiscal 1995 increased 13.9% over fiscal 1994. As a percentage of revenues,
the Company's operating margin, excluding unusual items and amortization,
expanded to 2.10% in 1995 from 2.06% in 1994.
Interest expense (excluding the amortization of deferred financing costs)
for the year ended September 30, 1995 was $49.8 million, a decrease of $8.8
million, or 15.1% as compared with the year ended September 30, 1994. The
decrease was due to the redemption, in January 1995, of the $166.1 million of
14 1/2% senior subordinated notes, the redemption, in May 1995, of $74.3
million of 11 1/4% senior debentures, and the lower average rates due to the
implementation of the Receivables Program and the new revolving credit
facility which has a lower interest rate than the previous facility. Average
borrowings were $536 million during fiscal 1995 versus $562 million in 1994.
Income taxes provided of $17.3 million in fiscal 1995 were based upon an
annual effective tax rate of 38%, which recognizes the utilization, for
financial reporting purposes, of operating loss carryforwards. The provision
for income taxes in fiscal 1994 represents the estimated taxes payable due to
the application of the alternative minimum tax. The extraordinary charge of
$25.2 million in 1995, net of a tax benefit of $7.2 million, relates to the
amendment of the Credit Agreement, the redemption premium on the 14 1/2%
senior subordinated notes, the redemption premium on the 11 1/4% senior
debentures, and the consequent write-off of unamortized deferred financing
fees. The extraordinary charge of $679,000 in 1994, net of a tax benefit of
$23,000, relates to the purchase and retirement of an aggregate principal
amount of $4.4 million of 14 1/2% senior subordinated notes.
YEAR ENDED SEPTEMBER 30, 1994 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1993
Revenues of $4.2 billion for the fiscal year ended September 30, 1994
represented an increase of 14.3% over the amount for the fiscal year ended
September 30, 1993, reflecting real volume growth as well as the pass through
to customers of price increases from manufacturers. As compared with the prior
fiscal year, sales to hospitals grew by 27%, sales to chain drug stores,
excluding brokerage business, increased by 8%, and sales to independent drug
store customers increased by 4%. During 1994, sales to hospitals accounted for
47% of total revenues, while sales to independent drug stores represented 35%
and sales to chain drug stores, 18% of the total.
Gross profit of $235.2 million for 1994 increased by 12.3% over 1993,
primarily due to the increase in revenues. As a percentage of revenues, gross
profit declined to 5.62% in 1994 from 5.72% in 1993. The reduction in the
gross profit percentage resulted from continued industry price competition and
increased sales to larger volume, lower margin customers, such as hospitals.
Selling and administrative expenses and depreciation for 1994 were $149.1
million compared to $136.1 million for 1993, an increase of 9.5%. The cost
increases reflect inflationary increases and increases in warehouse and
delivery expenses which are variable with sales volume. Continued emphasis on
cost containment programs as well as the economies associated with the
significant revenue growth, reduced overall selling and administrative
expenses and depreciation as a percentage of revenues to 3.57% in 1994 from
3.72% in 1993.
Operating expenses in 1994 include a provision of $4.1 million to cover the
expected environmental remediation costs at one of its former distribution
centers. In addition, in the third quarter of fiscal 1994, the Company
completed a detailed evaluation of the recovery of the recorded value of the
excess of cost over net
10
<PAGE>
assets acquired ("goodwill") and concluded that projected operating results
would not support the future recovery of the remaining goodwill balance.
Accordingly, the Company wrote off the remaining goodwill balance of $179.8
million in the third quarter of fiscal 1994.
Operating income, excluding unusual items and amortization, of $86.1 million
for fiscal 1994 increased 17.4% over fiscal 1993. As a percentage of revenues,
the Company's operating margin, excluding unusual items and amortization,
expanded to 2.06% in 1994 from 2.00% in 1993.
Interest expense which is payable currently (cash interest), principally
related to the revolving credit facility and the senior subordinated notes,
was $43.7 million in 1994 as compared with $42.4 million in 1993, an increase
of 3.3%. The increase was as a result of higher interest rates on the
Company's variable rate borrowings offset in part by lower variable rate
borrowing levels and the reduction in principal amount of the senior
subordinated notes. Interest expense in 1994 reflects reductions as a result
of the purchase and retirement of an aggregate principal amount of $8.9
million of senior subordinated notes, which occurred during the fourth quarter
of fiscal 1993 and first quarter of fiscal 1994. Interest expense in 1994
includes $621,000 paid to the holders of an aggregate of $165.7 million in
principal amount of senior subordinated notes (see Note 5 of "Notes to
Consolidated Financial Statements"). During 1994, the average outstanding debt
level was $562 million at an average interest rate of 10.3%. In 1993, the
comparable average outstanding debt level was $551 million at an average
interest rate of 11.0%. The decrease in interest expense which is not
currently payable (pay-in-kind interest) of $5.5 million was due to the
refinancing in July 1993 of the 18% senior subordinated debentures, 18 1/2%
merger debentures, and 19 1/2% junior subordinated debentures with the 11 1/4%
senior debentures. Interest expense in 1994 includes $4.0 million in
amortization of financing fees as compared with $3.9 million in 1993.
Income taxes provided in 1994 and 1993 have been determined based on the
alternative minimum tax system. As noted below, the Company changed its method
of accounting for income taxes effective October 1, 1993. The extraordinary
charge of $679,000, net of a tax benefit of $23,000, relates to the purchase
and retirement of an aggregate principal amount of $4.4 million senior
subordinated notes.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (Statement 106) and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109).
The Company recorded, as of October 1, 1993, a total of $34.6 million in
noncash charges to net income for the effects of transition to these two new
standards. The cumulative effect of the change in accounting for post
retirement benefits other than pensions resulted in a noncash charge to net
income of $1.2 million as of October 1, 1993. The cumulative effect of the
change in accounting for income taxes resulted in a noncash charge to net
income of $33.4 million as of October 1, 1993, principally related to the
provision of deferred income taxes to reflect the tax consequences on future
years of the difference between the tax and financial reporting bases of
merchandise inventories.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal-year ended September 30, 1995, the Company's operating
activities consumed $35.6 million in cash. The use of funds was primarily the
result of the increases in restricted cash, accounts and notes receivable, and
merchandise inventories, offset by an increase in accounts payable, accrued
expenses and income taxes. Restricted cash represents amounts temporarily
deposited in the Master Trust pursuant to the Receivables Program. The net
increase in other working capital items was the result of opening distribution
facilities in Springfield, Massachusetts, Portland, Oregon, and Sacramento,
California. Operating cash uses during the year ended September 30, 1995
included $43.6 million in interest payments and $2.8 million in income tax
payments.
Subsequent to year-end, the Company opened new distribution facilities in
Phoenix, Arizona and Orlando, Florida. Capital expenditures for fiscal 1995
were $13.7 million and relate principally to the opening of the five new
distribution centers, continuing investments in management information
systems, and warehouse improvements. During fiscal 1995, the Company acquired
substantially all of the assets of LDS Liberty Drug Systems and Newbro Drug
Company for approximately $4.9 million. Liberty Drug Systems provides pharmacy
dispensing hardware and software systems in retail pharmacies. Newbro Drug
Company is a full-service
11
<PAGE>
wholesale pharmaceutical distributor in Idaho. The Company intends to continue
its investments in information systems and warehouse improvements and will
continue to evaluate acquisitions and other business opportunities.
In December 1994, the Company sold substantially all of its receivables to
ARC, pursuant to the Receivables Program. Pursuant to the Receivables Program,
ARC will continuously transfer receivables to a master trust in exchange for,
among other things, Certificates representing a right to receive a variable
principal amount. Contemporaneous with the consummation of the Receivables
Program, the Company amended its existing Credit Agreement with its senior
lenders and redeemed in January 1995 all of the outstanding 14 1/2% senior
subordinated notes at a redemption price of 106% of the principal amount plus
accrued interest through the redemption date totaling $176.2 million. In April
1995, the Company completed an initial public offering with the issuance of
7,590,000 common shares at $21.00 per share, the net proceeds of which
(approximately $148.2 million) were used to redeem in May 1995 one-half of the
11 1/4% senior debentures outstanding for 110% of the principal amount plus
accrued interest through the date of redemption (approximately $84.4 million)
and to pay down the Company's revolving credit facility. As a result of the
public offering and the Company's financial results, the borrowing rate
alternatives under the Credit Agreement was reduced by 1.0% to LIBOR plus
1.25% and the prime rate plus zero beginning in October 1995. The Company also
incurred approximately $10.1 million in fees connected with the refinancings.
At September 30, 1995, borrowings under the Company's $380 million revolving
credit facility were $150 million (at an average interest rate of 7.6%) and
borrowings under the $285 million Receivables Program were $210 million (at an
average interest rate of 6.3%).
An increase in interest rates would adversely affect the Company's operating
results and the cash flow available after debt service to fund operations and
any expansion and, if permitted to do so under its revolving credit facility,
to pay dividends on its capital stock.
The Company's operating results have generated sufficient cash flows which,
together with borrowings under its debt agreements and credit terms from
suppliers, have provided sufficient capital resources to finance working
capital and cash operating requirements, fund capital expenditures, and
interest currently payable on outstanding debt. The Company's primary ongoing
cash requirements will be to fund payment of interest on indebtedness, finance
working capital, and fund capital expenditures and routine business growth and
expansion through new business opportunities. Future cash flows from
operations and borrowings under the debt agreements are expected to be
sufficient to fund the Company's ongoing cash requirements.
The Company is subject to contingencies pursuant to environmental laws and
regulations at one of its former distribution centers that may require
remediation efforts. In fiscal 1994, the Company accrued a liability of $4.1
million to cover future consulting, legal and remediation, and ongoing
monitoring costs. The accrued liability, which is reflected in other long-term
liabilities on the accompanying consolidated balance sheet, is based on an
estimate of the extent of contamination and choice of remedy, existing
technology, and presently enacted laws and regulations, however, changes in
remediation standards, improvements in cleanup technology, and discovery of
additional information concerning the site could affect the estimated
liability in the future. The Company is investigating the possibility of
asserting claims against responsible parties for recovery of these costs.
Whether or not any recovery may be forthcoming is unknown at this time.
In fiscal 1994, the Company concluded that the carrying value of goodwill
which was recorded at the time of the leveraged buyout transaction in 1988
("Acquisition") could not be recovered from expected future operations and
accordingly wrote-off its remaining goodwill balance of $179.8 million. In
1994, the Company determined its then poor operating results since the
Acquisition and its expectations for future operating results were being
adversely affected by its then current capital structure; price competition
for market share; health care industry consolidation; the impact of group
purchasing organizations; and health care reform on drug prices. As these
factors became clear, the Company assessed the recoverability of its goodwill
through projected operations. It was determined that unless the Company was
able to develop successful strategic operating or financing initiatives which
would change the assumptions used in those projections, those projections were
the best estimate of the Company's projected performance given the Company's
then existing high leverage and industry trends. More importantly, the
projections indicated that the Company's long-term viability required
modification of its then current capital structure to reduce indebtedness and
increase its equity.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
AmeriSource Health Corporation
We have audited the accompanying consolidated balance sheets of AmeriSource
Health Corporation (formerly AmeriSource Distribution Corporation) and
subsidiaries as of September 30, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement and schedule presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AmeriSource Health Corporation and subsidiaries at September 30, 1995 and
1994 and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in notes 4 and 7 to the consolidated financial statements, in
1994 the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions.
Ernst & Young LLP
Philadelphia, Pennsylvania
November 3, 1995
13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 32,171 $ 25,311
Restricted cash............................................ 14,638 --
Accounts receivable less allowance for doubtful accounts:
1995--$12,941;
1994--$9,370.............................................. 318,652 272,281
Merchandise inventories.................................... 404,522 351,676
Prepaid expenses and other................................. 3,221 2,442
-------- --------
Total current assets..................................... 773,204 651,710
Property and equipment, at cost.............................. 76,826 67,598
Less accumulated depreciation.............................. 31,582 26,416
-------- --------
45,244 41,182
Deferred financing costs and other, less accumulated
amortization: 1995--$2,842;
1994--$7,239................................................ 20,225 18,752
-------- --------
$838,673 $711,644
======== ========
</TABLE>
15
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 462,804 $ 449,991
Accrued expenses and other............................. 27,720 27,618
Accrued income taxes................................... 13,596 11,488
Deferred income taxes.................................. 25,892 29,258
--------- ---------
Total current liabilities............................ 530,012 518,355
Long-term debt:
Revolving credit facility.............................. 150,000 175,897
Receivables securitization financing................... 209,842 --
Senior subordinated notes.............................. -- 166,134
Senior debentures...................................... 74,293 144,013
Other debt............................................. 1,629 1,531
--------- ---------
435,764 487,575
Other liabilities........................................ 8,621 6,440
Stockholders' equity:
Common stock, $.01 par value:
Class A (voting and convertible):
50,000,000 shares authorized; issued 9/95--12,062,560
shares;
9/94--532,143 shares................................ 121 5
Class B (nonvoting and convertible):
15,000,000 shares authorized; issued 9/95--12,969,050
shares;
9/94--12,980,885 shares............................. 130 130
Class C (nonvoting and convertible):
2,000,000 shares authorized; issued 9/95--440,158
shares;
9/94--1,475,000 shares.............................. 4 15
Capital in excess of par value......................... 165,044 4,676
Retained earnings (deficit)............................ (294,803) (304,984)
Cost of common stock in treasury....................... (6,220) (568)
--------- ---------
(135,724) (300,726)
--------- ---------
$ 838,673 $ 711,644
========= =========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $4,668,948 $4,182,193 $3,658,871
Cost of goods sold......................... 4,402,593 3,947,002 3,449,433
---------- ---------- ----------
Gross profit............................... 266,355 235,191 209,438
Selling and administrative................. 160,887 142,497 130,338
Depreciation............................... 7,456 6,640 5,809
Amortization............................... 177 4,147 5,467
Unusual items:
Environmental remediation................ -- 4,075 --
Write-off of excess of cost over net
assets acquired......................... -- 179,824 --
Nonrecurring charges..................... -- -- 2,223
---------- ---------- ----------
Operating income (loss).................... 97,835 (101,992) 65,601
---------- ---------- ----------
Interest expense........................... 52,288 62,611 66,696
Income (loss) before taxes, extraordinary
items, and cumulative effects of
accounting changes........................ 45,547 (164,603) (1,095)
Taxes on income............................ 17,329 7,814 6,379
---------- ---------- ----------
Income (loss) before extraordinary items
and cumulative effects of accounting
changes................................... 28,218 (172,417) (7,474)
Extraordinary charges--early retirement of
debt, net of income tax benefits.......... (18,037) (656) (11,890)
Extraordinary credits--reduction of income
tax provision from carry-forward of prior-
year operating losses..................... -- -- 746
Cumulative effect of changes in accounting
for income taxes of $33,399 and
postretirement benefits other than
pensions of $1,199........................ -- (34,598) --
---------- ---------- ----------
Net income (loss).......................... $ 10,181 $ (207,671) $ (18,618)
========== ========== ==========
Earnings (loss) per share:
Primary:
Income (loss) before extraordinary
items and cumulative effects of
accounting changes.................... $ 1.54 $ (11.69) $ (.51)
Extraordinary items.................... (.98) (.04) (.75)
Cumulative effect of accounting
changes............................... -- (2.35) --
---------- ---------- ----------
Primary net income (loss) per share.. $ .56 $ (14.08) $ (1.26)
========== ========== ==========
Weighted average number of common
shares outstanding (thousands)........ 18,333 14,750 14,750
Fully diluted:
Income (loss) before extraordinary
items and cumulative effects of
accounting changes.................... $ 1.53 $ (11.69) $ (.51)
Extraordinary items.................... (.98) (.04) (.75)
Cumulative effect of accounting
changes............................... -- (2.35) --
---------- ---------- ----------
Fully diluted net income (loss) per
share............................... $ .55 $ (14.08) $ (1.26)
========== ========== ==========
Weighted average number of common
shares outstanding (thousands)........ 18,396 14,750 14,750
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED COMMON
----------------------- EXCESS OF EARNINGS STOCK IN
CLASS A CLASS B CLASS C PAR VALUE (DEFICIT) TREASURY TOTAL
------- ------- ------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1992...... $ 5 $130 $ 15 $ 4,348 $ (78,695) $ (550) $ (74,747)
Net loss............... (18,618) (18,618)
Repurchase of stock
options............... (18) (18)
Purchase of 3,503
shares of Class A
Common Stock.......... (3) (3)
Capital contribution... 346 346
---- ---- ---- -------- --------- ------- ---------
September 30, 1993...... 5 130 15 4,676 (97,313) (553) (93,040)
Net loss............... (207,671) (207,671)
Purchase of 44,250
shares of Class A
Common Stock.......... (15) (15)
---- ---- ---- -------- --------- ------- ---------
September 30, 1994...... 5 130 15 4,676 (304,984) (568) (300,726)
Net income............. 10,181 10,181
Stock conversions...... 11 (11) --
Issuance of 7,590,000
shares in public
offering (net of
$1,293 of issuance
costs)................ 76 148,092 148,168
Exercise of stock
options............... 29 6,027 6,056
Purchase of 292,452
shares of Class A and
1,338,894 shares of
Class B common stock.. (5,652) (5,652)
Tax benefit from
exercise of stock
options............... 6,249 6,249
---- ---- ---- -------- --------- ------- ---------
September 30, 1995...... $121 $130 $ 4 $165,044 $(294,803) $(6,220) $(135,724)
==== ==== ==== ======== ========= ======= =========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 10,181 $(207,671) $ (18,618)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation.............................. 7,456 6,640 5,809
Amortization, including deferred financing
costs.................................... 2,656 8,120 9,407
Provision for loss on accounts receivable. 5,449 4,612 3,186
(Gain) loss on disposal of property and
equipment................................ (60) 185 2,267
Write-off of excess of cost of net assets
acquired................................. -- 179,824 --
Debentures issued in lieu of payment of
interest................................. 4,572 14,904 20,378
Provision for deferred income taxes....... (1,400) (5,055) --
Loss on early retirement of debt.......... 25,190 679 16,658
Cumulative effects of accounting changes.. -- 34,598 --
Changes in operating assets and
liabilities, excluding the effects of
acquisitions:
Restricted cash.......................... (14,638) -- --
Accounts and notes receivable............ (51,292) (27,772) (5,993)
Merchandise inventories.................. (49,266) (5,305) (10,346)
Prepaid expenses......................... (774) (465) (33)
Accounts payable, accrued expenses, and
income taxes............................ 26,466 76,847 77,102
Other long-term liabilities.............. -- 4,075 --
Miscellaneous............................ (179) (205) (642)
---------- --------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES................................. (35,639) 84,011 99,175
INVESTING ACTIVITIES
Capital expenditures........................ (13,664) (8,483) (7,571)
Cost of companies acquired.................. (4,872) -- --
Proceeds from sales of property and
equipment.................................. 2,229 457 1,500
---------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES....... (16,307) (8,026) (6,071)
FINANCING ACTIVITIES
Long-term debt borrowing.................... 1,839,945 854,661 993,864
Long-term debt repayments................... (1,914,099) (931,857) (1,060,303)
Net proceeds from initial public offering... 148,168 -- --
Deferred financing costs.................... (10,122) (589) (13,660)
Exercise of stock options................... 566 -- --
Capital contribution........................ -- -- 346
Repurchase of stock options................. -- (10) (18)
Purchases of treasury stock................. (5,652) (15) (3)
---------- --------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................. 58,806 (77,810) (79,774)
---------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 6,860 (1,825) 13,330
Cash and cash equivalents at beginning of
year....................................... 25,311 27,136 13,806
---------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.... $ 32,171 $ 25,311 $ 27,136
========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
AmeriSource Health Corporation, formerly AmeriSource Distribution Corporation,
and its wholly-owned subsidiaries (the "Company") as of the dates and for the
periods indicated. All intercompany transactions and balances have been
eliminated in consolidation.
Business
The Company is a wholesale distributor of pharmaceuticals and related health
care products.
Cash Equivalents
The Company classifies highly liquid investments with original maturities of
three months or less at date of purchase as cash equivalents.
Concentrations of Credit Risk
The Company sells its merchandise inventories to a large number of customers
in the health care industry including independent drug stores, chain drug
stores, hospitals, mass merchandisers, clinics, and nursing homes. The
Company's trade accounts receivable are exposed to credit risk, however, the
risk is limited due to the diversity of the customer base and the customer
base's wide geographic dispersion. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
reserves for potential bad debt losses and such bad debt losses have been
within the Company's expectations.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method, which results in a matching of
current costs and revenues. On a supplemental basis, if the first-in, first-
out (FIFO) method of valuation had been used for determining costs,
inventories would have been approximately $93,803,000 and $88,327,000 higher
than the amounts reported at September 30, 1995 and 1994, respectively.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets by the straight-line method.
Revenue Recognition
The Company recognizes revenues when products are delivered to customers.
Additionally, the Company acts as an intermediary in the bulk shipment of
pharmaceuticals from manufacturers to customers' warehouses, which have been
excluded from revenues and totaled $107 million, $120 million, and $60 million
in fiscal years 1995, 1994, and 1993, respectively. The service fees earned
related to these bulk shipments are included in
20
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
revenues and were insignificant. Revenues and cost of goods sold in prior
years have been reclassified to conform with the 1995 presentation for bulk
shipments.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
Earnings Per Share and Share Data
Earnings (loss) per share is computed on the basis of the weighted average
number of shares of common stock outstanding during the periods presented
(18,295,000 for fiscal 1995 and 14,750,000 in fiscal 1994 and 1993) plus the
dilutive effect of stock options (38,000 and 101,000 for the fiscal 1995
primary and fully diluted calculations, respectively). Share and per share
amounts prior to April 1995 have been adjusted for the 2.95-for-1 stock split
effected in conjunction with the Company's public offering (see Note 6).
NOTE 2--ACQUISITIONS
During fiscal 1995, the Company acquired substantially all of the assets of
Newbro Drug Company, a wholesale pharmaceutical distributor located in Idaho
Falls, Idaho and of Liberty Drug Systems, a North Carolina-based provider of
pharmacy software and hardware. The aggregate purchase price for these
acquisitions was approximately $4.9 million in cash, which approximated the
fair value of the net tangible assets acquired. These acquisitions were
accounted for by the purchase method and are included in the financial
statements from their dates of acquisition. The pro forma effects on the
Company's results of operations had these acquisitions occurred at the
beginning of the periods presented are not material.
NOTE 3--EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired ("goodwill") was recorded at the
time of the leveraged buyout transaction ("Acquisition") in 1988. As of June
30, 1994, the Company determined it was unable to achieve the operating
results projected at the time of the Acquisition. Since the Acquisition, the
Company has been affected by price competition for market share within the
industry, health care industry consolidation, and the impact of group
purchasing organizations, managed care, and health care reform on drug prices.
In fiscal 1994, the Company determined its then poor operating results since
the Acquisition and its expectations for future operating results were being
significantly affected by its then-current capital structure and fundamental
changes in the market place in which the Company operates. As these factors
became clear and in conjunction with the then recent increases in the interest
rates, a detailed comprehensive evaluation of the Company's future prospects
was prepared. The evaluation determined the Company's financial losses at that
time were significantly affected by its highly leveraged capital structure,
price sensitivity, aggressive pricing by better capitalized competitors,
consolidations in the wholesale drug distribution industry and the impact of
larger buying groups. Based on the then-current industry trends, interest rate
trends and the health care reform environment, in the third quarter of fiscal
1994, the Company concluded that the projected operating results ("the
Projection") would not support the future recovery of the remaining goodwill
balance.
The methodology employed to assess the recoverability of the Company's
goodwill was to project results of operations forward 36 years, which
approximated the remaining amortization period of the goodwill balance at June
30, 1994. The Company then evaluated the recoverability of goodwill on the
basis of those Projections.
It was determined that unless the Company was able to develop successful,
strategic, operating, or financing initiatives which would change the
assumptions used in the Projections, the projected future operating results
based on those assumptions was the best estimate of the Company's projected
performance given the Company's
21
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--EXCESS OF COST OVER NET ASSETS ACQUIRED--(CONTINUED)
then-existing high leverage and industry trends. As a result, the Company
concluded that the carrying value of goodwill could not be recovered from
expected future operations. Accordingly, the Company wrote off its remaining
goodwill balance of $179.8 million in the third quarter of fiscal 1994. More
importantly, the Projection indicated that the Company's long-term viability
required modification of its then-current capital structure to reduce its
indebtedness and increase its equity.
NOTE 4--TAXES ON INCOME
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Current provision:
Federal.......................................... $16,767 $12,147 $4,633
State and local.................................. 1,962 853 1,746
------- ------- ------
18,729 13,000 6,379
Deferred provision:
Federal.......................................... (1,120) (5,625) --
State and local.................................. (280) 439 --
------- ------- ------
(1,400) (5,186) --
------- ------- ------
Provision for income taxes......................... $17,329 $ 7,814 $6,379
======= ======= ======
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1994 1993
---- ----- ------
<S> <C> <C> <C>
Statutory federal income tax rate................. 35.0% 35.0% 34.8%
State and local income tax rate, net of federal
tax benefit...................................... 2.8 (.3) (104.1)
Tax effect of operating loss carryover
(utilized)/not recognized........................ (5.9) 6.1 --
Amortization of difference in book and tax bases
of net assets acquired........................... -- (39.2) (168.6)
Alternative minimum tax........................... -- -- (274.2)
Other............................................. 6.1 (6.3) (70.5)
---- ----- ------
Effective income tax rate......................... 38.0% (4.7)% (582.6)%
==== ===== ======
</TABLE>
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109),
which required a change in the method of accounting for income taxes from the
deferred method to the liability method. In accordance with Statement 109, the
Company recorded an adjustment of $33.4 million for the cumulative effect of
adopting Statement 109 as of October 1, 1993. As permitted under Statement
109, prior-period financial statements have not been restated. The cumulative
effect adjustment relates principally to the provision of deferred income
taxes to reflect the tax consequences on future years of the difference
between the tax and financial reporting basis of merchandise inventories.
22
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--TAXES ON INCOME--(CONTINUED)
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):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Inventory............................................. $ 35,678 $ 35,712
Fixed assets.......................................... 4,942 4,654
Other................................................. 887 351
-------- --------
Gross deferred tax liabilities.................... 41,507 40,717
Net operating losses and tax credit carryovers........ (23,000) (11,554)
Allowance for doubtful accounts....................... (5,176) (3,748)
Accrued expenses...................................... (1,509) (3,524)
Other postretirement benefits......................... (512) (497)
Other................................................. (3,513) (3,173)
-------- --------
Gross deferred tax assets......................... (33,710) (22,496)
Valuation allowance for deferred tax assets........... 19,783 10,350
-------- --------
Net deferred tax liabilities.......................... $ 27,580 $ 28,571
======== ========
</TABLE>
The valuation allowance for deferred tax assets was $17.6 million at October
1, 1993. For the fiscal years ended September 30, 1993, the deferred income
tax provision (benefit) resulted from timing differences in the recognition of
certain expenses for tax and financial reporting purposes. Due to limitations
on the utilization of tax losses, the Company did not recognize any deferred
income tax benefit in 1993. The principal components of deferred taxes in 1993
were as follows (in thousands):
<TABLE>
<S> <C>
Bad debts......................................................... $ (254)
Deferred compensation............................................. 164
Inventory......................................................... (725)
Insurance......................................................... 113
Fixed assets...................................................... (970)
Other............................................................. (138)
Amount not recognized............................................. 1,810
------
$ --
======
</TABLE>
An unused federal tax net operating loss carryover of $37 million, which
will expire between 2008 and 2010 if not used, is available to offset future
taxable income. In 1995, tax benefits of $6.2 million related to the exercise
of employee stock options in connection with the Company's public offering of
common stock described in Note 6, were recorded as capital in excess of par
value. Additional tax benefits of approximately $13.9 million related to the
exercise of these stock options will be recorded to capital in excess of par
value when these tax benefits are realized by the Company.
The Company was subject to the alternative minimum tax for the fiscal year
ended September 30, 1994. The alternative minimum tax is imposed at a 20% rate
on the Company's alternative minimum taxable income which is determined by
making statutory adjustments to the Company's regular taxable income. Net
operating loss carryforwards were used to offset up to 90% of the Company's
alternative minimum taxable income. The alternative minimum tax paid is
allowed as an indefinite credit carryover against the Company's regular tax
23
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--TAXES ON INCOME--(CONTINUED)
liability in the future when the Company's regular tax liability exceeds the
alternative minimum tax liability. As of September 30, 1995, the Company has a
$7 million alternative minimum tax credit carryforward.
Income tax payments amounted to $2.8 million, $3.9 million, and $0.4 million
in the fiscal years ended September 30, 1995, 1994, and 1993, respectively.
NOTE 5--LONG-TERM DEBT
Receivable Securitization Financing
In December 1994, the Company sold substantially all of its trade accounts
and notes receivable (the "Receivables") to AmeriSource Receivables
Corporation ("ARC"), a special-purpose, wholly-owned subsidiary, pursuant to a
trade receivables securitization program (the "Receivables Program").
Contemporaneously, the Company entered into a Receivables Purchase Agreement
with ARC, whereby ARC agreed to purchase on a continuous basis Receivables
originated by the Company. Pursuant to the Receivables Program, ARC will
transfer such Receivables to a master trust in exchange for, among other
things, certain trade receivables-backed certificates (the "Certificates").
During the term of the Receivables Program, the cash generated by collections
on the Receivables will be used to purchase, among other things, additional
Receivables originated by the Company. Pursuant to the Receivables Program, on
December 13, 1994, the Company sold $305 million in Receivables to ARC in
exchange for cash and a subordinated note. ARC in turn transferred the
Receivables to the master trust for the Certificates and a residual interest
in the master trust. The Company has accounted for the transactions pursuant
to the terms of the Receivables Purchase Agreement as a sale of Receivables
from AmeriSource to ARC and as a financing transaction by ARC on the Company's
consolidated financial statements. The assets and liabilities of the master
trust have been consolidated with the Company at September 30, 1995.
Pursuant to the Receivables Program, the Company issued: (i) $175 million of
Floating Rate Class A Trade Receivables Participation Certificates ("Class A
Certificates") and (ii) $35 million of Floating Rate Class B Trade Receivables
Participation Certificates ("Class B Certificates"), which represent
fractional undivided interests in the Receivables and other assets of the
master trust. The Class A Certificates bear interest at one month LIBOR plus
.35% and the Class B Certificates, which are subordinated to the Class A
Certificates, bear interest at one month LIBOR plus .70%. The Company has
entered into two-year interest rate cap agreements, expiring in May 1997 which
specify that the one-month LIBOR base rate will not be greater than 7.50% with
respect to $175 million of Class A Certificate borrowings under the
Receivables Program. In addition, the Company issued Floating Rate Revolving
Principal Trade Receivables Participation Certificates ("Revolving
Certificates"), pursuant to which investors may purchase up to $75 million of
interests in the master trust, which Certificates will bear interest, at the
Company's option, at either LIBOR plus .35% or the federal funds rate plus
1.00%. The Revolving Certificates will rank pari passu in right of payment
with the Class A Certificates. There were no Revolving Certificates
outstanding at September 30, 1995. The expected final payment date of amounts
outstanding under the Receivables Program will be March 15, 2000, but earlier
termination could occur upon the occurrence of certain defined events. In the
event of a liquidation, losses on Receivables will first be absorbed by the
residual certificate held by ARC and collections on Receivables will first be
allocated to make payments of outstanding principal of the Certificates in
accordance with their ratable interests in the assets of the master trust,
after giving effect to the allocation of losses to the residual interest. Fees
of $4.6 million incurred in connection with establishing the Receivables
Program and interest rate cap agreements have been deferred and are being
amortized on a straight-line basis over a period of two to five years. Class A
Certificates of $175 million principal amount (at an interest rate of 6.2%)
and Class B Certificates of $35 million principal amount (at an interest rate
of 6.6%) were outstanding under the Receivables Program at September 30, 1995.
The
24
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT--(CONTINUED)
Company is required to pay a commitment fee of 1/4 of 1% per annum on the
average unused portion of the Certificates. Restricted cash of $14.6 million
at September 30, 1995, represents amounts temporarily deposited in the master
trust from collections on the Receivables, which are designated for specific
purposes pursuant to the Receivables Program.
Revolving Credit Agreement
In December 1994, the Company amended its existing credit agreement with a
syndicate of senior lenders providing a senior secured facility of $380
million (the "Credit Agreement"). Among other things, the amendment (i)
extended the term of the original credit agreement until January 3, 2000; (ii)
provided interest rate stepdowns upon the occurrence of certain events; (iii)
modified the borrowing base availability from inventory- and receivable-based
to inventory-based; and (iv) increased the Company's ability to make
acquisitions and pay dividends. An extraordinary loss of $3.4 million (less a
$1.0 million tax benefit) was recorded during the fiscal year ended September
30, 1995 representing the write-off of the unamortized financing fees relating
to the former revolving credit facility. In connection with the new revolving
credit facility, the Company incurred approximately $5.5 million in financing
fees which have been deferred and are being amortized on a straight-line basis
over the five-year term of the Credit Agreement. The maximum amount that may
be borrowed under the Credit Agreement is limited to the extent of a
sufficient borrowing base (up to a maximum of $380 million), which is
essentially 65% of eligible inventory in fiscal year 1995, 62.5% of eligible
inventory in fiscal year 1996, and 60% of eligible inventory thereafter.
The Credit Agreement may be prepaid during its term, although such
indebtedness may be subsequently reborrowed. The indebtedness under the Credit
Agreement may be permanently repaid in full or reduced in part at any time at
the option of the Company, without premium or penalty, upon prior written
notice.
At the Company's option, borrowings under the Credit Agreement bear interest
at a rate per annum determined as follows: (i) a LIBOR rate, plus an
applicable margin (1.75% at September 30, 1995); or (ii) the applicable prime
rate of interest plus an applicable margin (.50% at September 30, 1995).
Interest on loans under the Credit Agreement is payable quarterly or, if
earlier, at the end of the applicable interest period loan intervals. A
portion of the net proceeds from the initial public offering (see Note 6) were
used to pay down the Company's revolving credit facility. As a result of the
public offering, and the Company's performance in 1995, the borrowing rate
alternatives under the Credit Agreement was reduced to LIBOR plus 1.25% and
the Prime rate plus zero beginning in October 1995.
Under the terms of the Credit Agreement, the Company granted the senior
lenders a perfected first priority security interest in substantially all of
the Company's assets (except accounts receivable and certain related assets),
including, without limitation, real property, fixed assets, equipment,
inventory, stock of subsidiaries, trademarks, and intangible assets, to secure
its borrowings under the Credit Agreement. The Company is required to pay a
commitment fee of 1/4 of 1% per annum on the average unused portion of the
Credit Agreement plus an annual administration fee. At September 30, 1995, the
$150 million outstanding under the Credit Agreement bore interest at the rate
of 7.6% per annum.
Senior Subordinated Notes
Contemporaneously with the consummation of the Receivables Program and the
execution of the Credit Agreement, the Company redeemed all of the outstanding
14 1/2% senior subordinated notes at a redemption price
25
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT--(CONTINUED)
Senior Subordinated Notes--(continued)
of 106% of the principal amount plus accrued interest through the redemption
date. In connection with the redemption of the 14 1/2% senior subordinated
notes, the Company recorded an extraordinary charge of $12.1 million (less a
$3.4 million tax benefit) during the fiscal year ended September 30, 1995
relating to the write-off of unamortized deferred financing fees and premiums
paid on the redemption.
Senior Debentures
On July 26, 1993, the Company issued $126.5 million principal amount of 11
1/4% Senior Debentures ("Senior Debentures") due 2005 in a public offering.
Interest on the Senior Debentures is payable semiannually on January 15 and
July 15 of each year. Through and including the semiannual payment due July
15, 1998, the Company may elect, at its option, to issue additional Senior
Debentures in satisfaction of its interest payment obligations. The Senior
Debentures are senior unsecured obligations of the Company and rank pari passu
in right of payment with all senior borrowings of the Company and senior in
right of payment to all subordinated indebtedness of the Company. The Senior
Debentures are structurally subordinated to all indebtedness and other
obligations of the Company. Substantially all the net proceeds from the Senior
Debentures (approximately $122 million) were applied to redeem the 18% Senior
Subordinated Debentures, 18 1/2% Merger Debentures and 19 1/2% Junior
Subordinated Debentures of the Company. The debt refinancing resulted in an
extraordinary charge of $12.8 million during the fiscal year ended September
30, 1993 relating to the redemption of the Merger Debentures and the write-off
of deferred financing costs, net of a tax benefit of $3.2 million. In
connection with the Senior Debentures, the Company incurred approximately $5.1
million in financing fees which have been deferred and are being amortized
over the twelve-year life of the indebtedness. In conjunction with the initial
public offering, the Company, in May 1995, redeemed one-half of the Senior
Debentures outstanding for 110% of the principal amount plus accrued interest
through the date of redemption (approximately $84.4 million), which resulted
in an extraordinary charge of $9.6 million (less a $2.7 million tax benefit)
related to the write-off of unamortized deferred financing fees and premiums
paid on the redemption.
The indentures governing the Receivables Program, the Credit Agreement, and
the Senior Debentures contain restrictions and covenants, as amended, which
include limitations on incurrence of additional indebtedness, prohibition of
indebtedness, restrictions on distributions and dividends to stockholders, the
repurchase of stock and the making of certain other restricted payments, the
issuance of preferred stock, the 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. Additional covenants
require compliance with financial tests, including current ratio, leverage,
interest coverage ratio, fixed charge coverage, and maintenance of minimum net
worth.
Interest paid on the above indebtedness during the fiscal years ended
September 30, 1995, 1994, and 1993 was $43.6 million, $46.1 million, and $39.7
million, respectively.
Total amortization of financing fees and expenses (included in interest
expense) for the fiscal years ended September 30, 1995, 1994, and 1993 was
$2.5 million, $4.0 million, and $3.9 million, respectively.
As of September 30, 1995, the Company's revolving credit facility and
receivables securitization financing had fair values that approximated their
carrying amounts. The fair value of the Senior Debentures was approximately
$81 million and was based on a quoted value from brokers of 108.5%.
26
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY
In April 1995, the Company issued 7,590,000 shares of Class A common stock
in a public offering at $21.00 per share. The net proceeds from the offering
of $148.2 million were used to reduce the Company's outstanding indebtedness
(see Note 5). On a pro forma basis, income and earnings per share before
extraordinary items for fiscal 1995 would have been $35.0 million and $1.57,
respectively, if the public offering had occurred on October 1, 1994. The pro
forma information assumes reduced interest expense and applicable income tax
adjustments resulting from the application of the net proceeds from the
offering and it assumes 22,271,936 shares of common stock outstanding for the
year. The pro forma information does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results. In conjunction with the public offering, the Company's Board of
Directors authorized a 2.95-for-1 stock split and, accordingly all references
to earnings per share and share data in these financial statements have been
restated to give effect to the stock split. Also, the Company eliminated all
authorized shares of preferred stock, increased the authorized number of
shares of Class A common stock to 50,000,000 and decreased the authorized
number of shares of Class B common stock to 15,000,000.
The holders of the Class A common stock are entitled to one vote per share
on all matters on which holders of Class A common stock are entitled to vote.
The holders of the Class A common stock may elect at any time to convert any
or all such shares into the Class B common stock on a share-for-share basis
(but only to the extent that such record holder of Class A common stock shall
be deemed to be required to convert such Class A common stock into Class B
common stock pursuant to applicable law).
The rights of holders of Class B and Class C common stock and holders of
Class A common stock are substantially identical and entitle the holders
thereof to the same rights, privileges, benefits, and notices, except that
holders of Class B and Class C common stock generally do not possess the right
to vote on any matters to be voted upon by the stockholders of the Company,
except as provided by law. Holders of Class B and Class C common stock may
elect at any time to convert any and all of such shares into Class A common
stock, on a share-for-share basis, to the extent the holder thereof is not
prohibited from owning additional voting securities by virtue of regulatory
restrictions.
The Class C common stock is subject to substantial restrictions on transfer
and has certain registration and "take-along" rights. A share of Class C
common stock will automatically be converted into a share of Class A common
stock (a) immediately prior to its sale in a future public offering or (b) at
such time as such share of Class C common stock has been sold publicly in a
transaction that complies with maximum quantity limitations applicable to such
sale until on or about March 31, 1996. Once a share of Class C common stock
has been converted into Class A common stock, it will no longer be subject to
any restrictions on transfer nor will it be entitled to the benefits of
registration and take-along rights.
During fiscal 1995, the Company issued 2,893,766 shares of Class A common
stock upon the exercise of stock options (see Note 8), purchased as treasury
stock 1,338,894 shares of Class B common stock from 399 Ventures Partners
Inc., a wholly-owned indirect subsidiary of Citicorp pursuant to a prior
agreement, and purchased as treasury stock 292,452 shares of Class A common
stock from option holders to enable the holders to satisfy certain minimum tax
withholding obligations. During fiscal 1994, 44,250 shares of Class A common
stock were purchased as treasury stock.
NOTE 7--PENSION AND OTHER BENEFIT PLANS
The Company provides a benefit for the majority of its employees under
noncontributory defined benefit pension plans. For each employee, the benefits
are based on years of service and average compensation. Pension costs, which
are computed using the projected unit credit cost method, are funded on at
least the minimum amount required by government regulations.
27
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PENSION AND OTHER BENEFIT PLANS--(CONTINUED)
A summary of the components of net periodic pension cost charged to expense
for the Company-sponsored defined benefit pension plans together with
contributions charged to expense for a multi-employer union administered
defined benefit pension plan the Company participates in follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 2,267 $ 2,198 $ 1,912
Interest cost on projected benefit obligation........ 2,495 2,165 2,034
Actual return on plan assets......................... (2,876) (13) (2,842)
Net amortization and deferral........................ 519 (2,038) 979
------- ------- -------
Net pension cost of defined benefit plans............ 2,405 2,312 2,083
Net pension cost of multi-employer plan.............. 178 142 110
------- ------- -------
Total pension expense............................ $ 2,583 $ 2,454 $ 2,193
======= ======= =======
</TABLE>
The following table sets forth (in thousands) the funded status and amount
recognized in the consolidated balance sheets for the Company-sponsored
defined benefit pension plans:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair
value.................. $27,997 $ 523 $24,457 $ 333
Actuarial present value
of benefit obligations:
Vested................ 26,873 1,622 22,420 1,168
Accumulated, not
vested............... 471 268 421 210
------- ------- ------- ------
Accumulated benefit
obligations............ 27,344 1,890 22,841 1,378
Effect of future pay
increases............ 10,082 23 8,559 17
------- ------- ------- ------
Projected benefit
obligation............. 37,426 1,913 31,400 1,395
Plan assets less than
projected benefit
obligation............. (9,429) (1,390) (6,943) (1,062)
Unrecognized net
transition asset....... (826) -- (996) --
Unrecognized prior
service cost........... 3,080 679 3,380 733
Adjustment to recognize
minimum liability...... -- (1,027) -- (813)
Unrecognized net loss
related to assumptions. 7,255 371 4,013 149
------- ------- ------- ------
Pension asset
(liability) recognized. $ 80 $(1,367) $ (546) $ (993)
======= ======= ======= ======
</TABLE>
Assumptions used in computing the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rate.............................................. 7.25% 7.75% 7.25%
Rate of increase in compensation levels.................... 5.75% 6.25% 5.75%
Expected long-term rate of return on assets................ 10.00% 10.00% 10.00%
</TABLE>
Plan assets at September 30, 1995 are invested principally in listed stocks,
corporate and government bonds, and cash equivalents.
Additionally, the Company sponsors the Employee Investment Plan, a defined
contribution 401(k) plan, which covers salaried and certain hourly employees.
Eligible participants may contribute to the plan up to 2% to
28
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PENSION AND OTHER BENEFIT PLANS--(CONTINUED)
6% of their regular compensation before taxes. The Company matches the
employee contributions in an amount equal to 50% of the participants'
contributions. An additional discretionary Company contribution in an amount
not to exceed 50% of the participants' contributions may also be made
depending upon the Company's performance. All contributions are invested at
the direction of the employee in one or more funds. Employer contributions
vest over a five-year period depending upon an employee's years of service.
Costs of the plan charged to expense for the fiscal years ended September 30,
1995, 1994, and 1993 amounted to $0.9 million, $1.1 million, and $0.8 million,
respectively.
As a result of special termination benefit packages previously offered, the
Company provides medical, dental, and life insurance benefits to only a
limited number of retirees and their dependents. These benefit plans are
unfunded. Prior to October 1, 1993, the Company recognized the expenses for
these plans on the cash basis. Effective October 1, 1993, pursuant to
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (Statement 106), the Company
recognized the accumulated obligation related to these benefits resulting in a
noncash charge to net income in 1994 of $1.2 million. The accumulated
postretirement benefit obligation was $1.2 million as of September 30, 1995.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.25% and 7.75% at September 30, 1995
and 1994, respectively. The annual expense for such benefits is not material.
NOTE 8--STOCK OPTION PLANS
In fiscal 1989, the Company adopted the AmeriSource Health Corporation and
Subsidiaries Employee Stock Purchase Plan (the "Purchase Plan") to enable
certain members of management to participate in the equity ownership of the
Company. Pursuant to the Purchase Plan, management investors, on November 3,
1989, purchased options on 1,716,347 shares of the Company's Class A common
stock which were exercisable at $.34 per share. Through fiscal 1993, 184,744
options were extinguished. The remaining 1,531,603 options outstanding under
the Purchase Plan were exercised during fiscal 1995 in conjunction with the
Company's public offering. No further awards will be granted under the
Purchase Plan.
In fiscal 1990, the Company adopted the Partners Stock Option Plan (the
"Partners Plan") to enable other employees of the Company to participate in
the equity ownership of the Company. On March 2, 1991, options to acquire
368,160 shares of Class A common stock were granted at an exercise price of
$.34 per share. The options under the Partners Plan became exercisable when
they vested on September 30, 1994. Through fiscal 1993, 28,320 options were
canceled. During fiscal 1995, 3,392 options were canceled, and the remaining
336,448 options were exercised. No further awards will be granted under the
Partners Plan.
In fiscal 1992, the Company adopted the 1991 Stock Option Plan (the "1991
Option Plan") for the granting of nonqualified stock options to acquire up to
an aggregate of 1,069,375 shares of Class A common stock. The options were
granted to certain members of the Company's management at an exercise price of
$.34 per share on April 8, 1992. During fiscal 1994, 29,500 options were
extinguished. During fiscal 1995, 14,160 options were canceled and the
remaining 1,025,715 options outstanding under the 1991 Option Plan were
exercised in conjunction with the Company's public offering. No further awards
will be granted under the 1991 Option Plan.
During fiscal 1995, the Company adopted the AmeriSource Health Corporation
1995 Stock Option Plan (the "1995 Option Plan"), which provides for the
granting of nonqualified stock options to acquire up to approximately 1.2
million shares of common stock to employees of the Company at a price not less
than the fair market value of the common stock on the date the option is
granted. The option terms and vesting periods are determined at the date of
grant by a committee of the Board of Directors. Options expire six years after
the date
29
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--STOCK OPTION PLANS--(CONTINUED)
of grant unless an earlier expiration date is set at the time of grant. During
fiscal 1995, 895,000 options were granted under the 1995 Option Plan at an
exercise price of $21.00 per share, and a 5-year vesting period; 7,500 options
were subsequently canceled, leaving 887,500 options outstanding at September
30, 1995, none of which were exercisable.
During fiscal 1995, the Company also adopted the AmeriSource Health
Corporation Non-Employee Director Stock Option Plan (the "Directors Plan"),
which provides for the grant of stock options to the Company's nonemployee
directors. Under the Directors Plan, stock options are granted annually at the
fair market value of the Company's common stock on the date of grant. The
number of options so granted annually is fixed by the plan. Such options
become fully exercisable on the first anniversary of their respective grant,
except for the options under the initial grant, which are fully exercisable on
the third anniversary of the grant. The total number of shares to be issued
under the Directors Plan may not exceed 50,000 shares. During fiscal 1995, an
initial grant of options under this plan were granted to purchase 20,000
shares of common stock at $21.00 per share, all of which were outstanding and
none of which were exercisable at September 30, 1995.
NOTE 9--LEASES
The costs of capital leases are included in property and equipment and the
obligations therefor in other debt. Related amortization is included in
depreciation. At September 30, 1995, future minimum payments totaling $31.2
million under noncancelable operating leases with remaining terms of more than
one fiscal year were due as follows: 1996--$7.8 million; 1997--$7.0 million;
1998--$5.2 million; 1999--$3.2 million; 2000--$2.2 million; and thereafter
(through 2009)--$5.8 million. In the normal course of business, operating
leases are generally renewed or replaced by other leases.
Total rental expense was $7.6 million in fiscal 1995, $6.2 million in fiscal
1994, and $6.0 million in fiscal 1993.
NOTE 10--LEGAL MATTERS AND CONTINGENCIES
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, and governmental investigations,
including antitrust, environmental, product liability, and regulatory agency
and other matters. In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts and the matters may remain
unresolved for several years. On the basis of information furnished by counsel
and others, the Company does not believe that these matters, individually or
in the aggregate, will have a material adverse effect on its business or
financial condition.
In November 1993, the Company, along with six other wholesale distributors
and twenty-four pharmaceutical manufacturers, were named as defendants in a
series of purported class action antitrust lawsuits alleging violations of
various antitrust laws associated with the chargeback pricing system.
Plaintiffs seek injunctive relief, treble damages, attorneys' fees, and costs.
In October 1994, the Company entered into a Judgement Sharing Agreement with
other wholesaler and pharmaceutical manufacturer defendants. Under the
Judgement Sharing Agreement (a) the manufacturer defendants agreed to
reimburse the wholesaler defendants for litigation costs incurred, up to an
aggregate of $9 million; and (b) if a judgement is entered into against both
manufacturers and wholesalers, the total exposure for joint and several
liability of the Company is limited to the lesser of 1% of such judgement or
$1 million. In addition, the Company has released any claims that it might
have had against the manufacturers for the claims presented by the plaintiffs
in these lawsuits. The Judgement Sharing Agreement covers the federal court
litigation as well as the cases which have been filed in various state courts.
The Company believes it has meritorious defenses to the claims asserted in
these lawsuits and intends to vigorously defend itself in all of these cases.
30
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEGAL MATTERS AND CONTINGENCIES--(CONTINUED)
The Company is subject to contingencies pursuant to environmental laws and
regulations at one of its former distribution centers that may require the
Company to take remediation efforts. In fiscal 1994, the Company accrued $4.1
million to cover future consulting, legal, and remediation and ongoing
monitoring costs. The accrued liability, which is reflected in other long-term
liabilities on the accompanying consolidated balance sheet ($3.9 million at
September 30, 1995), is based on an engineering analysis prepared by outside
consultants and represents an estimate of the extent of contamination and
choice of remedy, existing technology and presently enacted laws and
regulations. However, changes in remediation standards, improvements in
cleanup technology and discovery of additional information concerning the site
could affect the estimated liability in the future. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time, although the Company intends to vigorously enforce its
rights and remedies.
The Company has received notices from the Internal Revenue Service asserting
deficiencies in federal corporate income taxes for the Company's taxable years
1987 through 1991. The proposed adjustments indicate a net increase to taxable
income for these years of approximately $24 million and relate principally to
the deductibility of costs incurred with respect to the leveraged buyout
transaction which occurred in 1988. The Company has analyzed these matters
with tax counsel and believes it has meritorious defenses to the deficiencies
asserted by the Internal Revenue Service. The Company will contest the
asserted deficiencies through the administrative appeals process and, if
necessary, litigation. The Company believes that any amounts assessed will not
have a material effect on the financial statements of the Company.
NOTE 11--NONRECURRING CHARGES
The nonrecurring charges in 1993 consisted of $1.3 million in losses on the
disposal of three warehouses and charges of $1.0 million for the write-down to
net realizable value of two additional warehouses no longer in operation which
were designated for sale.
31
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--OTHER INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1)
--------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues.................... $1,129,096 $1,178,035 $1,158,113 $1,203,704
Gross profit................ 63,237 65,638 65,509 71,971
Selling and administrative
expenses, depreciation and
amortization............... 41,298 40,272 41,825 45,125
Operating income............ 21,939 25,366 23,684 26,846
Income before extraordinary
items...................... 886 6,673 9,880 10,779
Extraordinary charge--Early
retirement of debt......... (11,749) (126) (6,162) --
Net income (loss)........... (10,863) 6,547 3,718 10,779
Per share (fully diluted):
Income before
extraordinary items...... .06 .45 .46 .48
Extraordinary items....... (.80) -- (.29) --
Net income (loss) per
share.................. (.74) .45 .17 .48
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED (1) (2)
-------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1993 1994 1994 1994
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues..................... $1,014,816 $1,038,626 $1,045,646 $1,083,105
Gross profit................. 53,999 58,480 57,455 65,257
Selling and administrative
expenses, depreciation and
amortization................ 35,999 37,546 37,652 42,087
Operating income (loss)...... 18,000 20,934 (164,096) 23,170
Income (loss) before
extraordinary items and
cumulative effects of
accounting changes.......... 2,579 3,822 (180,057) 1,239
Extraordinary charge--
Early retirement of debt... (656) -- -- --
Cumulative effects of
accounting changes........ (34,598) -- -- --
Net income (loss)............ (32,675) 3,822 (180,057) 1,239
Per share (fully diluted):
Income (loss) before
extraordinary items and
cumulative effects of
accounting changes........ .18 .26 (12.21) .08
Extraordinary items........ (.04) -- -- --
Cumulative effects of
accounting changes........ (2.35) -- -- --
Net income (loss) per
share................... (2.21) .26 (12.21) .08
</TABLE>
- --------
(1) Previously reported revenues have been restated to exclude the effect of
bulk shipments to customers' warehouses as discussed in Note 1.
(2) December 31, 1993 amounts reflect the cumulative effect of the accounting
changes for postretirement benefits other than pensions and income taxes.
June 30, 1994 amounts reflect the write-off of goodwill discussed in Note
3.
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
(No response to this Item is required.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors appearing under "Election of Directors" in
the Company's Notice of Annual Meeting of Stockholders and Proxy Statement for
the February 28, 1996 annual meeting of stockholders (the "1996 Proxy
Statement") is incorporated herein by reference. The Company will file the
1996 Proxy Statement with the Commission pursuant to Regulation 14A within 120
days after the close of the fiscal year. Information regarding executive
officers is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation appearing under "Management,
"Compensation of Directors," "Compensation Committee Interlocks and Insider
Participation," "Report of the Compensation Committee of the Board of
Directors," and "Stockholder Return Performance" in the 1996 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership of Certain Beneficial Owners
and Management" in the 1996 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Transactions" in the
1996 Proxy Statement is incorporated herein by reference.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES.
Financial Statements: The following consolidated financial statements are
submitted in response to Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AmeriSource Health Corporation and Subsidiaries
Report of Ernst & Young LLP, Independent Auditors......................... 13
Consolidated Balance Sheets as of September 30, 1995 and 1994............. 15
Consolidated Statements of Operations for the fiscal years ended September
30, 1995, 1994 and 1993.................................................. 17
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended September 30, 1995, 1994 and 1993............................ 18
Consolidated Statements of Cash Flows for the fiscal years ended September
30, 1995, 1994 and 1993.................................................. 19
Notes to Consolidated Financial Statements................................ 20
</TABLE>
Financial Statement Schedules: The following financial statement schedules
are submitted in response to Item 14(a)(2) and Item 14(d):
<TABLE>
<S> <C>
AmeriSource Health Corporation and Subsidiaries
Schedule I --Condensed Financial Information of AmeriSource Health
Corporation as of
September 30, 1995 and 1994 and for the fiscal years ended
September 30, 1995, 1994 and 1993............................ S-1
Schedule II--Valuation and Qualifying Accounts............................ S-4
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
34
<PAGE>
(a)(3) List of Exhibits.*
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Not Applicable.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-44244).
4.1 Indenture, dated as of May 30, 1986, between AmeriSource Corporation
("AmeriSource") and Bankers Trust Company, as trustee relating to the
6 1/4% Convertible Subordinated Debentures due 2001 of AmeriSource
(the "Convertible Debentures") including the form of Convertible
Debenture (incorporated by reference to Exhibit 4 to AmeriSource's
Current Report, dated July 1, 1986, on Form 8-K).
4.2 First Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.23 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.3 Second Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.24 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.4 Indenture dated July 15, 1993 between Registrant and Security Trust
Company, N.A., as trustee relating to the 11 1/4% Senior Debentures
due 2005 (the "Senior Debentures") of Registrant including the form of
the Senior Debentures (incorporated by reference to Exhibit 4 to
Registrant's and AmeriSource's Form 10-Q for the quarter ended June
30, 1993).
4.5 Amended and Restated Credit Agreement, dated as of December 13, 1994
among AmeriSource, General Electric Capital Corporation individually
and as agent, Bankers Trust Company, as co-agent, and the banks and
other financial institutions named therein (incorporated by reference
to Exhibit 4.10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994).
4.6 First Amendment dated as of February 10, 1995 to the Amended and
Restated Credit Agreement.
4.7 Second Amendment dated as of September 30, 1995 to the Amended and
Restated Credit Agreement.
4.8 Third Amendment dated as of November 27, 1995 to the Amended and
Restated Credit Agreement.
4.9 Receivables Purchase Agreement, dated as of December 13, 1994 between
AmeriSource, as Seller and AmeriSource Receivables Corporation, as
Purchaser (incorporated by reference to Exhibit 4.11 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).
4.10 AmeriSource Receivables Master Trust Pooling and Servicing Agreement,
dated as of December 13, 1994 among AmeriSource Receivables
Corporation, as transferor, AmeriSource, as the initial Servicer, and
Manufacturers and Traders Trust Company, as Trustee (incorporated by
reference to Exhibit 4.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1994).
4.11 Revolving Certificate Purchase Agreement, dated as of December 13,
1994 among AmeriSource Receivables Corporation, AmeriSource, The
Revolving Purchasers and Bankers Trust Company, as Agent and Revolving
Purchaser (incorporated by reference to Exhibit 4.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).
4.12 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as
of December 13, 1994 among AmeriSource Receivables Corporation, as
transferor, AmeriSource, as initial Servicer, and Manufacturers and
Traders Trust Company, as Trustee (incorporated by reference to
Exhibit 4.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994).
9 Not Applicable.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Stock Purchase and Stockholders' Agreement, dated December 29, 1988,
among Drexel Burnham Lambert Incorporated, the other purchasers named
therein, Registrant and Citicorp Venture Capital Ltd. (incorporated by
reference to Exhibit 10.3 to the Registration Statement on Form S-1,
Registration No. 33-27835, filed March 29, 1989).
10.2 Stock Purchase Agreement, dated as of December 29, 1988, among
Registrant, Anthony C. Howkins, The NTC Group, Inc., Barton J. Winokur
and Citicorp Venture Capital Ltd. (incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1, Registration
No. 33-27835, filed March 29, 1989).
10.3 AmeriSource Master Pension Plan (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-1, Registration No. 33-
27835, filed March 29, 1989).
10.4 AmeriSource 1988 Supplemental Retirement Plan (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form S-1,
Registration No. 33-27835, filed March 29, 1989).
10.5 AmeriSource 1985 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to AmeriSource's Annual Report on Form 10-K for the
fiscal year ended September 30, 1985).
10.6 Form of Securities Purchase and Holders Agreement among Registrant,
Citicorp Venture Capital Ltd. and a Management Investor (incorporated
by reference to Exhibit 10.14 to Amendment No. 1, filed August 15,
1989, to the Registration Statement on Form S-1, Registration No. 33-
27835).
10.7 Form of Take-Along and Registration Rights Agreement between
Registrant and Citicorp Venture Capital Ltd. (incorporated by
reference to Exhibit 4.19 to Amendment No. 2, filed September 7, 1989,
to the Registration Statement on Form S-1, Registration No. 33-27835).
10.8 Agreement, dated October 14, 1994, among certain manufacturers and
wholesalers of prescription products, including AmeriSource
(incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994).
10.9 Registrant's 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.16 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
10.10 Registrant's Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 10.17 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-2 dated April 3, 1995, Registration
No. 33-57513).
10.11 Registration Rights Agreement dated as of March 30, 1995 among
Registrant and 399 Venture Partners, Inc. (incorporated by reference
to Exhibit 10.18 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
16 Not Applicable.
18 Not Applicable.
21 Subsidiaries of Registrant.
22 Not Applicable.
23 Consent of Independent Auditors.
24 Not Applicable.
27 Financial Data Schedule.
99 Not Applicable.
</TABLE>
- --------
* Copies of the exhibits will be furnished to any security holder of the
Registrant upon payment of the reasonable cost of reproduction.
(b) Reports on Form 8-K.
Registrant did not file a Current Report on Form 8-K during the fiscal
quarter ended September 30, 1995.
36
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AmeriSource Health Corporation
Date: December 22, 1995 By: /s/ Kurt J. Hilzinger
----------------------------------
(KURT J. HILZINGER) VICE
PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER (PRINCIPAL
FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON DECEMBER 22, 1995 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
--------- -----
/s/ John F. McNamara Chairman, President
- ------------------------------------- and Chief
(JOHN F. MCNAMARA) Executive Officer
(Principal
Executive Officer)
/s/ Bruce C. Bruckmann Director
- -------------------------------------
(BRUCE C. BRUCKMANN)
/s/ Michael A. Delaney Director
- -------------------------------------
(MICHAEL A. DELANEY)
/s/ Richard C. Gozon Director
- -------------------------------------
(RICHARD C. GOZON)
/s/ Lawrence C. Karlson Director
- -------------------------------------
(LAWRENCE C. KARLSON)
/s/ George Strong Director
- -------------------------------------
(GEORGE STRONG)
Director
- -------------------------------------
(JAMES A. URRY)
/s/ Barton J. Winokur Director
- -------------------------------------
(BARTON J. WINOKUR)
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
ASSETS
<S> <C> <C>
Cash.................................................... $ 22 $ 38
Receivable from AmeriSource Corporation................. 17,174 15,300
Deferred financing costs and other...................... 2,422 4,964
Investment at equity in AmeriSource Corporation (accumu-
lated losses of AmeriSource in excess of investment)... (79,241) (171,472)
--------- ---------
$ (59,623) $(151,170)
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses........................................ $ 1,808 $ 5,543
Long-Term Debt
Senior debentures..................................... 74,293 144,013
Stockholders' Equity
Common Stock, $.01 par value
Class A (Voting and convertible):
50,000,000 shares authorized; issued 9/95--
12,062,560 shares; 9/94-- 532,143 shares........... 121 5
Class B (Non-voting and convertible):
15,000,000 shares authorized; issued 9/95--
12,969,050 shares; 9/94-- 12,980,885 shares........ 130 130
Class C (Non-voting and convertible):
2,000,000 shares authorized; issued 9/95--440,158
shares; 9/94--1,475,000 shares..................... 4 15
Capital in excess of par value........................ 165,044 4,676
Retained earnings (deficit)........................... (294,803) (304,984)
Cost of common stock in treasury...................... (6,220) (568)
--------- ---------
(135,724) (300,726)
--------- ---------
$ (59,623) $(151,170)
========= =========
</TABLE>
See notes to condensed financial statements.
S-1
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-----------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Revenues....................................... $ 726 $ $ 65
Administrative expenses........................ (55) 104 430
Interest expense............................... 13,573 15,338 20,273
-------- --------- --------
(Loss) Before Taxes, Extraordinary Items,
Cumulative Effects of Accounting Changes and
Equity in Net Income (Loss) of Subsidiary..... (12,792) (15,442) (20,638)
Equity in net income (loss) of subsidiary
before extraordinary items and cumulative
effects of accounting changes................. 33,937 (172,241) 6,590
Income tax (benefit)........................... (7,073) (15,266) (6,574)
-------- --------- --------
Income (Loss) Before Extraordinary Items and
Cumulative Effects of Accounting Changes...... 28,218 (172,417) (7,474)
Extraordinary Charge--early retirement of debt,
net of income tax benefit..................... (18,037) (656) (11,890)
Extraordinary Credits:
Reduction of income tax provision of
subsidiary from carryforward of prior year
operating losses............................. 484
Reduction of income tax provision from
carryforward of prior year operating losses.. 262
Cumulative effect of changes in accounting for
income taxes of $33,399 and postretirement
benefits other than pensions of $1,199........ (34,598)
-------- --------- --------
Net Income (Loss)........................... $ 10,181 $(207,671) $(18,618)
======== ========= ========
Earnings (Loss) Per Share (fully diluted)
Income (Loss) Before Extraordinary Items and
Cumulative Effects of Accounting Changes..... $ 1.53 $ (11.69) $ (.51)
Extraordinary Items........................... (.98) (.04) (.75)
Cumulative Effect of Accounting Changes....... (2.35)
-------- --------- --------
Net Income (Loss) per share................. $ .55 $ (14.08) $ (1.26)
======== ========= ========
Weighted Average Number of Common Shares
Outstanding (thousands)....................... 18,396 14,750 14,750
</TABLE>
---------------
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................. $ 10,181 $(207,671) $ (18,618)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Amortization................................ 361 434 78
Equity in net (income) loss of subsidiary... (22,062) 207,728 (1,190)
Loss on early retirement of debt............ 9,638 6,787
Debentures issued in lieu of payment of
interest................................... 4,572 14,904 20,378
Income tax benefit invested in AmeriSource
Corporation................................ (8,498) (7,348) (5,127)
Changes in operating assets and liabilities:
Receivable from AmeriSource Corporation... (1,874) (7,927) (3,083)
Accrued expenses.......................... 1,755 (50) 63
Deferred compensation..................... (539)
Miscellaneous............................. 10 (300)
-------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES............................... (5,927) 80 (1,551)
FINANCING ACTIVITIES
Long-term debt borrowings..................... 126,500
Long-term debt repayments..................... (81,722) (120,134)
Net proceeds from initial public offering..... 148,168
Deferred financing costs and other............ (28) (55) (5,140)
Exercise of stock options..................... 566
Repurchase of stock options................... (10) (18)
Purchases of treasury stock................... (5,652) (15) (3)
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES............................... 61,332 (80) 1,205
INVESTING ACTIVITIES
Capital contribution.......................... (55,421) 346
-------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES............................... (55,421) 346
-------- --------- ---------
DECREASE IN CASH............................... (16) -0- -0-
Cash at beginning of year...................... 38 38 38
-------- --------- ---------
CASH AT END OF YEAR............................ $ 22 $ 38 $ 38
======== ========= =========
</TABLE>
See notes to condensed financial statements.
S-2
<PAGE>
AMERISOURCE HEALTH CORPORATION
FOOTNOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements present the financial
position, results of operations and cash flows of AmeriSource Health
Corporation (the "Company") as of the dates and for the periods indicated in
accordance with Rule 12-04 of Regulation S-X of the Securities Exchange Act of
the Securities and Exchange Commission and, accordingly do not include the
accounts of its wholly-owned subsidiaries. The Company's primary asset is its
investment in and receivables from AmeriSource Corporation which is a wholly-
owned subsidiary of the Company. Substantially all of the Company's operations
are transacted by AmeriSource Corporation. The ability of the Company to pay
its obligations depends on the operations of AmeriSource Corporation and its
ability to pay dividends to the Company.
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements of AmeriSource Health Corporation and
Subsidiaries contained in Item 8 of this document for more information on
long-term debt, stockholders' equity and other disclosures.
NOTE 2--LONG-TERM DEBT
In July 1993, the Company issued $126.5 million principal amount of 11 1/4%
Senior Debentures due in 2005. Interest on the Senior Debentures is payable
semiannually on January 15 and July 15 of each year. Through July 15, 1998,
the Company may elect, at its option, to issue Senior Debentures in
satisfaction of its interest payment obligations. The Senior Debentures are
structurally subordinated to all indebtedness and other obligations of the
Company. In connection with the Senior Debentures, the Company incurred
approximately $5.1 million in financing fees which have been deferred and are
being amortized over the twelve-year life of the indebtedness. In connection
with the initial public offering described below, the Company redeemed one-
half of the Senior Debentures outstanding which resulted in an extraordinary
charge of $9.6 million (less a $2.7 million tax benefit) related to the write-
off of unamortized deferred financing fees and premiums paid on redemption.
NOTE 3--STOCKHOLDERS' EQUITY
In April 1995, the Company issued 7,590,000 shares of Class A common stock
in a public offering at $21.00 per share. The net proceeds from the offering
of $148.2 million (net of $1.3 million of issuance costs) were used to redeem
a portion of the Senior Debentures ($81.7 million) described above and the
remaining amounts were invested in AmeriSource Corporation, which were used to
reduce its indebtedness. In conjunction with the initial public offering, the
Company authorized a 2.95-for-1 stock split and, accordingly all references to
earnings per share and share data in these condensed financial statements have
been restated to give effect to the stock split.
S-3
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE DESCRIBE(1) PERIOD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMERISOURCE HEALTH CORPORATION AND
SUBSIDIARIES
- ------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts.............. $9,370,000 $5,449,000 $1,878,000 $12,941,000
========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30, 1994
Allowance for doubtful accounts.............. $7,681,000 $4,612,000 $2,923,000 $9,370,000
========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30, 1993
Allowance for doubtful accounts.............. $6,952,000 $3,186,000 $2,457,000 $7,681,000
========== ========== ========== ===========
</TABLE>
- --------
(1) Accounts written off during year, net of recoveries.
S-4
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"AMERISOURCE DISTRIBUTION CORPORATION", CHANGING ITS NAME FROM "AMERISOURCE
DISTRIBUTION CORPORATION" TO "AMERISOURCE HEALTH CORPORATION", FILED IN THIS
OFFICE ON THE THIRTIETH DAY OF MARCH, A.D. 1995, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
[CREST APPEARS HERE] ---------------------------------------------
Edward J. Freel, Secretary of State
2178059 8100 AUTHENTICATION: 7458067
950071670 DATE: 03-31-95
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERISOURCE DISTRIBUTION CORPORATION
AmeriSource Distribution Corporation, a corporation incorporated under
the name AHSC Holdings Corporation on November 14, 1988 and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Company"), does hereby certify:
FIRST: That by meeting of the Board of Directors on February 21,
1995, a resolution was duly adopted setting forth a proposed Restated
Certificate of Incorporation of the Company, attached hereto as
Exhibit A, declaring said Restated Certificate of Incorporation to be
advisable and calling for consideration of said proposed Restated
Certificate of Incorporation by the stockholders of the Company. The
resolution setting forth the Restated Certificate of Incorporation is
as follows:
RESOLVED, that the Certificate of Incorporation of the Company be
restated and integrated and also further amended to read as set
forth in Exhibit A attached hereto.
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the proposed Restated Certificate of Incorporation was
approved by the stockholders of the Company by written consent.
THIRD: That said Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242, 245 and 228
of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Restated Certificate
of Incorporation to be executed by Teresa T. Ciccotelli, its Vice President,
Legal Counsel and Secretary and Robert D. Gregory, its Assistant Secretary, this
28th day of March, 1995.
AMERISOURCE DISTRIBUTION CORPORATION
By: /s/ Teresa T. Ciccotelli
--------------------------
Teresa T. Ciccotelli
Vice President, Legal Counsel and
Secretary
Attest: /s/ Robert D. Gregory
-----------------------------
Robert D. Gregory
Assistant Secretary
-2-
<PAGE>
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERISOURCE HEALTH CORPORATION
1. Name. The name of the corporation is AmeriSource Health Corporation
----
(the "Corporation").
2. Registered Office and Agent. The address of its registered office in
---------------------------
the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover 19901,
County of Kent. The name of its registered agent at such address is the
Prentice-Hall Corporation System, Inc.
3. Purpose. The purposes for which the Corporation is formed are to
-------
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware and to possess and exercise all of
the powers and privileges granted by such law and other law of Delaware.
4. Authorized Capital. The aggregate number of shares of stock which the
------------------
Corporation shall have authority to issue is 67,000,000 shares, divided into
three (3) classes consisting of 50,000,000 shares of Class A Common Stock, par
value $0.01 per share ("Class A Common Stock"); 15,000,000 shares of Class B
Common Stock, par value $0.01 per share ("Class B Common Stock"); and 2,000,000
shares of Class C Common Stock, par value $0.01 per share ("Class C Common
Stock"). Class A Common Stock, Class B Common Stock and Class C Common Stock are
collectively referred to herein as "Common Stock."
The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class.
(a) CLASS A, CLASS B AND CLASS C COMMON STOCK
Except as otherwise provided herein, all shares of Class A common
Stock, Class B Common Stock and Class C Common Stock will be identical and will
entitle the holders thereof to the same rights and privileges.
(i) Certain Definitions. As used herein, the following terms
-------------------
will have the meanings set forth below:
<PAGE>
(A) "Accredited Investor" shall have the meaning set forth
for such term in Rule 501 of Regulation D promulgated under the Securities Act,
as such Regulation may be amended from time to time.
(B) "Brokers' Transactions" shall mean a sale of shares of
Common Stock which are effected pursuant to a transaction by a broker in which
such broker (i) does no more than execute the order or orders to sell the shares
as agent for the person for whose account the shares are sold, and receives no
more than the usual and customary broker's commission; and (ii) neither solicits
nor arranges for the solicitation of customers' orders to buy the shares in
anticipation of or in connection with the transaction; provided, that the
--------
foregoing shall not preclude (a) inquiries by the broker of other brokers or
dealers who have indicated an interest in the shares within the preceding 60
days; (b) inquiries by the broker of his customers who have indicated an
unsolicited bona fide interest in shares within the preceding 10 business days;
or (c) the publication by the broker of bid and ask quotations for the shares in
an inter-dealer quotation system provided that such quotations are incident to
the maintenance of a bona fide inter-dealer market for the shares for the
broker's own account and that the broker has published bona fide bid and ask
quotations for the shares in an inter-dealer quotation system on each of at
least twelve days within the preceding thirty calendar days with no more than
four business days in succession without such two-way quotations.
(C) "Convertible Securities" shall mean evidences of
indebtedness, shares of stock, options, warrants or other securities which are
convertible into or exchangeable or exercisable for, with or without payment of
additional consideration of cash or property, shares of Common Stock.
(D) "Holdback Period" shall mean the period beginning on
the day a registration statement filed under the Securities Act and relating to
a Subsequent Public Offering is declared effective by the Securities and
Exchange Commission (or its successor agency) and ending on the 90th day after
the closing of the sale of shares pursuant to such Subsequent Public Offering.
(E) "Public Sale" shall mean a sale of shares of Common
Stock which meets all of the following requirements: (i) the securities shall be
sold in Brokers' Transactions or in transactions directly with a "market maker,"
as that term is defined in Section 3(a)(38) of the Securities Exchange Act of
1934, as amended; (ii) the person selling the shares shall not (1) solicit or
arrange for the solicitation of
-2-
<PAGE>
orders to buy the shares in anticipation of or in connection with such
transactions or (2) make any payment in connection with the offer or sale of the
shares to any person other than the broker who executed the order to sell the
shares; and (iii) the terms of the sale of such shares to the purchaser thereof
have not been privately negotiated.
(F) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(G) "Subsequent Public Offering" shall mean the closing of
a sale in an underwritten offering, whether primary or secondary, of any shares
of Common Stock or Convertible Securities, pursuant to an effective registration
statement under the Securities Act (other than a Unit Offering, a registration
statement on Forms S-8 or S-4 or any successor forms or any other registration
statement relating to a special offering to employees or security holders),
unless such Common Stock or Convertible Securities that are the subject of such
registration statement are subject to restrictions substantially similar to the
restrictions with respect to Class C Common Stock set forth herein.
(H) "Transfer" shall mean the transfer, sale, assignment,
pledge, hypothecation or other disposition or encumbrance of shares of Common
Stock.
(I) "Transfer Restriction Termination Date" means the 90th
day after the closing of the first Subsequent Public Offering to occur after
the completion of the public offering of Class C Common Stock contemplated by
the Corporation's Registration Statement No. 33-27835 filed with the Securities
and Exchange Commission under the Securities Act.
(J) "Unit Offering" shall mean a public offering of a
combination of debt and equity securities of the Corporation and/or its
subsidiaries in which not more than 10% of the gross proceeds received by the
Corporation and its subsidiaries from the sale of such securities is
attributable to such equity securities; provided that after giving effect to
--------
such offering, the Corporation does not have a class of equity securities
required to be registered under the Securities Exchange Act of 1934, as amended.
(iii) Dividends. Holders of Common Stock will be entitled to
---------
receive such dividends as may be declared by the Board of Directors; provided
--------
that if dividends are declared which are payable in shares of Class A Common
Stock, Class B Common Stock or Class C Common Stock, dividends will be declared
which
-3-
<PAGE>
are payable at the same rate on each other class of Common Stock and the
dividends payable in shares of Class A Common Stock will be payable to holders
of Class A Common Stock, the dividends payable in shares of Class B Common Stock
will be payable to holders of Class B Common Stock, and the dividends payable in
shares of Class C Common Stock will be payable to holders of Class C Common
Stock.
(iii) Conversion.
----------
(A) Class A Common Stock and Class B Common Stock. Each
---------------------------------------------
record holder of Class A Common Stock will be entitled to convert any or all of
such holder's Class A Common Stock into the same number of shares of Class B
Common Stock (but only to the extent that such record holder of Class A Common
Stock shall be deemed to be required to convert such Class A Common Stock into
Class B Common Stock pursuant to applicable law), and each record holder of
Class B Common Stock will be entitled to convert any or all of the shares of
such holder's Class B Common Stock into the same number of shares of Class A
Common Stock; provided, however, that at the time of conversion of shares of
-------- -------
Class B Common Stock into shares of Class A Common Stock such holder would be
permitted, pursuant to applicable law, to hold the total number of shares of
Class A Common Stock which he would hold after giving effect to such conversion.
Each conversion of shares of Class A Common Stock into
shares of Class B Common Stock, or shares of Class B Common Stock into shares of
Class A Common Stock, as the case may be, will be effected by the surrender of
the certificate or certificates representing the shares to be converted at the
principal office of the Corporation at any time during normal business hours,
together with a written notice by the holder of such shares stating the number
of shares that any such holder desires to convert into the other class of Common
Stock. Such conversion will be deemed to have been effected as of the close of
business on the date on which such certificate or certificates have been
surrendered and such notice has been received by the Corporation, and at such
time the rights of such holder with respect to the converted class of Common
Stock will cease and the person or persons in whose name or names the
certificate or certificates for shares of the other class of Common Stock are to
be issued upon such conversion will be deemed to have become the holder or
holders of record of the shares of such other class of Common Stock represented
thereby. Promptly after such surrender and the receipt by the Corporation of the
written notice from the holder hereinbefore referred to, the Corporation will
issue and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the other class of Common
-4-
<PAGE>
Stock issuable upon such conversion and a certificate representing any shares of
Common Stock which were represented by the certificate or certificates delivered
to the Corporation in connection with such conversion but which were not
converted. The issuance of certificates for the other class of Common Stock upon
conversion will be made without charge to the holder or holders of such shares
for any issuance tax (except stock transfer taxes) in respect thereof or other
cost incurred by the Corporation in connection with such conversion.
(B) Class C Common Stock. A share of Class C Common Stock
--------------------
will automatically be converted into a share of Class A Common Stock (i)
immediately prior to its sale in a Subsequent Public Offering; or (ii) at such
time as such share of Class C Common Stock has been sold in a Public Sale after
a Subsequent Public Offering, and in compliance with the maximum quantity
limitations as set forth in paragraph 4(a)(iv)(C) hereof, if such maximum
quantity limitations remain in effect. On the date of such automatic
conversion, all rights with respect to the Class C Common Stock so converted
will terminate, except for the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for an equal
number of shares of Class A Common Stock.
As soon as practical after the date of such automatic
conversion, the holder of shares of Class C Common Stock so converted shall
surrender to the Corporation the certificate or certificates representing the
shares so converted, and thereafter the Corporation shall cause to be issued and
delivered to such holder a certificate for the number of shares of Class A
Common Stock issuable upon such conversion in accordance with the provisions
hereof. All certificates evidencing shares of Class C Common Stock which are
automatically converted into Class A Common Stock in accordance with the
provisions hereof shall, from and after the dates such certificates are so
converted, be deemed to have been retired and cancelled and the shares of Class
C Common Stock represented thereby converted into Class A Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates to the Corporation. The Corporation may thereafter
take such appropriate action as may be necessary to reduce the authorized shares
of Class C Common Stock accordingly. Upon such automatic conversion of a share
of Class C Common Stock into a share of Class A Common Stock, such share will no
longer be subject to any of the restrictions on transfer described herein.
-5-
<PAGE>
(iv) Restrictions on Transfer.
------------------------
(A) Restrictions Prior to Transfer Restriction Termination
------------------------------------------------------
Date and During Holdback Period. Except as provided in paragraph 4(a)(iv)(B)
- -------------------------------
hereof, prior to and on the Transfer Restriction Termination Date, and during
any Holdback Period, a holder of shares of Class C Common Stock may not effect a
Transfer of such shares, unless (1) the transferee is an Accredited Investor,
(2) the Transfer under consideration is a privately negotiated transaction and
(3) the number of shares of Class C Common Stock subject to the transfer is not
less than the lesser of (i) 2,500 shares or (ii) all shares of Class C Common
Stock held by such holder. The minimum number of shares set forth in the
previous sentence shall be appropriately adjusted in the event of a stock split,
reverse stock split, stock dividend or similar transaction by the Corporation.
(B) Certain Exceptions. A Transfer of shares of Class C
--------------------
Common Stock may be effected without regard to the provisions of paragraph 4(a)
(iv)(A) hereof under the following circumstances:
(1) If the holder of shares of Class C Common Stock is
a natural person, pursuant to will or the laws of descent and distribution;
(2) If the holder of shares of Class C Common Stock is
not a natural person, pursuant to a merger of such holder into, consolidation of
such holder with, or sale of all or substantially all of the assets of such
holder to, another entity;
(3) If the holder of shares of Class C Common Stock is
not a natural person, pursuant to the liquidation or dissolution (voluntary or
involuntary) or winding up of such holder; or
(4) In order to enable the holder to exchange or
transfer shares of Class C Common Stock in connection with a merger of the
Corporation into, or the consolidation of the Corporation with, a corporation
(other than a subsidiary of the Corporation) where such other corporation
survives the merger.
(C) Restrictions After Transfer Restriction Termination
---------------------------------------------------
Date. Except during a Holdback Period, after the Transfer Restriction Date,
- ----
a holder of shares of Class C Common Stock may transfer such shares free of any
restrictions on transfer contained herein; provided, that for a
--------
-6-
<PAGE>
period of 270 days after the Transfer Restriction Termination Date, the number
of shares of Class C Common Stock sold publicly in brokers' transactions (within
the meaning of Section 4(4) of the Securities Act) by such holder and its
affiliates, together with the number of shares of Common Stock sold publicly in
such brokers' transactions by such holder and its affiliates within the
preceding three months, shall not exceed the greater of (i) one percent of the
shares of Common Stock outstanding as shown by the most recent report or
statement published by the Corporation, or (ii) the average weekly reported
volume of trading in Common Stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the date of such transfer.
The calculation of the number of shares set forth in the preceding sentence
shall be made as if a paragraph (e)(3)(i) through paragraph (e)(3)(v) of Rule
144 under the Securities Act (as in effect on September 14, 1989) were
applicable.
(D) Effect of Restrictions; Legends.
-------------------------------
(1) Any purported Transfer in violation of the terms set
forth herein shall be null and void and of no force and effect, and the
purported transferee shall have no rights or privileges in or with respect to
the Corporation. Before the Corporation registers a Transfer of Class C Common
Stock on its stock record books, it may require proof, satisfactory to the
Corporation, that the Transfer complies with the restrictions on Transfer
contained herein. The Corporation shall, in its sole discretion, be entitled to
resolve any and all disputes relating to compliance with the restrictions on
Transfer set forth herein, including, but not limited to, the conversion of
shares of Class C Common Stock into shares of Class A Common Stock under
paragraph (4)(a)(iii)(B) hereof.
(2) Certificates representing shares of Class C Common
Stock will bear a legend indicating that such shares are subject to the
restrictions on transfer set forth herein.
(v) Transfers. The Corporation will not close its books against
---------
the transfer of any share of Common Stock, or of any share of Common Stock
issued or issuable upon conversion of shares of the other Class of Common Stock,
in any manner that would interfere with the timely conversion of such shares of
Common Stock.
-7-
<PAGE>
(vi) Subdivision and Combinations of Shares. If the Corporation
--------------------------------------
in any manner subdivides or combines the outstanding shares of any class of
Common Stock, the outstanding shares of the other classes of Common Stock will
be proportionately subdivided or combined.
(vii) Reservation of Shares for Conversion. So long as any
------------------------------------
shares of any class of Common Stock are outstanding, the Corporation will at all
times reserve and keep available out of its authorized but unissued shares of
Class A Common Stock (or any shares of Class A Common Stock which are held as
treasury shares), the number of shares sufficient for issuance upon conversion.
(viii) Distribution of Assets. In the event of the voluntary or
----------------------
involuntary liquidation, dissolution or winding up of the Corporation, holders
of Common Stock will be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders.
(ix) Voting Rights. The holders of Class A Common Stock shall
-------------
have the general right to vote for all purposes, including the election of
directors, as provided by law. Each holder of Class A Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise required
by law, the holders of Class B Common Stock and Class C Common Stock shall have
no voting rights.
(x) Merger, etc. In connection with any merger, consolidation,
-----------
or recapitalization in which holders of Class A Common Stock generally receive,
or are given, the opportunity to receive, consideration for their shares (a) all
holders of Class B Common Stock and Class C Common Stock shall be given the
opportunity to receive the same form of consideration for their shares as is
received by holders of Class A Common Stock and (b) holders of Class B Common
Stock and Class C Common Stock shall be entitled to receive the same amount of
consideration per share as received by holders of Class A Common Stock.
5. Incorporator. The name and mailing address of the incorporator are as
------------
follows:
Name Mailing Address
---- ---------------
Cathyann Bixby 4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
-8-
<PAGE>
6. Term. The corporation is to have perpetual existence.
----
7. Bylaws. The bylaws of the Corporation may be altered, amended or
------
repealed by the vote of a majority of all of the directors or by the vote of
holders of a majority of the outstanding stock entitled to vote.
8. Election of Directors. Election of directors need not be by written
---------------------
ballot unless the bylaws of the Corporation shall so provide.
9. Right to Amend. The Corporation reserves the right to amend the
--------------
provisions in this certificate and in any certificate amendatory hereof in the
manner now or hereafter prescribed by law, and all rights conferred on
stockholders or others hereunder or thereunder are granted subject to such
reservation.
10. Limitation on Liability. The directors of the Corporation shall be
-----------------------
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
no director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of this Section 10 shall be prospective only, and shall
not affect, to the detriment of any director, any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
11. Business Combinations with Interested Stockholders. Pursuant to
--------------------------------------------------
Section 203(b)(3) of the General Corporation Law of Delaware, the Corporation
shall not be governed by the provisions contained in Section 203(a) of the
General Corporation Law of Delaware regarding restrictions on business
combinations with interested stockholders.
-9-
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ("Amendment")
is entered into among AMERISOURCE CORPORATION, a Delaware corporation
("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a corporation organized
under the banking laws of the State of New York ("GE Capital"), Co-Agents (as
defined in the Credit Agreement, as defined below), and each of the other
lenders thereunder (collectively, the "Lenders" and each, a "Lender"), GE
Capital and BANKERS TRUST COMPANY, a corporation organized under the banking
laws of the State of new York ("BTCo"), as managing agents, BTCo, as the issuing
lender, and GE Capital, as the administrative agent for Lenders (in such
capacity, "Agent"), as of February 10, 1995, with reference to the following
facts:
RECITALS
--------
A. Borrower, GE Capital, individually and in its capacities as a managing
agent and Agent, BTCo, individually and in its capacities as a managing agent
and the issuing lender, Co-Agents, and each of the other Lenders, have entered
into that certain Amended and Restated Credit Agreement dated as of December 13,
1994 (the "Credit Agreement"), pursuant to which Lenders agreed to make certain
financial accommodations to or for the benefit of Borrower upon the terms and
conditions contained therein. Unless otherwise defined in this Amendment, (i)
capitalized terms used herein shall have the meanings attributed to them in the
Credit Agreement, and (ii) references to sections and subsections shall refer to
sections or subsections of the Credit Agreement.
B. Section 6.14 requires that, subject to the additional terms and
conditions set forth therein, Borrower enter into Interest Rate Contracts within
60 days after the Restatement Closing Date.
C. Borrower has requested that Lenders extend the time for performance of
Section 6.14, and Lenders are willing to do so subject to the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the continued performance by
Borrower of its promises and obligations under the Credit Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby
agree as follows:
<PAGE>
AGREEMENT
---------
1. INCORPORATION OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS. Except as
----------------------------------------------------------
expressly modified under this Amendment, all of the terms and conditions set
forth in the Credit Agreement and the other Loan Documents are incorporated
herein by this reference, and the obligations of Borrower under the Credit
Agreement and the other Loan Documents are hereby acknowledged, confirmed and
ratified by Borrower.
2. AMENDMENT. Section 6.14 is hereby deleted in its entirety, and the
---------
following is substituted therefor:
6.14 Interest Rate Contracts. Unless the Receivables Trust
-----------------------
issues certificates with fixed interest rates in an aggregate amount of
$150,000,000 or more, Borrower or Receivables Corporation shall enter into
Interest Rate Contracts in form and substance satisfactory to Agent on or
before May 15, 1995 for an aggregate amount of not less than $150,000,000
of variable rate Indebtedness, and such Interest Rate Contracts shall (a)
be for a term of not less than one year, and (b) remain in effect until a
date not earlier than the second anniversary of the Restatement Closing
Date; provided, that such $150,000,000 amount shall be reduced by the
--------
amount of the net cash proceeds received by Borrower from one or more
public offerings of the Stock of Borrower or Parent.
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
---------------------------
upon satisfaction of each of the following conditions:
(a) Agent shall have received copies of this Amendment that,
when taken together, bear the signatures of Borrower and Lenders sufficient
to constitute the Requisite Lenders; and
(b) Agent shall have received a copy of the accompanying
Guarantor Consents executed by Parent, Health Services Plus, Inc., and
Health Services Capital Corporation.
4. ENTIRE AGREEMENT. This Amendment, together with the Credit Agreement
----------------
and the other Loan Documents, is the entire agreement between the parties hereto
with respect to the subject matter hereof. This Amendment supersedes all prior
and contemporaneous oral and written agreements and discussions with respect to
the subject matter hereof. Except as otherwise expressly modified herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect.
2
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants that the representations and warranties contained in the Credit
Agreement were true and correct in all material respects when made and, except
to the extent (a) that a particular representation or warranty by its terms
expressly applies only to an earlier date, or (b) Borrower has previously
advised Agent in writing as contemplated under the Credit Agreement, are true
and correct in all material respects as of the date hereof.
6. MISCELLANEOUS.
-------------
6.1 Counterparts. This Amendment may be executed in identical
------------
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment. Any Lender
delivering this Amendment by facsimile shall send the original manually executed
counterpart of this Amendment to Agent's counsel promptly after such facsimile
transmission.
6.2 Headings. Section headings used herein are for convenience of
--------
reference only, are not part of this Amendment, and are not to be taken into
consideration in interpreting this Amendment.
6.3 Recitals. The recitals set forth at the beginning of this
--------
Amendment are true and correct, and such recitals are incorporated into and are
a part of this Amendment.
6.4 Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
3
<PAGE>
6.5 No Novation. Except as specifically set forth in section 2 of
-----------
this Amendment, the execution, delivery and effectiveness of this Amendment
shall not (a) waive any breaches or defaults under the Credit Agreement or the
other Loan Documents, whether known or unknown, (b) limit, impair, constitute a
waiver by, or otherwise affect any right, power or remedy of, Agent or any
Lender under the Credit Agreement or any other Loan Document, (c) constitute a
waiver of any provision in the Credit Agreement or in any of the other Loan
Documents, or under applicable law, or (d) alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement, all of which are ratified and affirmed in all
respects and shall continue in full force and effect.
6.6 Conflict of Terms. In the event of any inconsistency between the
-----------------
provisions of this Amendment and any provision of the Credit Agreement, the
terms and provisions of this Amendment shall govern and control.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.
AMERISOURCE CORPORATION,
a Delaware corporation
By /s/ Tersesa T. Ciccotelli
----------------------------
Name Teresa T. Ciccotelli
---------------------------
Title Vice President, Legal
-------------------------
Counsel and Secretary
-------------------------
LENDERS:
-------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent, a Managing Agent and a Lender
By /s/ Charles D. Chiodo
----------------------------
Charles D. Chiodo
Duly Authorized Signatory
BANKERS TRUST COMPANY, as a Managing
Agent, Issuing Lender and a Lender
By /s/ Frederic W. Thomas Jr
----------------------------
Name Fredric W. Thomas Jr
--------------------------
Title Vice President
-------------------------
[SIGNATURE LINES CONTINUED]
4
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC., as a
Co-Agent and a Lender
By /s/ George Markonsky
-----------------------------
Name George Markonsky
---------------------------
Title Vice President
---------------------------
HELLER FINANCIAL, INC., as a Co-Agent
and as a Lender
By /s/ Lawrence Gairni
-----------------------------
Name Lawrence Gairni
---------------------------
Title Assistant Vice President
---------------------------
BANK OF MONTREAL, as a Lender
By /s/ Irene M. Geller
-----------------------------
Name Irene M. Geller
---------------------------
Title Director
--------------------------
BANK OF NEW YORK COMMERCIAL CORPORATION,
as a Lender
By /s/ Anthony Viola
----------------------------
Name Anthony Viola
---------------------------
Title Vice President
--------------------------
BOT FINANCIAL CORPORATION, as a Lender
By [Signature not Legible]
Name __________________________
Title _________________________
[SIGNATURE LINES CONTINUED]
5
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By _____________________________
Name ___________________________
Title __________________________
CORESTATES BANK, N.A., as a Lender
By /s/ Sherri A. Williams
-----------------------------
Name Sherri A. Williams
---------------------------
Title Commercial Officer
--------------------------
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By /s/ William C. Purinton
-----------------------------
Name William C. Purinton
---------------------------
Title Vice President
--------------------------
GIROCREDIT BANK AKTIENGESELLSCHAFT
DER SPARKASSEN, GRAND CAYMAN ISLAND
BRANCH, as a Lender
By _____________________________
Name ___________________________
Title __________________________
HOUSEHOLD COMMERCIAL FINANCIAL SERVICES,
INC., as a Lender
By _____________________________
Name ___________________________
Title __________________________
[SIGNATURE LINES CONTINUED]
6
<PAGE>
LASALLE NATIONAL BANK, as a Lender
By /s/ Christopher G. Cllifford
-----------------------------
Name Christopher G. Cllifford
---------------------------
Title Senior Vice President
--------------------------
MERIDIAN BANK, as a Lender
By /s/ Philip Nownnis
-----------------------------
Name Philip Nownnis
---------------------------
Title Assistant Vice President
--------------------------
NATIONSBANK OF GEORGIA, N.A.,
as a Lender
By /s/ Betty H. Mills
-----------------------------
Name Betty H. Mills
---------------------------
Title Vice President
---------------------------
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By [Signature Not Legible]
___________________________
Name _________________________
Title Vice President
---------------------------
SHAWMUT BANK, N.A.,
as a Lender
By ___________________________
Name _________________________
Title ________________________
7
<PAGE>
GUARANTOR CONSENTS
------------------
AmeriSource Distribution Corporation, a Delaware corporation, hereby
(i) ratifies and reaffirms, as of the date hereof, all of the provisions of that
certain Amended and Restated Guaranty and Pledge Agreement dated as of December
13, 1994 in favor of Agent, (ii) acknowledges receipt of a copy of the First
Amendment to Amended and Restated Credit Agreement dated as of February 10, 1995
(the "Amendment"), and (iii) consents to all of the provisions of the Amendment.
Dated: February 10, 1995 AMERISOURCE DISTRIBUTION
CORPORATION
By: /s/ Teresa T. Ciccotelli
----------------------------
Title: Vice President, Legal Counsel
--------------------------
and Secretary
--------------------------
Health Services Plus, Inc., a Delaware corporation, hereby (i)
ratifies and reaffirms, as of the date hereof, all of the provisions of that
certain Amended and Restated Continuing Guaranty dated as of December 13, 1994
in favor of Agent, (ii) acknowledges receipt of a copy of the First Amendment to
Amended and Restated Credit Agreement dated as of February 10, 1995 (the
"Amendment"), and (iii) consents to all of the provisions of the Amendment.
Dated: February 10, 1995 HEALTH SERVICES PLUS, INC.
By: /s/ Teresa T. Ciccotelli
----------------------------
Title: Secretary
--------------------------
8
<PAGE>
Health Services Capital Corporation, a Delaware corporation, hereby
(i) ratifies and reaffirms, as of the date hereof, all of the provisions of that
certain Amended and Restated Continuing Guaranty dated as of December 13, 1994
in favor of Agent, (ii) acknowledges receipt of a copy of the First Amendment to
Amended and Restated Credit Agreement dated as of February 10, 1995 (the
"Amendment"), and (iii) consents to all of the provisions of the Amendment.
Dated: February 10, 1995 HEALTH SERVICES CAPITAL CORPORATION
By: /s/ Teresa T. Ciccotelli
----------------------------
Title: Secretary
--------------------------
9
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") is entered into among AMERISOURCE CORPORATION, a Delaware
corporation ("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a corporation
organized under the banking laws of the State of New York ("GE Capital"), Co-
Agents (as defined in the Credit Agreement, as defined below), and each of the
other lenders thereunder (collectively, the "Lenders" and each, a "Lender"), GE
Capital and BANKERS TRUST COMPANY, a corporation organized under the banking
laws of the State of New York ("BTCo"), as managing agents, BTCo, as the issuing
lender, and GE Capital, as the administrative agent for Lenders (in such
capacity, "Agent"), as of September 30, 1995, with reference to the following
facts:
RECITALS
--------
A. Borrower, GE Capital, individually and in its capacities as a managing
agent and Agent, BTCo, individually and in its capacities as a managing agent
and the issuing lender, Co-Agents, and each of the other Lenders, have entered
into that certain Amended and Restated Credit Agreement dated as of December 13,
1994, as amended by that certain First Amendment to Credit Agreement dated as of
February 10, 1995 (as amended, the "Credit Agreement"), pursuant to which
Lenders agreed to make certain financial accommodations to or for the benefit of
Borrower upon the terms and conditions contained therein. Unless otherwise
defined in this Amendment, (i) capitalized terms used herein shall have the
meanings given to them in the Credit Agreement, and (ii) references to sections
and subsections shall refer to sections or subsections of the Credit Agreement.
B. Under the Credit Agreement, certain adjustments to be made from time
to time to the Applicable Margin, Applicable Letter of Credit Fee Rate and
Applicable Unused Line Fee Rate are based, in part, upon the Total Debt to
EBITDA Ratio at a given time.
C. Borrower has requested that Lenders amend the definition of Total Debt
to EBITDA Ratio to clarify an ambiguity regarding the calculation of such ratio,
and Lenders are willing to do so subject to the terms and conditions set forth
in this Amendment.
NOW, THEREFORE, in consideration of the continued performance by
Borrower of its promises and obligations under the Credit Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby
agree as follows:
<PAGE>
A G R E E M E N T
- - - - - - - - -
1. INCORPORATION OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS.
----------------------------------------------------------
Except as expressly modified under this Amendment, all of the terms and
conditions set forth in the Credit Agreement and the other Loan Documents are
incorporated herein by this reference, and the obligations of Borrower under the
Credit Agreement and the other Loan Documents are hereby acknowledged, confirmed
and ratified by Borrower.
2. AMENDMENT TO CREDIT AGREEMENT. Section 1.1 of the Credit
-----------------------------
Agreement is hereby amended by deleting the existing definition of "Total Debt
to EBITDA Ratio" in its entirety, and substituting the following therefor:
"Total Debt to EBITDA Ratio" shall mean, as of any date, the
ratio of (i) the Average Total Debt on such date, to (ii) EBITDA for
the most recent Rolling Period; provided, that, only for the purpose
--------
of the adjustments, if any, to be made to the Applicable Margin,
Applicable Letter of Credit Fee Rate and Applicable Unused Line Fee
Rate after the receipt of at least $100,000,000 in gross cash proceeds
(before customary fees and expenses) from the sales of common Stock of
Borrower or Parent or capital contributions to Borrower's equity
account in the form of cash, the calculation of Average Total Debt in
clause (i) of this definition shall give pro forma effect to the
application of such proceeds of such sales or contributions as if such
sales or contributions occurred on the first day of the relevant
Rolling Period (it being understood that pro forma effect to the
application of such proceeds will only be given to those Fiscal
Quarters ending prior to the date of the actual receipt of proceeds of
such sales or contributions and that no pro forma effect to the
application of such proceeds will be given to those Fiscal Quarters
ending after the date of the actual receipt of the proceeds of such
sales or contributions).
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
---------------------------
upon satisfaction of each of the following conditions:
(a) Agent shall have received copies of this Amendment that,
when taken together, bear the signatures of Borrower and all Lenders; and
(b) Agent shall have received a copy of the accompanying
Guarantor Consents executed by Parent, Health
2
<PAGE>
Services Plus, Inc., and Health Services Capital Corporation.
4. ENTIRE AGREEMENT. This Amendment, together with the Credit Agreement
----------------
and the other Loan Documents, is the entire agreement between the parties hereto
with respect to the subject matter hereof. This Amendment supersedes all prior
and contemporaneous oral and written agreements and discussions with respect to
the subject matter hereof. Except as otherwise expressly modified herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants that the representations and warranties contained in the Credit
Agreement were true and correct in all material respects when made and, except
to the extent (a) that a particular representation or warranty by its terms
expressly applies only to an earlier date, or (b) Borrower has previously
advised Agent in writing as contemplated under the Credit Agreement, are true
and correct in all material respects as of the date hereof.
6. MISCELLANEOUS.
-------------
6.1 Counterparts. This Amendment may be executed in identical
------------
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment. Any Lender
delivering this Amendment by facsimile shall send the original manually executed
counterpart of this Amendment to Agent's counsel promptly after such facsimile
transmission.
6.2 Headings. Section headings used herein are for convenience of
--------
reference only, are not part of this Amendment, and are not to be taken into
consideration in interpreting this Amendment.
6.3 Recitals. The recitals set forth at the beginning of this
--------
Amendment are true and correct, and such recitals are incorporated into and are
a part of this Amendment.
6.4 Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
6.5 No Novation. Except as specifically set forth in section 2 of
-----------
this Amendment, the execution, delivery and effectiveness of this Amendment
shall not (a) limit, impair,
3
<PAGE>
constitute a waiver by, or otherwise affect any right, power or remedy of, Agent
or any Lender under the Credit Agreement or any other Loan Document, (b)
constitute a waiver of any provision in the Credit Agreement or in any of the
other Loan Documents, or (c) alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
6.6 Conflict of Terms. In the event of any inconsistency between the
-----------------
provisions of this Amendment and any provision of the Credit Agreement, the
terms and provisions of this Amendment shall govern and control.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.
BORROWER:
--------
AMERISOURCE CORPORATION,
a Delaware corporation
By /s/ Kurt J. Hilzinger
----------------------------
Name Kurt J. Hilzinger
--------------------------
Title Vice President, Treasurer
---------------------------
LENDERS:
-------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent, a Managing Agent and a Lender
By /s/ Charles D. Chido
-----------------------------
Charles D. Chiodo
Duly Authorized Signatory
BANKERS TRUST COMPANY, as a Managing Agent,
Issuing Lender and a Lender
By /s/ Fredric W. Thomas Jr.
-----------------------------
Name Fredric W. Thomas Jr.
---------------------------
Title Vice President
---------------------------
4
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC., as a Co-Agent and a
Lender
By /s/ George Markowsky
---------------------------
Name George Markowsky
-------------------------
Title Vice President
------------------------
HELLER FINANCIAL, INC., as a Co-Agent
and as a Lender
By /s/ John Copperella
---------------------------
Name John Copperella
-------------------------
Title Vice President
------------------------
BANK OF MONTREAL, as a Lender
By /s/ Irene M. Geller
--------------------------
Name Irene M. Geller
------------------------
Title Director
-----------------------
BANK OF NEW YORK COMMERCIAL CORPORATION,
as a Lender
By /s/ Stephen V. Manigante
--------------------------
Name Stephen V. Mangiante
------------------------
Title Vice President
-----------------------
BOT FINANCIAL CORPORATION, as a Lender
By /s/ Gary Christensen
--------------------------
Name Gary Christensen
------------------------
Title Senior Vice President
-----------------------
5
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By /s/ Cyril Prince
--------------------------
Name Cyril Prince
------------------------
Title Vice President
-----------------------
CORESTATES BANK, N.A., as a Lender
By /s/ Carol A. Williams
--------------------------
Name Carol A. Williams
------------------------
Title Senior Vice President
------------------------
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By /s/ William C. Purton
---------------------------
Name William C. Purton
-------------------------
Title Vice President
------------------------
FIRST SOURCE FINANCIAL LLP, as a Lender
By /s/ Robert M. Coseo
---------------------------
Name Robert M. Coseo
-------------------------
Title Senior Vice President
------------------------
GIROCREDIT BANK AKTIENGESELLSCHAFT
DER SPARKASSEN, GRAND CAYMAN ISLAND
BRANCH, as a Lender
By /s/ Patricia Hogan
----------------------------
Name Patricia Hogan
--------------------------
Title Vice President
-------------------------
6
<PAGE>
LASALLE NATIONAL BANK, as a Lender
By /s/ Christopher G. Clifford
-------------------------------
Name Christopher G. Clifford
-----------------------------
Title Senior Vice President
----------------------------
MERIDIAN BANK, as a Lender
By /s/ Philip Newmuis, Jr.
------------------------------
Name Philip Newuis
----------------------------
Title Assistant Vice President
---------------------------
NATIONSBANK OF GEORGIA, N.A.,
as a Lender
By /s/ Betty H. Mills
------------------------------
Name Betty H. Mills
----------------------------
Title Vice President
---------------------------
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By /s/ Peter L. Skavla
-----------------------------
Name Peter L. Skavla
---------------------------
Title Vice President
--------------------------
7
<PAGE>
SHAWMUT CAPITAL CORPORATION,
as a Lender
By /s/ Brent P. Howard
-----------------------------
Name Brent P. Howard
---------------------------
Title Vice President
--------------------------
8
<PAGE>
GUARANTOR CONSENTS
------------------
AmeriSource Health Corporation, a Delaware corporation, formerly known
as AmeriSource Distribution Corporation, hereby (i) ratifies and reaffirms, as
of the date hereof, all of the provisions of that certain Amended and Restated
Guaranty and Pledge Agreement dated as of December 13, 1994 in favor of Agent,
(ii) acknowledges receipt of a copy of the Second Amendment to Amended and
Restated Credit Agreement dated as of September 30, 1995 (the "Second
Amendment"), and (iii) consents to all of the provisions of the Second
Amendment.
Dated: September 30, 1995 AMERISOURCE HEALTH CORPORATION, formerly known as
AmeriSource Distribution Corporation
By: /s/ Kurt H. Luknigh
------------------------------
Title: Vice President, Treasurer
---------------------------
Health Services Plus, Inc., a Delaware corporation, hereby (i)
ratifies and reaffirms, as of the date hereof, all of the provisions of that
certain Amended and Restated Continuing Guaranty dated as of December 13, 1994
in favor of Agent, (ii) acknowledges receipt of a copy of the Second Amendment
to Amended and Restated Credit Agreement dated as of September 30, 1995 (the
"Second Amendment"), and (iii) consents to all of the provisions of the Second
Amendment.
Dated: September 30, 1995 HEALTH SERVICES PLUS, INC.
By: /s/ Kurt H. Luknigh
-----------------------------
Title: Treasurer
--------------------------
9
<PAGE>
Health Services Capital Corporation, a Delaware corporation, hereby
(i) ratifies and reaffirms, as of the date hereof, all of the provisions of that
certain Amended and Restated Continuing Guaranty dated as of December 13, 1994
in favor of Agent, (ii) acknowledges receipt of a copy of the Second Amendment
to Amended and Restated Credit Agreement dated as of September 30, 1995 (the
"Second Amendment"), and (iii) consents to all of the provisions of the Second
Amendment.
Dated: September 30, 1995 HEALTH SERVICES CAPITAL CORPORATION
By: /s/ Kurt H. Luknigh
------------------------------
Title: Treasurer
---------------------------
10
<PAGE>
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") is entered into among AMERISOURCE CORPORATION, a Delaware
corporation ("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a corporation
organized under the banking laws of the State of New York ("GE Capital"), Co-
Agents (as defined in the Credit Agreement, as defined below), and each of the
other lenders thereunder (collectively, the "Lenders" and each, a "Lender"), GE
Capital and BANKERS TRUST COMPANY, a corporation organized under the banking
laws of the State of New York ("BTCo"), as managing agents, BTCo, as the issuing
lender, and GE Capital, as the administrative agent for Lenders (in such
capacity, "Agent"), as of November 27, 1995, with reference to the following
facts:
RECITALS
--------
A. Borrower, GE Capital, individually and in its capacities as a managing
agent and Agent, BTCo, individually and in its capacities as a managing agent
and the issuing lender, Co-Agents, and each of the other Lenders, have entered
into that certain Amended and Restated Credit Agreement dated as of December 13,
1994, as amended by that certain First Amendment to Credit Agreement dated as of
February 10, 1995 and that certain Second Amendment to Credit Agreement dated as
of September 30, 1995 (as amended, the "Credit Agreement"), pursuant to which
Lenders agreed to make certain financial accommodations to or for the benefit of
Borrower upon the terms and conditions contained therein. Unless otherwise
defined in this Amendment, (i) capitalized terms used herein shall have the
meanings given to them in the Credit Agreement, and (ii) references to sections
and subsections shall refer to sections or subsections of the Credit Agreement.
B. Borrower has requested that Lenders make certain amendments to, and
consent to certain matters under, the Credit Agreement, and Lenders are willing
to do so subject to the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the continued performance by
Borrower of its promises and obligations under the Credit Agreement and the
other Loan Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lenders hereby
agree as follows:
A G R E E M E N T
- - - - - - - - -
1. INCORPORATION OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS.
----------------------------------------------------------
Except as expressly modified under this Amendment, all of the terms and
conditions set forth in the Credit Agreement and the other Loan Documents are
incorporated herein by this reference, and the obligations of Borrower under the
Credit
1
<PAGE>
Agreement and the other Loan Documents are hereby acknowledged, confirmed
and ratified by Borrower.
2. AMENDMENTS TO CREDIT AGREEMENT.
------------------------------
2.1 Section 5.1(c) of the Credit Agreement is hereby amended to
delete the first parenthetical, and the following is substituted therefor:
(other than, at any time after there has been a public offering of the
Stock of Borrower or Parent, for any Fiscal Quarter ending September
30)
2.2 Section 5.1(c) of the Credit Agreement is hereby amended to
delete the following language:
and (iv) a statement reconciling Borrower's internally-prepared
monthly financial statements with the quarterly reports filed by
Borrower with the Securities and Exchange Commission.
2.3 Section 5.1(d) of the Credit Agreement is hereby deleted in its
entirety, and the following is substituted therefor:
(d) Within 90 days after the close of each Fiscal Year, a copy of
the annual audited financial statements of Parent and its
Subsidiaries, on a consolidated basis, consisting of balance sheet and
statements of income, retained earnings and cash flow, setting forth
in comparative form the figures for the previous Fiscal Year, which
financial statements shall be prepared in accordance with GAAP,
certified without qualification by the Auditors and accompanied by (i)
a statement in reasonable detail showing the calculations used in
determining Borrower's compliance with the Financial Covenants and
calculations of the Interest Coverage Ratio and Total Debt to EBITDA
Ratio, (ii) a report from the Auditors to the effect that in
connection with their audit examination, nothing has come to their
attention to cause them to believe that a Default or Event of Default
had occurred, (iii) a certification of the chief executive officer,
chief accounting officer, or chief financial officer of each of Parent
and Borrower that, to his or her knowledge, after due inquiry, all
such financial statements are complete and correct and present fairly
in accordance with GAAP the financial position, the results of
operations and the changes in financial position of Parent and its
subsidiaries, on a consolidated basis, as at the end of such Fiscal
Year and for the period then ended and specifying wheither, to his or
her knowledge, after due
2
<PAGE>
inquiry, there was any Default or Event of Default in existence as of
such time, and (iv) if the generally accepted accounting principles in
the United States of America as adopted by Parent or Borrower at any
time differ from the generally accepted accounting principles in the
United States of America as adopted by Borrower on September 30, 1994,
then a written statement from the chief executive officer, chief
accounting officer, or chief financial officer of each of Parent and
Borrower setting forth the changes, if any, that would have resulted
to the calculations described in clause (i) of this SECTION 5.1(D) if
the financial statements described in this SECTION 5.1(D) had been
prepared without giving effect to such accounting change.
2.4 Section 5.1(e) of the Credit Agreement is hereby deleted in its
entirety, and the following is substituted therefor:
(e) Within 90 days after the end of any Fiscal Quarter ending
September 30 (at any time after there has been a public offering of
the Stock of Borrower or Parent), (i) a copy of the unaudited balance
sheets of Borrower, on a Consolidated and consolidating basis, and the
Consolidated Borrower Group as of the end of such Fiscal Quarter and
the related statements of income and cash flow for such Fiscal Quarter
and a management letter, each prepared in accordance with GAAP
(subject to normal year end adjustments and the inclusion of
footnotes), setting forth in comparative form in each case (A) the
previously projected figures for such period and (B) the figures from
the same period for the immediately prior Fiscal Year, accompanied by
(I) a statement in reasonable detail showing (x) the calculations used
in determining Borrower's compliance with the Financial Covenants and
calculations of the Interest Coverage Ratio and Total Debt to EBITDA
Ratio, and (y) the calculations used in determining the amounts added
to the Dividend/Acquisition Basket, together with a summary of each
transaction (including the Acquisition Purchase Price for such
transaction), in which amounts from the Dividend/Acquisition Basket
were utilized, and (II) the certification of the chief executive
officer, chief accounting officer, or chief financial officer of
Borrower that all such financial statements are, to his or her
knowledge, after due inquiry, complete and correct and present fairly
in accordance with GAAP (subject to normal year end adjustments and
the inclusion of footnotes), the financial position and the results of
operations of Borrower, on a Consolidated
3
<PAGE>
and consolidating basis, and the Consolidated Borrower Group as at the
end of such Fiscal Quarter and for the period then ended, and
specifying whether, to his or her knowledge, after due inquiry, there
was any Default or Event of Default in existence as of such time, and
(ii) if the generally accepted accounting principles in the United
States of America as adopted by Borrower at any time differ from the
generally accepted accounting principles in the United States of
America as adopted by Borrower on September 30, 1994, then a written
statement from the chief executive officer, chief accounting officer,
or chief financial officer of Borrower setting forth the changes, if
any, that would have resulted to the calculations described in clause
(i)(B)(I) of this SECTION 5.1(E) if the financial statements described
in this SECTION 5.1(E) had been prepared without giving effect to such
accounting change.
2.5 Clause (a) of Section 7.14 of the Credit Agreement is hereby
deleted in its entirety, and the following is substituted therefor:
(a) to pay dividends or make advances to Parent (i) to enable Parent
to pay current cash interest to the holders of the Subordinated Parent
Notes, (ii) to allow Parent to redeem Subordinated Parent Notes or
repurchase Subordinated Parent Notes on the open market, and (iii) to
enable Parent to make distributions to its Stockholders; provided,
--------
that (x) except as described in clause (y) below, the Interest
Coverage Ratio (adjusted to include payment of the proposed dividend
as if that dividend were an interest expense), exceeds 2.5 to 1.0 for
the Testing Period, (y) with respect to those dividends or advances
described in clause (i) above, the Interest Coverage Ratio (adjusted
to include payment of the proposed dividend as if that dividend were
an interest expense), exceeds 2.5 to 1.0 for the Rolling Period (I)
ending on March 31 of any Fiscal Year, if such payment is to be made
on July 15 of such Fiscal Year, and (II) ending on September 30 of any
Fiscal Year, if such payment is to be made on January 15 of the
immediately succeeding Fiscal Year, and (z) the amount of such
dividends that is permitted shall be limited to the then available
Dividend/Acquisition Basket; and provided further, that
--- -------- -------
notwithstanding the foregoing, (I) Borrower shall not, in any event,
permit Parent to use such dividends to make distributions to Parent's
Stockholders unless a Qualified Borrower Public Offering or Qualified
Parent Public Offering has been completed, and (II) the aggregate
amount of the dividends to Parent's
4
<PAGE>
Stockholders shall not, in any event, exceed 20% of the available
amount under the Dividend/Acquisition Basket;
2.6 Section 7.20 of the Credit Agreement is hereby deleted in its
entirety, and the following is substituted therefor:
7.20 Capital Expenditures. The Consolidated Borrower Group shall
--------------------
not make aggregate Capital Expenditures in excess of the amounts set
forth below for the Fiscal Year corresponding thereto:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1996 $16,000,000
1997 $17,000,000
1998 $19,000,000
1999 $21,000,000
</TABLE>
provided, as a carry-forward, Capital Expenditures for any Fiscal Year
--------
may be increased by the lesser of (a) one-half of the amount listed
above for the immediately preceding Fiscal Year, and (b) the amount
not expended for such preceding Fiscal Year and without giving effect
to any increase to the amount permitted during such preceding Fiscal
Year pursuant to this Section; and provided further, that for purposes
--- -------- -------
of this proviso, Capital Expenditures shall not include the cost of
repair or replacement of any fixed assets or improvements as a result
of a casualty loss, to the extent paid or reimbursed from insurance or
from any other Person. The parties to this Agreement acknowledge
that, during the Fiscal Year ending September 30, 1995, Borrower is
entitled to a carry-forward of $3,300,000 relating to the Fiscal Year
ending September 30, 1994 and that such amount is otherwise subject to
the terms of this SECTION 7.20.
3. CONSENT. Notwithstanding any contrary term or provision set forth in
-------
the Credit Agreement or the other Loan Documents, Lenders hereby consent,
subject to the terms and conditions set forth below, to the following:
(a) the change of the corporate name of Borrower's Subsidiary, Health
Services Plus, Inc., to "AmeriSource Health Services Corporation"; and
(b) Borrower's entering into a sale-leaseback with Gelco Corporation,
a Minnesota corporation, doing business as GE Capital Fleet Services, on
substantially the same terms as the Master Lease Agreement, a copy of which
is attached hereto as Exhibit A.
---------
5
<PAGE>
As a result of this Amendment, the foregoing matters shall be permitted under
the Credit Agreement and the other Loan Documents and shall not be a breach or
default thereunder.
4. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
---------------------------
upon satisfaction of each of the following conditions:
(a) Agent shall have received copies of this Amendment that, when
taken together, bear the signatures of Borrower and Requisite Lenders; and
(b) Agent shall have received a copy of the accompanying
Guarantor Consents executed by Parent, AmeriSource Health Services
Corporation (formerly known as Health Services Plus, Inc.) and Health
Services Capital Corporation.
5. ENTIRE AGREEMENT. This Amendment, together with the Credit Agreement
----------------
and the other Loan Documents, is the entire agreement between the parties hereto
with respect to the subject matter hereof. This Amendment supersedes all prior
and contemporaneous oral and written agreements and discussions with respect to
the subject matter hereof. Except as otherwise expressly modified herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect.
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants that the representations and warranties contained in the Credit
Agreement were true and correct in all material respects when made and, except
to the extent (a) that a particular representation or warranty by its terms
expressly applies only to an earlier date, or (b) Borrower has previously
advised Agent in writing as contemplated under the Credit Agreement, are true
and correct in all material respects as of the date hereof.
7. MISCELLANEOUS.
-------------
7.1 Counterparts. This Amendment may be executed in identical
------------
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment. Any Lender
delivering this Amendment by facsimile shall send the original manually executed
counterpart of this Amendment to Agent's counsel promptly after such facsimile
transmission.
7.2 Headings. Section headings used herein are for convenience of
--------
reference only, are not part of this Amendment,
6
<PAGE>
and are not to be taken into consideration in interpreting this Amendment.
7.3 Recitals. The recitals set forth at the beginning of this
--------
Amendment are true and correct, and such recitals are incorporated into and are
a part of this Amendment.
7.4 Governing Law. This Amendment shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
7.5 No Novation. Except as specifically set forth in section 2 of
-----------
this Amendment, the execution, delivery and effectiveness of this Amendment
shall not (a) limit, impair, constitute a waiver by, or otherwise affect any
right, power or remedy of, Agent or any Lender under the Credit Agreement or any
other Loan Document, (b) constitute a waiver of any provision in the Credit
Agreement or in any of the other Loan Documents, or (c) alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.
7.6 Conflict of Terms. In the event of any inconsistency between the
-----------------
provisions of this Amendment and any provision of the Credit Agreement, the
terms and provisions of this Amendment shall govern and control.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.
BORROWER:
--------
AMERISOURCE CORPORATION,
a Delaware corporation
By /s/ Kurt J. Hilzinger
-----------------------------
Name Kurt J. Hilzinger
---------------------------
Title Vice President, Treasurer
---------------------------
7
<PAGE>
LENDERS:
-------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent, a Managing Agent and a Lender
By /s/ Charles D. Chiodo
---------------------------
Charles D. Chiodo
Duly Authorized Signatory
BANKERS TRUST COMPANY, as a Managing Agent, Issuing
Lender and a Lender
By /s/ Frederic W. Thomas Jr
---------------------------
Name Frederic W. Thomas Jr
-------------------------
Title Vice President
------------------------
BANKAMERICA BUSINESS CREDIT, INC., as a Co-Agent and a
Lender
By /s/ George Markowsky
---------------------------
Name George Markowsky
-------------------------
Title Vice President
------------------------
HELLER FINANCIAL, INC., as a Co-Agent
and as a Lender
By /s/ John Cappenella
---------------------------
Name John Cappenella
-------------------------
Title Vice President
------------------------
8
<PAGE>
BANK OF NEW YORK COMMERCIAL CORPORATION,
as a Lender
By /s/ Anthony Viola
-----------------------------
Name Anthony Viola
---------------------------
Title Vice President
--------------------------
BANK OF MONTREAL, as a Lender
By /s/ Irene M. Geller
-----------------------------
Name Irene M. Geller
---------------------------
Title Director
--------------------------
BOT FINANCIAL CORPORATION, as a Lender
By /s/ Willian R. York, Jr.
-----------------------------
Name Willian R. York, Jr.
---------------------------
Title Senior Vice President
--------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By /s/ Cyril A. Prince
-----------------------------
Name Cyril A. Prince
---------------------------
Title Vice President
--------------------------
CORESTATES BANK, N.A., as a Lender
By /s/ Sherri A. Williams
-----------------------------
Name Sherri A. Williams
---------------------------
Title Assistant Vice President
--------------------------
9
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By /s/Willian C. Purinion
---------------------------
Name Willian C. Purinion
-------------------------
Title Vice President
------------------------
GIROCREDIT BANK AKTIENGESELLSCHAFT
DER SPARKASSEN, GRAND CAYMAN ISLAND
BRANCH, as a Lender
By
___________________________
Name
_________________________
Title
________________________
MERIDIAN BANK, as a Lender
By /s/Patrick B. Trainor
---------------------------
Name Patrick B. Trainor
-------------------------
Title Assistant Vice President
------------------------
LASALLE NATIONAL BANK, as a Lender
By /s/Christopher G. Clifford
---------------------------
Name Christopher G. Clifford
-------------------------
Title Senior Vice President
------------------------
10
<PAGE>
NATIONSBANK OF GEORGIA, N.A.,
as a Lender
By
___________________________
Name
_________________________
Title
________________________
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By /s/Peter L. Skavia
---------------------------
Name Peter L. Skavia
-------------------------
Title Vice President
------------------------
SHAWMUT CAPITAL CORPORATION,
as a Lender
By
___________________________
Name
_________________________
Title
________________________
11
<PAGE>
Exhibit 21
Subsidiaries of Registrant
--------------------------
AmeriSource Corporation (a Delaware Corporation)
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No.
33-58329 and No. 33-58321 pertaining to the AmeriSource Health Corporation 1995
Stock Option Plan and the AmeriSource Health Corporation Non-Employee Director
Stock Option Plan of our report dated November 3, 1995, with respect to the
consolidated financial statements and schedules of AmeriSource Health
Corporation and subsidiaries included in the Form 10-K for the fiscal year ended
September 30, 1995.
Philadelphia, Pennsylvania
December 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000855042
<NAME> AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 46,809
<SECURITIES> 0
<RECEIVABLES> 318,652
<ALLOWANCES> 12,941
<INVENTORY> 404,522
<CURRENT-ASSETS> 773,204
<PP&E> 76,826
<DEPRECIATION> 31,582
<TOTAL-ASSETS> 838,673
<CURRENT-LIABILITIES> 530,012
<BONDS> 435,764
0
0
<COMMON> 255
<OTHER-SE> (135,979)
<TOTAL-LIABILITY-AND-EQUITY> 838,673
<SALES> 4,668,948
<TOTAL-REVENUES> 4,668,948
<CGS> 4,402,593
<TOTAL-COSTS> 4,402,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,449
<INTEREST-EXPENSE> 52,288
<INCOME-PRETAX> 45,547
<INCOME-TAX> 17,329
<INCOME-CONTINUING> 28,218
<DISCONTINUED> 0
<EXTRAORDINARY> (18,037)
<CHANGES> 0
<NET-INCOME> 10,181
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
