<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------- ---------------------------------- ------------------
<S> <C> <C>
33-27835-01 AmeriSource Health Corporation 23-2546940
(a Delaware Corporation)
(formerly AmeriSource Distribution
Corporation)
P.O. Box 959, Valley Forge,
Pennsylvania 19482
(610) 296-4480
</TABLE>
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 [_]
The number of shares of common stock of AmeriSource Health Corporation
outstanding as of June 30, 1996 was: Class A--16,809,216, Class B--6,596,041,
Class C--267,429.
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INDEX
AMERISOURCE HEALTH CORPORATION
<TABLE>
<C> <S>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--June 30, 1996 and September 30, 1995
Consolidated statements of operations--Three months ended June 30,
1996 and June 30, 1995
Consolidated statements of operations--Nine months ended June 30,
1996 and June 30, 1995
Consolidated statements of cash flows--Nine months ended June 30,
1996 and June 30, 1995
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. AMERISOURCE HEALTH CORPORATION FINANCIAL STATEMENTS (UNAUDITED)
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 59,568 $ 32,171
Restricted cash..................................... 6,091 14,638
Accounts receivable less allowance for doubtful
accounts: 6/96--$14,394, 9/95--$12,941............. 332,026 318,652
Merchandise inventories............................. 616,104 404,522
Prepaid expenses and other.......................... 4,267 3,221
---------- --------
Total current assets.............................. 1,018,056 773,204
Property and Equipment, at cost....................... 87,976 76,826
Less accumulated depreciation....................... 37,519 31,582
---------- --------
50,457 45,244
Other assets.......................................... 23,439 20,225
---------- --------
$1,091,952 $838,673
========== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $ 593,388 $ 462,804
Accrued expenses and other......................... 25,643 27,720
Accrued income taxes............................... 16,169 13,596
Deferred income taxes.............................. 32,508 25,892
---------- ---------
Total current liabilities........................ 667,708 530,012
Long-Term Debt:
Revolving credit facility.......................... 260,000 150,000
Receivables securitization financing............... 209,869 209,842
Senior debentures.................................. -- 74,293
Other debt......................................... 1,773 1,629
---------- ---------
471,642 435,764
Other Liabilities.................................... 7,020 8,621
Stockholders' Equity
Common Stock, $.01 par value:
Class A (Voting and convertible):
50,000,000 shares authorized;
issued 6/96--17,160,298 shares;
9/95--12,062,560 shares.......................... 172 121
Class B (Non-voting and convertible):
15,000,000 shares authorized;
issued 6/96--9,546,041 shares;
9/95--12,969,050 shares.......................... 95 130
Class C (Non-voting and convertible):
2,000,000 shares authorized;
issued 6/96--267,429 shares;
9/95--440,158 shares............................. 3 4
Capital in excess of par value..................... 224,222 165,044
Retained earnings (deficit)........................ (272,690) (294,803)
Cost of common stock in treasury................... (6,220) (6,220)
---------- ---------
(54,418) (135,724)
---------- ---------
$1,091,952 $ 838,673
========== =========
</TABLE>
See notes to consolidated financial statements.
4
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AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues.............................................. $1,420,006 $1,158,113
Cost of goods sold.................................... 1,339,475 1,092,604
---------- ----------
Gross Profit.......................................... 80,531 65,509
Selling and administrative expenses................... 51,378 40,014
Depreciation.......................................... 2,429 1,811
---------- ----------
Operating income.................................... 26,724 23,684
Interest expense...................................... 9,088 10,581
---------- ----------
Income before taxes and extraordinary item............ 17,636 13,103
Taxes on income....................................... 7,231 3,223
---------- ----------
Income before extraordinary item...................... 10,405 9,880
Extraordinary charge-early retirement of debt, net of
income tax benefit................................... (7,242) (6,162)
---------- ----------
Net income.......................................... $ 3,163 $ 3,718
========== ==========
Earnings per share (fully diluted):
Income before extraordinary item.................... $ .45 $ .46
Extraordinary item.................................. (.31) (.29)
---------- ----------
Net income........................................ $ .14 $ .17
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues.............................................. $4,064,575 $3,465,244
Cost of goods sold.................................... 3,836,161 3,270,860
---------- ----------
Gross Profit.......................................... 228,414 194,384
Selling and administrative expenses................... 143,623 118,148
Depreciation.......................................... 6,393 5,247
---------- ----------
Operating income.................................... 78,398 70,989
Interest expense...................................... 28,090 42,570
---------- ----------
Income before taxes and extraordinary item............ 50,308 28,419
Taxes on income....................................... 20,953 10,980
---------- ----------
Income before extraordinary item...................... 29,355 17,439
Extraordinary charge-early retirement of debt, net of
income tax benefit................................... (7,242) (18,037)
---------- ----------
Net income (loss)................................... $ 22,113 $ (598)
========== ==========
Earnings (loss) per share (fully diluted):
Income before extraordinary item.................... $ 1.29 $ 1.02
Extraordinary item.................................. (.32) (1.06)
---------- ----------
Net income (loss)................................. $ .97 $ (.04)
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $ 22,113 $ (598)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation....................................... 6,393 5,247
Amortization....................................... 2,041 1,967
Provision for losses on accounts receivable........ 1,140 4,098
Gain on disposal of property and equipment......... (16) (61)
Deferred income taxes.............................. 8,815 (1,009)
Loss on early retirement of debt................... 11,142 25,190
Changes in operating assets and liabilities:
Restricted cash................................... 8,547 (35,118)
Accounts receivable............................... 7,094 (7,858)
Merchandise inventories........................... (179,122) (86,947)
Prepaid expenses.................................. (657) (2,051)
Accounts payable, accrued expenses and income tax-
es............................................... 102,166 61,643
Debentures issued in lieu of payment of interest.. -- 4,572
Miscellaneous...................................... 2,059 (1,973)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES............ (8,285) (32,898)
INVESTING ACTIVITIES
Capital expenditures................................ (12,008) (9,064)
Proceeds from sales of property and equipment....... 527 1,806
Cost of companies acquired.......................... (28,725) (500)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............ (40,206) (7,758)
FINANCING ACTIVITIES
Long-term debt borrowings........................... 1,324,712 1,511,354
Long-term debt repayments........................... (1,298,166) (1,605,474)
Net proceeds from public offerings.................. 49,300 148,194
Deferred financing costs............................ -- (10,040)
Exercise of stock option............................ 42 549
Purchase of treasury stock.......................... -- (5,225)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 75,888 39,328
----------- -----------
Increase (decrease) in cash and cash equivalents..... 27,397 (1,328)
Cash and cash equivalents at beginning of period..... 32,171 25,311
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 59,568 $ 23,983
=========== ===========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position, results of operations and cash flows 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 material intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to present
fairly the financial position as of June 30, 1996, the results of operations
for the three and nine months ended June 30, 1996 and 1995 and the cash flows
for the nine months ended June 30, 1996 and 1995 have been included. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles, but
which are not required for interim reporting purposes, have been omitted. The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
The Company's income (loss) per share and share data in the financial
statements have been retroactively restated to reflect the effect of the 2.95-
for-1 stock split declared in connection with the public offering by the
Company of its Common Stock in April 1995.
NOTE 2--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.
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
June 30, 1996), 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.
8
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AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In November 1993, the Company, along with six other wholesale distributors
and twenty-four pharmaceutical manufacturers, was named as a defendant in the
United States District Court in the Southern District of New York, 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.
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. Pursuant to the Judgement Sharing Agreement, 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 cases which have been
or may be filed in state courts.
On April 4, 1996, the federal court granted the wholesalers' motion for
summary judgment. The plaintiffs are appealing the grant of summary judgement
in favor of the wholesalers to the United States Court of Appeals for the
Seventh Circuit.
NOTE 3--EARNINGS PER SHARE
Earnings (loss) per share is computed on the basis of the weighted average
number of shares outstanding during the periods presented (22,733,126 and
21,437,282 for the three months ended June 30, 1996 and June 30, 1995,
respectively; and 22,358,166 and 16,989,062 for the nine months ended June 30,
1996 and June 30, 1995, respectively) plus the dilutive effect of stock
options (401,142 and 73,197 for the three months ended June 30, 1996 and June
30, 1995, respectively; and 355,737 and 24,399 for the nine months ended June
30, 1996 and June 30, 1995, respectively, on a fully diluted basis). 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.
NOTE 4--ACQUISITION
In February 1996, the Company acquired all of the stock of Gulf Distribution
Inc. in a cash transaction. Gulf Distribution Inc. is a Miami, Florida based
wholesale pharmaceutical distributor with annualized revenues of approximately
$180 million. The cost was $28.7 million and the transaction was accounted for
by the purchase method. The excess of the purchase price over net assets
acquired has been allocated to goodwill. Changes in purchase accounting
estimates may result in a reallocation of the purchase price within one year
of the acquisition.
NOTE 5--COMMON STOCK OFFERING
In May 1996, the Company completed a public offering of 4,800,000 shares of
Class A common stock at a price of $35 per share. Of the 4,800,000 shares
sold, 1,500,000 shares were sold by the Company and 3,300,000 shares were sold
by certain stockholders of the Company (the "Selling Stockholders"). The
Company did not receive any of the proceeds from the shares sold by the
Selling Stockholders. The net proceeds of $49.3 million from the 1,500,000
shares sold by the Company were used to repay long-term debt. (See Note 6). On
a pro forma basis, assuming historical data is adjusted to reflect the public
offering and related pay-down of long-term debt as if they occurred on October
1, 1995, earnings per share before extraordinary items for the three and nine
month periods ended June 30, 1996 would not be materially different from
reported earnings per share.
9
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AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 6--LONG-TERM DEBT
In April 1996, the Company purchased and retired $26.7 million of its 11
1/4% senior debentures through open market purchases for 111.25% of the
principal amount (including fees) plus accrued interest. In June 1996, the
Company redeemed the remaining $47.6 million of its senior debentures via a
tender offer and related consent solicitation for 110.75% of the principal
amount (including fees) plus accrued interest and a consent amount equal to
2.0% of the principal amount. These transactions resulted in an extraordinary
charge, net of tax benefits, of $7.2 million relating to the open market
purchase and tender offer premiums, transaction fees and the write-off of
related unamortized financing costs.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1996 increased 23% to $1.4
billion from $1.2 billion in fiscal 1995. For the nine months ended June 30,
1996, revenues were $4.1 billion, an increase of $599 million or 17% compared
to the prior year. The year-to-year revenue gains reflect increases across all
customer groups and the impact of the Company's expansion into new geographic
markets, especially in the western and northeastern United States, and price
increases. Revenues of the Company's western region increased by 46% in the
first nine months of fiscal 1996. The acquisitions of Newbro Drug Company in
July 1995 and Gulf Distribution Inc. in February 1996 accounted for 3% of the
17% increase in revenues for the first nine months of fiscal 1996. During the
nine months ended June 30, 1996, sales to hospitals increased 7%, sales to
independent drug store customers increased 27%, and sales to the chain drug
store customer group increased 26%, as compared with the prior fiscal year.
During the nine months ended June 30, 1996 sales to hospitals accounted for
43% of total revenues, while sales to independent drug stores accounted for
37% and sales to chain drug stores for 20% of the total.
Gross profit of $80.5 million in the third quarter of fiscal 1996 increased
by 23% over 1995 due to the increase in revenues. As a percentage of revenues,
the gross profit margin in the third fiscal quarter of fiscal 1996 was 5.67%
as compared to 5.66% in the prior year. For the nine months ended June 30,
1996, the gross profit margin percentage of 5.62% was slightly higher than the
prior year margin of 5.61%. The small increase in gross profit margin
percentage from the prior year third quarter was due to increased sales of
higher margin generic drugs, the continued introduction of new marketing
programs with manufacturers, the growth of higher margin specialty businesses
such as pharmaceutical repackaging, and an increase in inventory investment
buying activity, offset by a decline in selling margin percentage due to
continuing price competition throughout the industry.
Operating expenses increased by $12.0 million or 29%, in the third quarter
of fiscal 1996 compared with the prior year, and as a percentage of revenues,
were 3.79% in 1996 and 3.61% in 1995. For the first nine months of fiscal
1996, operating expenses increased 22% compared to the prior year and
represented 3.69% of revenues versus 3.56% of revenues in the prior year. The
increase as a percentage of revenues is primarily due to the cost of opening
new distribution facilities in Orlando, Florida, and Phoenix, Arizona, in
fiscal 1996 and Sacramento, California in June 1995, integration costs related
to Newbro Drug Company and Gulf Distribution Inc., above average growth of the
higher cost to service independent drug store segment, and the cost of
developing new value added marketing programs. These costs have been offset in
part by continued economies of scale at the Company's established locations.
Operating income of $26.7 million in the third quarter of fiscal 1996
increased by 13% over the prior year. For the nine months ended June 30, 1996
operating income increased by 10% compared to the prior year. As a percentage
of revenues, the Company's operating margin declined to 1.93% in fiscal 1996
from 2.05% in fiscal 1995 due to the increase in expenses discussed above. The
Company is evaluating its distribution network to identify opportunities for
increased efficiencies and cost reduction necessary to maintain and grow its
operating margin.
Interest expense of $9.1 million in the third quarter of fiscal 1996
represents a decrease of 14% compared to the prior year quarter. For the nine-
month period ended June 30, 1996 interest expense declined by $14.5 million or
34% versus the prior year period. 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, the
repurchase in April 1996 and the redemption in June 1996 of the remaining
$74.3 million of 11 1/4% senior debentures, lower average borrowing rates due
to the implementation of the receivables securitization financing in December
1994, and reductions in the borrowing rates of the Company's revolving credit
facility which was amended in December 1994. Average borrowings during the
quarter ended June 30, 1996 were $489 million as compared to average
borrowings of $471 million in the prior year third quarter. For the nine
months ended June 30, 1996, average borrowings were $487 million versus
average borrowings of $572 million in the prior year.
11
<PAGE>
The income tax provisions for the three and nine months ended June 30, 1996
were computed based on an estimate of the full year effective tax rate. The
extraordinary charge in fiscal 1996 of $7.2 million (net of a tax benefit of
$3.9 million) relates to the purchase and redemption premiums and consequent
write-off of unamortized deferred financing costs due to the purchase and
redemption of the remaining $74.3 million of 11 1/4% senior debentures. The
extraordinary charge in fiscal 1995 of $18.0 million (net of a tax benefit of
$7.2 million) relates to the amendment of the revolving credit facility, the
redemption of the 14 1/2% senior subordinated notes, the redemption of $74.3
million of 11 1/4% senior debentures and the consequent write-off of
unamortized deferred financing costs in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended June 30, 1996, the Company's operating
activities used $8.3 million in cash due to the increase of $179.1 million in
merchandise inventories which was offset in part by the $102.2 million
increase in accounts payable, accrued expenses and income taxes and the
reduction in restricted cash and accounts receivable balances, and reflects
the Company's growth as well as increased inventory purchases in anticipation
of manufacturer price increases and other deal buying opportunities. A portion
of the increase in inventories during the nine month period was also due to
the opening of the Phoenix, Arizona and Orlando, Florida distribution
facilities. Operating cash uses during the nine month period ended June 30,
1996 included $28.6 million in interest payments and $5.7 million in income
tax payments.
Capital expenditures for the nine months ended June 30, 1996 were $12.0
million and are primarily equipment purchases related to the expansion of the
Company's pharmaceutical repackaging operation, the opening of the Orlando,
Florida and Phoenix, Arizona distribution centers, and additional investments
in information technology. Investments in information technology and warehouse
improvements are expected to continue throughout the year, and total capital
expenditures are expected to be $16 million for the fiscal year.
In February 1996, the Company purchased all of the stock of Gulf
Distribution Inc. in a cash transaction. The transaction was funded by
borrowings under the revolving credit facility. Gulf Distribution Inc. is a
Miami, Florida-based wholesaler with annualized revenues of approximately $180
million. The cost of the acquisition was $28.7 million.
In May 1996, the Company completed a public offering of 4.8 million shares
of its common stock. Of the 4.8 million shares sold, 1.5 million shares were
sold by the Company and 3.3 million shares were sold by certain stockholders
of the Company (the "Selling Stockholders"). The Company did not receive any
of the proceeds from the shares sold by the Selling Stockholders. The $49.3
million net proceeds from the 1.5 million shares sold by the Company were used
along with borrowings under its revolving credit facility to redeem its
remaining 11 1/4% senior debentures.
In April 1996, the Company purchased and retired $26.7 million of its 11
1/4% senior debentures through open market purchases for 111.25% of the
principal amount (including fees) plus accrued interest through the date of
purchase. In June 1996, the Company redeemed the remaining $47.6 million of
its senior debentures through a tender offer for 110.75% of the principal
amount (including fees) plus accrued interest through the date of redemption
and a consent amount equal to 2.0% of the principal amount. These transactions
resulted in an extraordinary charge, net of tax benefits, of $7.2 million
relating to the open market purchases and tender offer premiums, plus fees and
the write-off of related unamortized deferred financing costs. The redemptions
were funded by borrowings under the Company's revolving credit facility and
proceeds from the public offering.
Cash provided by financing activities during the first nine months of fiscal
1996 represents borrowings under the Company's revolving credit facility and
its receivable securitization financing primarily to fund its working capital
requirements. As a result of the Company's initial public offering in April
1995 and its financial results, the borrowing rate alternatives under the
revolving credit facility were reduced by 1.0% to LIBOR plus 1.25% and the
prime rate plus zero beginning in October 1995. At June 30, 1996, borrowings
under the Company's $380 million revolving credit facility were $260 million
(at an average interest rate of 7.0%) and borrowings under the $285 million
Receivables Program were $210 million (at an average interest rate of 6.0%).
12
<PAGE>
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
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 flow 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 growth and
expansion through new business opportunities. Future cash flows from
operations and borrowings are expected to be sufficient to fund the Company's
ongoing cash requirements.
The Company is subject to certain 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 or remedy, existing
technology, and presently enacted laws and regulation, 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.
Certain information in this report contains forward-looking statements as
such term is defined in Section 27A of the Securities Act and Section 21E of
the Exchange Act. Certain factors as discussed in this Management's Discussion
could cause actual results to differ materially from those in the forward-
looking statements.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1995, a proceeding was instituted before the Massachusetts Board
of Registration in Pharmacy (the "Massachusetts Board") against the Company.
The Massachusetts Board alleged that the Company's application for the
licensure of its facility in Springfield, Massachusetts submitted in September
1994 was inaccurate and insufficient. On June 21, 1996, the Company entered
into a Consent Agreement with the Massachusetts Board pursuant to which it
agreed to certain restrictions and penalties and to enhanced regulatory
oversight for the next four years. The Company does not believe that the
agreement will have a material adverse effect on its business or financial
condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number 27 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended June 30, 1996.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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
/s/ Kurt J. Hilzinger
-------------------------------------
KURT J. HILZINGER VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND
TREASURER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: August 13, 1996
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