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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 DECEMBER 31, 1999
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<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 December 31, 1999 was: Class A--51,190,274, Class B--8,446;
Class C--165,346.
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INDEX
AMERISOURCE HEALTH CORPORATION
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--December 31, 1999 and September 30, 1999
Consolidated statements of operations--Three months ended December 31, 1999 and December 31,
1998
Consolidated statements of cash flows--Three months ended December 31, 1999 and December 31,
1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and qualitative disclosure about market risk.
PART II. OTHER INFORMATION
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>
DECEMBER 31, SEPTEMBER 30,
1999 1999
-------------- -------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ...................... $ 56,868 $ 59,497
Accounts receivable less allowance for doubtful
accounts: 12/99--$28,032, 9/99--$27,583 ...... 700,851 612,520
Merchandise inventories ........................ 1,442,867 1,243,153
Prepaid expenses and other ..................... 5,281 4,836
-------------- -------------
Total current assets ......................... 2,205,867 1,920,006
Property and equipment, at cost:
Land ........................................... 4,125 4,125
Buildings and improvements ..................... 39,754 38,855
Machinery, equipment and other ................. 89,373 91,760
-------------- -------------
133,252 134,740
Less accumulated depreciation .................. 68,639 70,356
-------------- -------------
64,613 64,384
Other assets, less accumulated amortization:
12/99--$9,687; 9/99--$8,967 ..................... 74,026 76,209
-------------- -------------
$2,344,506 $2,060,599
============== =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
-------------- --------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable .................................... $1,267,093 $1,175,619
Accrued expenses and other .......................... 48,908 50,329
Accrued income taxes ................................ 18,450 10,854
Deferred income taxes ............................... 92,118 90,481
-------------- --------------
Total current liabilities ........................ 1,426,569 1,327,283
Long-term debt:
Revolving credit facility ........................... 387,018 225,227
Receivables securitization financing ................ 325,000 325,000
Other debt .......................................... 8,415 8,478
-------------- --------------
720,433 558,705
Other liabilities ..................................... 8,325 8,334
Stockholders' equity
Common stock, $.01 par value:
Class A (voting and convertible):
100,000,000 shares authorized;
issued 12/99--51,892,441 shares;
9/99--51,737,893 shares .......................... 519 517
Class B (non-voting and convertible):
15,000,000 shares authorized;
issued 12/99--5,908,445 shares;
9/99--5,908,445 shares .......................... 59 59
Class C (non-voting and convertible):
2,000,000 shares authorized; issued
12/99--165,346 shares; 9/99--165,936
shares .......................................... 2 2
Capital in excess of par value ...................... 268,001 266,737
Accumulated deficit ................................. (73,033) (94,632)
Cost of common stock in treasury .................... (6,220) (6,220)
Note receivable from ESOP............................. (149) (186)
-------------- --------------
189,179 166,277
-------------- --------------
$2,344,506 $2,060,599
============== ==============
</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>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------------
(UNAUDITED)
1999 1998
---------- ----------
<S> <C> <C>
Operating revenue...................................................... $2,828,754 $2,362,648
Bulk deliveries to customer warehouses................................. 10,628 12,087
---------- ----------
Total revenue.......................................................... 2,839,382 2,374,735
Operating cost of goods sold........................................... 2,708,827 2,251,522
Cost of goods sold - bulk deliveries................................... 10,628 12,087
---------- ----------
Total cost of goods sold............................................... 2,719,455 2,263,609
---------- ----------
Gross profit........................................................... 119,927 111,126
Selling and administrative expenses.................................... 70,245 67,173
Depreciation........................................................... 3,399 3,797
Amortization........................................................... 548 492
---------- ----------
Operating income....................................................... 45,735 39,664
Interest expense....................................................... 10,898 10,084
Interest expense - adjustment of common stock put warrant to fair value -- 610
---------- ----------
Income before taxes.................................................... 34,837 28,970
Taxes on income........................................................ 13,238 11,075
---------- ----------
Net income............................................................. $ 21,599 $ 17,895
========== ==========
Net income per share................................................... $.42 $.36
========== ==========
Net income per share - assuming dilution............................... $.42 $.35
========== ==========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
(UNAUDITED)
-----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................... $ 21,599 $ 17,895
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation ................................................................. 3,399 3,797
Amortization, including deferred financing costs ............................. 754 1,390
Adjustment of common stock put warrant to fair value........................... -- 610
Provision for losses on accounts receivable .................................. 703 777
Loss (gain) on disposal of property and equipment ............................ 78 (3)
Deferred income taxes ........................................................ 5,156 4,274
Changes in operating assets and liabilities:
Restricted cash ............................................................ -- 5,391
Accounts receivable ........................................................ (88,560) (65,585)
Merchandise inventories .................................................... (199,714) (206,421)
Prepaid expenses and other ................................................. (819) (867)
Accounts payable, accrued expenses and income taxes ........................ 98,324 58,062
Miscellaneous................................................................ (1,727) (272)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ...................................... (160,807) (180,952)
INVESTING ACTIVITIES
Capital expenditures .......................................................... (3,889) (3,044)
Purchase of equity interest in a business ..................................... -- (3,551)
Collections on ESOP note receivable............................................. 37 36
Proceeds from sales of property and equipment ................................. 40 46
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ...................................... (3,812) (6,513)
FINANCING ACTIVITIES
Long-term debt borrowings ..................................................... 496,086 675,294
Long-term debt repayments ..................................................... (334,349) (494,833)
Deferred financing costs and other (115) --
Purchase of treasury stock...................................................... -- (101)
Exercise of stock options ..................................................... 368 3,173
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................................. 161,990 183,533
--------- ---------
Decrease in cash and cash equivalents .......................................... (2,629) (3,932)
Cash and cash equivalents at beginning of period ............................... 59,497 48,511
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 56,868 $ 44,579
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<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
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 December 31, 1999, the results of operations for
the three months ended December 31, 1999 and 1998 and the cash flows for the
three months ended December 31, 1999 and 1998 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,
1999.
In July 1999, the Company acquired C.D. Smith Healthcare, Inc. The business
combination was accounted for as a pooling-of-interests and, accordingly, prior
year results have been restated to reflect this accounting treatment.
The Company's earnings per share and share data in the financial statements
have been retroactively restated to reflect the effect of a two-for-one stock
split declared on March 3, 1999 and distributed on March 24, 1999 to
shareholders of record on March 3, 1999.
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, 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 1998 the Company sued a former customer which refused to pay invoices, net
of credit memos, totaling approximately $21 million for goods sold and
delivered. The former customer filed counterclaims alleging it suffered damages
as a result of certain performance problems affecting the Company. In January
2000, the Company settled all claims with the former customer. Under the terms
of the confidential settlement agreement, which is not expected to have a
material adverse effect on the Company's financial position or results of
operations, the Company is to receive periodic payments through July 2000.
7
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
NOTE 2 - LEGAL MATTERS AND CONTINGENCIES-continued
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 brought by retail pharmacies and
alleging violations of various antitrust laws stemming from the use of
chargeback agreements. In addition, the Company and four other wholesale
distributors were added as defendants in a series of related antitrust lawsuits
brought by independent pharmacies and chain drug stores, both of which opted out
of the class cases. The Company also was named a defendant in parallel suits
filed in state courts in Minnesota, Alabama, Tennessee and Mississippi. The
federal class actions were originally filed in the United States District Court
for the Southern District of New York, but were transferred along with the
individual and chain drug store cases to the United States District Court for
the Northern District of Illinois. Plaintiffs seek injunctive relief, treble
damages, attorneys' fees and costs. In October 1994, the Company entered into a
Judgment Sharing Agreement with the other wholesaler and pharmaceutical
manufacturer defendants. Under the Judgment 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
judgment is entered 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 judgment 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. Subsequent amendments to the
Judgment Sharing Agreement have provided additional protection to the Company
from litigation expenses in exchange for updated releases. The Judgment Sharing
Agreement covers the federal court litigation as well as the cases which have
been filed in various state courts.
On April 4, 1996, the District Court granted the Company's motion for summary
judgment in the class case. Plaintiffs subsequently appealed the Company's
grant of summary judgment to the United States Seventh Circuit Court of Appeals.
On August 15, 1997, the Court of Appeals reversed the District Court's order
granting summary judgment in favor of the Company and the other wholesalers.
The Court of Appeals also denied the Company's petition for rehearing. The
Company and the other wholesalers filed a petition for a writ of certiorari to
the United States Supreme Court; the petition was denied. Trial in the class
case commenced in the United States District Court for the Northern District of
Illinois on September 23, 1998. After a ten-week trial, the Court granted all
of the defendents motions for a directed verdict and dismissed the claims the
class plaintiffs had asserted against the Company and the other defendants.
Plaintiffs in the class case then appealed the District Court's judgment to the
Seventh Circuit Court of Appeals. On June 9, 1999, the Seventh Circuit affirmed
the judgment the District Court entered in favor of the Company in the class
case. Plaintiffs have filed a petition for a writ of certiorari to the United
States Supreme Court; that petition is pending.
The state cases are proceeding. The Minnesota case settled without any
payment or admission of liability by the Company. On November 29, 1999, the
trial court in Alabama dismissed all of the claims asserted against the Company
and the other wholesaler and manufacturer defendants in accordance with a ruling
from the Alabama Supreme Court. The Mississippi and Tennessee cases remain
pending, though there has been very little activity in either forum.
On or about October 2, 1997, a group of retail chain drug stores and
individual pharmacies, both of which had opted out of the class cases, filed a
motion with the United States District Court for the Northern District of
Illinois seeking to add the Company and the other wholesale distributors as
defendants in their cases against the manufacturer defendants, which cases are
consolidated before the same judge who presides over the class case. This
motion was granted and the Company and the other wholesale distributors have
been added as defendants in those cases as well. As a result, the Company has
been served with approximately 120 additional complaints on behalf of
approximately 4,000 pharmacies and chain retailers. Discovery and motion
practice is presently underway in all of these opt-out cases. The Company
believes it has meritorious defenses to the claims asserted in these lawsuits
and intends to defend itself vigorously in all of these cases.
8
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
NOTE 2 - LEGAL MATTERS AND CONTINGENCIES-continued
Environmental laws and regulations may require the Company to take
remediation efforts at the site of a former distribution center. 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 liabilities in the accompanying consolidated balance sheet
($3.8 million at December 31, 1999), is based on an engineering analysis
prepared by outside consultants and represents an estimate of the extent of
contamination and choice of remedy based on 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.
NOTE 3--EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average number of
shares of common stock outstanding during the periods presented (51,287,087 and
50,333,365 for the three months ended December 31, 1999 and 1998, respectively).
Earnings per share--assuming dilution is computed on the basis of the weighted
average number of shares of common stock outstanding during the period plus the
dilutive effect of stock options and warrants (204,821 and 682,214 for the three
months ended December 31, 1999 and 1998, respectively). All shares held by the
ESOP are considered outstanding for purposes of computing earnings per share.
All earnings per share and share data prior to March 1999 has been adjusted for
the two-for-one stock split discussed in Note 1.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All results for the prior year have been restated to reflect the acquisition of
C.D.Smith Healthcare, Inc. ("C.D. Smith") in July 1999, which was accounted for
as a pooling - of - interests. In addition, the Company's prior year per share
and share data in the financial statements have been restated to reflect the
effect of a two-for-one stock split in March 1999.
RESULTS OF OPERATIONS
Operating revenue for the three months ended December 31, 1999 increased 20%
from the prior year quarter to $2.8 billion. The increase from the prior year
was due to continued strong industry growth, increased demand due to the earlier
and stronger than expected flu season, and a higher level of customer orders in
late December due to Year 2000 concerns. Year 2000 related revenues and other
one-time factors are estimated to account for between 2.5% and 3.5% of the
growth versus the prior year quarter. During the three months ended December 31,
1999, sales to hospitals and managed care facilities increased 28%, sales to
independent drug store customers increased 16% while sales to the chain drug
store customer group increased 2%, as compared with the prior year period. The
increase in hospital and alternate care revenues was primarily due to 43%
revenue growth with the Veterans Administration which accounted for 18% of total
operating revenue in the quarter. During the three months ended December 31,
1999, sales to hospitals and managed care facilities accounted for 50% of total
operating revenue, while sales to independent drug stores accounted for 39% and
sales to chain drug stores accounted for 11% of the total.
Gross profit of $119.9 million in the first quarter of fiscal 2000 increased by
8% as compared to the prior year quarter due to the increase in operating
revenue. As a percentage of operating revenue, the gross profit in the first
quarter of fiscal 2000 was 4.24% as compared to 4.70% in the prior year quarter.
The decline in gross profit percentage in the quarter was primarily due to
changes in the customer mix which included more lower margin hospital and
government hospital business as well as lower inventory appreciation profits
during the quarter as a result of changes in manufacturer pricing patterns due
to Year 2000 considerations. Gross profit may continue to be impacted by price
competition, changes in customer and product mix, and manufacturer pricing
policies.
Selling and administrative expenses and depreciation increased by $2.7 million
or 4% in the first quarter of fiscal 2000 compared with the prior year period,
and as a percentage of operating revenue, were 2.60% in fiscal 2000 and 3.00% in
fiscal 1999. The decrease in expenses as a percentage of operating revenue in
the quarter was due to the increased sales to the hospital and managed care
facilities described above, increased warehouse efficiencies, and cost
reductions related to the Company's fiscal 1998 restructuring efforts.
In connection with its acquisition of C.D.Smith in July 1999, the Company began
the consolidation of C.D. Smith's Chicago, Illinois pharmaceutical distribution
facility into an existing AmeriSource distribution facility and the
consolidation of C.D Smith's pharmaceutical packaging business into
AmeriSource's packaging operation. In addition, the Company began to incorporate
the remaining two C.D. Smith facilities into the centralization process started
in the fourth quarter of fiscal 1998. The Chicago facility was closed in January
2000 and the remaining centralization efforts are expected to be completed by
the end of the third quarter of fiscal 2000. A charge of $12.8 million was
recognized in the fourth quarter of fiscal 1999 related to this effort, and
included a $7.2 million write-down of goodwill and fixed assets related to the
Chicago facility, $3.5 million of contract and lease cancellations and other
costs primarily relating to the expected termination of a noncancelable supply
contract, and $2.1 million of severance for approximately 90 warehouse and
administrative personnel to be terminated as a result of the facility
consolidation and centralization. As of December 31, 1999, seven of the
targeted employees have been terminated.
10
<PAGE>
In the fourth quarter of fiscal 1998, the Company began to centralize its data
processing, accounting, contract administration and purchasing functions,
reorganize its pharmaceutical distribution facilities into five regions, and
consolidate one pharmaceutical distribution facility into another facility. A
charge of $8.3 million was recognized in the fourth quarter of fiscal 1998
related to this effort and included severance of $3.3 million for approximately
350 administrative and warehouse personnel and asset write-downs and lease
cancellation costs of $5.0 million. As of December 31, 1999, 18 of the original
19 targeted distribution facilities have been converted to the centralized
system. The remaining facility was rescheduled to be converted in the third
quarter of fiscal 2000 after the two C.D. Smith facilities are converted. As of
December 31, 1999, approximately 80 of the 350 targeted employees have not yet
been terminated.
Operating income of $45.7 million in the quarter ended December 31, 1999
increased by 15% from the prior year period. The Company's operating margin
decreased to 1.62% in fiscal 2000 from 1.68% in fiscal 1999. The decrease is
due to the reduction in gross margin described above offset in part by the
decrease in selling and administrative expenses and depreciation as a percentage
of operating revenue.
Interest expense of $10.9 million in the first quarter of fiscal 2000 represents
an increase of 8% compared to the prior year period. The increase from the
prior year was primarily due to an increase in average borrowings of 9%. Average
borrowings during the quarter ended December 31, 1999 were $653 million as
compared to average borrowings of $597 million in the prior fiscal year. The
increase in borrowings from the prior year was due to the working capital
requirements of the Company's 20% operating revenue growth in the quarter as
well as safety inventory related to Year 2000 concerns. Increases in market
interest rates from the prior year quarter were offset by step-downs in rates
under the Company's revolving credit facility and lower rates from the Company's
receivable securitization facility entered into in May 1999. In addition, in
July 1999, the Company extinguished higher cost debt facilities assumed in its
acquisition of C.D. Smith. Interest expense-adjustment of common stock put
warrant to fair value of $0.6 million in the prior year quarter did not recur
in the current fiscal year due to the conversion of the underlying warrant to
common stock in the fourth quarter of fiscal 1999.
The income tax provision for the three months ended December 31, 1999 was
computed based on an estimate of the full year effective tax rate.
Net income in the first quarter of fiscal 2000 increased to $21.6 million from
$17.9 million in the prior year quarter and net income per share - assuming
dilution was $0.42, a 20% increase over the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended December 31, 1999, the Company's operating
activities used $160.8 million of cash primarily due to increases in merchandise
inventories of $199.7 million and accounts receivable of $88.6 million offset in
part by an increase in accounts payable, accrued expenses and income taxes of
$98.3 million. Merchandise inventories increased to support the 20% increase in
operating revenue as well as for seasonal buying opportunities in anticipation
of manufacturer price increases and holiday shut-downs. In addition, extra
inventory was on hand as insurance against potential Year 2000 supply problems.
Excluding Year 2000 concerns, merchandise inventories increased $206.4 million
in the prior year quarter for similar reasons. The accounts receivable increase
in the quarter, compared with a $65.6 million increase in the prior year quarter
was primarily a result of the strong sales growth in the current quarter much of
which occurred in mid to late December. Accounts payable, accrued expenses and
income taxes increased significantly more than the $58.1 million increase in the
prior year quarter due to timing issues and certain extended terms provided by
vendors for Year 2000 related purchases. Operating cash uses during the three
months ended December 31, 1999 included $7.7 million in interest payments and
$0.8 million in income tax payments, net of refunds. Additionally, the Company
paid $0.9 million of severance and lease cancellation costs and other during the
quarter related to its fiscal 1999, 1998, and 1997 cost reduction plans.
Severance accruals of $2.7 million and remaining contract and lease obligations
of $3.7 million at December 31, 1999 related to the cost reduction plans are
included in accrued expenses and other.
11
<PAGE>
Capital expenditures for the three months ended December 31, 1999 were $3.9
million and relate principally to investments in information technology and
warehouse automation equipment. Similar expenditures of approximately $14
million to $16 million are expected to occur in the next three quarters of
fiscal 2000.
Cash provided by financing activities during fiscal 2000 represents borrowings
under the Company's revolving credit facility and its receivable securitization
facilities primarily to fund working capital requirements. At December 31, 1999,
borrowings under the Company's $500 million revolving credit facility were
$387.0 million and borrowings under the $325 million Receivables Program were
$325.0 million. The revolving credit facility expires in January 2002 and
provides for interest rates ranging from LIBOR plus 25 basis points to LIBOR
plus 125 basis points based upon certain financial ratios. The receivables
securitization facility was entered into in May 1999 and has a term of three
years and interest is at a rate at which funds are obtained by the financial
institution to fund the receivable (short-term commercial paper rates) plus a
program fee of 38.5 basis points. The receivables securitization facility
represents a financing vehicle utilized by the Company because of the
availability of attractive interest rates relative to other financing sources.
The Company securitizes its trade account and note receivables, which are
generally non-interest bearing in transactions that do not qualify as sales
transactions under SFAS No. 125. In October, 1999 the Company entered into a
short-term supplemental $200 million senior secured revolving credit agreement
with interest at a rate equal to LIBOR plus 137.5 basis points. This agreement
expires March 31, 2000 and is intended to fund seasonal inventory purchases if
necessary.
The Company's primary exposure to market risk consists of changes in interest
rates on borrowings. 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 enters into
interest rate protection agreements from time to time to hedge the exposure to
increasing interest rates with respect to its long-term debt agreements. The
Company provides protection to meet actual exposures and does not speculate in
derivatives. For every $100 million of unhedged variable rate debt, a 75 basis
point increase in interest rates would increase the Company's interest expense
by $0.75 million.
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.
In 1998, the Company sued a former customer which refused to pay invoices, net
of credit memos totaling approximately $21 million for goods sold and delivered.
The former customer filed counterclaims alleging it suffered damages as a result
of certain performance problems affecting the Company. In January 2000, the
Company settled all claims with the former customer. Under the terms of the
confidential settlement agreement, which is not expected to have a material
adverse effect on the Company's financial position or results of operations, the
Company is to receive periodic payments through July 2000.
Environmental laws and regulations may require the Company to take remediation
efforts at the site of a former distribution center. 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 ($3.8 million
at December 31, 1999), 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 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.
12
<PAGE>
YEAR 2000 ISSUE
The Company has not experienced any significant internal or external problems to
date related to its information systems or other assets as a result of the Year
2000 Issue. However, certain problems may have occurred with customers or
suppliers that the Company is not yet aware of that could have an adverse effect
on the Company.
Certain information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 such as changes in interest rates, market
technology, competitive pressures, customer and product mix, supplier pricing
practices, inventory investment buying opportunities, regulatory changes, the
Year 2000 Issue and capital markets could cause actual results to differ
materially from those in forward-looking statements.
Item 3. Quantitative and qualitative disclosures about market risk.
See discussion in Item 2 above.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27--Financial Data Schedules
27.1--December 31, 1999
27.2--December 31, 1998 (restated)
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended December 31, 1999.
14
<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/ GEORGE L. JAMES III
------------------------------------
GEORGE L. JAMES III
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
/s/ MICHAEL D. DICANDILO
------------------------------------
MICHAEL D. DICANDILO
VICE PRESIDENT, CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: February 11, 2000
15
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 56,868
<SECURITIES> 0
<RECEIVABLES> 700,851
<ALLOWANCES> 28,032
<INVENTORY> 1,442,867
<CURRENT-ASSETS> 2,205,867
<PP&E> 133,252
<DEPRECIATION> 68,639
<TOTAL-ASSETS> 2,344,506
<CURRENT-LIABILITIES> 1,426,569
<BONDS> 720,433
0
0
<COMMON> 580
<OTHER-SE> 188,599
<TOTAL-LIABILITY-AND-EQUITY> 2,344,506
<SALES> 2,839,382
<TOTAL-REVENUES> 2,839,382
<CGS> 2,719,455
<TOTAL-COSTS> 2,719,455
<OTHER-EXPENSES> 74,192
<LOSS-PROVISION> 703
<INTEREST-EXPENSE> 10,898
<INCOME-PRETAX> 34,837
<INCOME-TAX> 13,238
<INCOME-CONTINUING> 21,599
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<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 81,021
<SECURITIES> 0
<RECEIVABLES> 571,814
<ALLOWANCES> 25,960
<INVENTORY> 1,160,431
<CURRENT-ASSETS> 1,817,870
<PP&E> 128,226
<DEPRECIATION> 61,088
<TOTAL-ASSETS> 1,991,467
<CURRENT-LIABILITIES> 1,153,609
<BONDS> 719,141
0
0
<COMMON> 585
<OTHER-SE> 97,618
<TOTAL-LIABILITY-AND-EQUITY> 1,991,467
<SALES> 2,374,735
<TOTAL-REVENUES> 2,374,735
<CGS> 2,263,609
<TOTAL-COSTS> 2,263,609
<OTHER-EXPENSES> 71,462
<LOSS-PROVISION> 777
<INTEREST-EXPENSE> 10,694
<INCOME-PRETAX> 28,970
<INCOME-TAX> 11,075
<INCOME-CONTINUING> 17,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> 0.36
<EPS-DILUTED> 0.35
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