<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 2000
<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 March 31, 2000 was: Class A--51,203,024, Class B--8,446;
Class C--165,346.
<PAGE>
INDEX
AMERISOURCE HEALTH CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--March 31, 2000 and September 30, 1999
Consolidated statements of operations--Three months ended March 31,
2000 and March 31, 1999
Consolidated statements of operations--Six months ended March 31,
2000 and March 31, 1999
Consolidated statements of cash flows--Six months ended March 31,
2000 and March 31, 1999
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations
Item 3. Quantitative and qualitative disclosures about market risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. AmeriSource Health Corporation Financial Statements (Unaudited)
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (dollars in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 49,240 $ 59,497
Accounts receivable less allowance for doubtful
accounts: 3/00--$28,981, 9/99--$27,583............. 642,485 612,520
Merchandise inventories............................. 1,272,795 1,243,153
Prepaid expenses and other.......................... 4,550 4,836
---------- ----------
Total current assets.............................. 1,969,070 1,920,006
Property and equipment, at cost:
Land................................................ 3,987 4,125
Buildings and improvements.......................... 38,603 38,855
Machinery, equipment and other...................... 91,633 91,760
---------- ----------
134,223 134,740
Less accumulated depreciation....................... 70,823 70,356
---------- ----------
63,400 64,384
---------- ----------
Other assets, less accumulated amortization:
3/00--$10,098; 9/99--$8,967.......................... 69,226 76,209
---------- ----------
$2,101,696 $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>
March 31, September 30,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $1,254,829 $1,175,619
Accrued expenses and other......................... 46,247 50,329
Accrued income taxes............................... 13,923 10,854
Deferred income taxes.............................. 94,527 90,481
---------- ----------
Total current liabilities........................ 1,409,526 1,327,283
Long-term debt:
Revolving credit facility.......................... 136,046 225,227
Receivables securitization financing............... 325,000 325,000
Other debt......................................... 8,352 8,478
---------- ----------
469,398 558,705
Other liabilities.................................... 8,980 8,334
Stockholders' equity
Common stock, $.01 par value:
Class A (voting and convertible):
100,000,000 shares authorized;
issued 3/00--51,905,191 shares;
9/99--51,737,893 shares.......................... 519 517
Class B (non-voting and convertible):
15,000,000 shares authorized;
issued 3/00--5,908,445 shares;
9/99--5,908,445 shares........................... 59 59
Class C (non-voting and convertible):
2,000,000 shares authorized;
issued 3/00--165,346 shares;
9/99--165,936 shares............................. 2 2
Capital in excess of par value..................... 268,166 266,737
Accumulated deficit................................ (48,734) (94,632)
Cost of common stock in treasury................... (6,220) (6,220)
Note receivable from ESOP.......................... -- (186)
---------- ----------
213,792 166,277
---------- ----------
$2,101,696 $2,060,599
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
(unaudited)
2000 1999
---------- ----------
<S> <C> <C>
Operating revenue ..................................................... $2,832,041 $2,372,872
Bulk deliveries to customer warehouses ................................ 10,162 12,299
--------- ---------
Total revenue ......................................................... 2,842,203 2,385,171
Operating cost of goods sold .......................................... 2,700,635 2,249,886
Cost of goods sold--bulk deliveries ................................... 10,162 12,299
--------- ---------
Total cost of goods sold .............................................. 2,710,797 2,262,185
--------- ---------
Gross profit .......................................................... 131,406 122,986
Selling and administrative expenses ................................... 76,323 72,238
Depreciation .......................................................... 3,577 3,778
Amortization .......................................................... 392 490
--------- ---------
Operating income ...................................................... 51,114 46,480
Interest expense ...................................................... 11,922 11,582
Interest expense--adjustment of common stock put warrant to fair value -- 1,223
--------- ---------
Income before taxes ................................................... 39,192 33,675
Taxes on income ....................................................... 14,893 13,456
--------- ---------
Net income ............................................................ $ 24,299 $ 20,219
========= =========
Net income per share .................................................. $ .47 $ .40
========= =========
Net income per share--assuming dilution ............................... $ .47 $ .39
========= =========
</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>
Six months ended
March 31,
---------------------
(unaudited)
2000 1999
---------- ----------
<S> <C> <C>
Operating revenue ..................................................... $5,660,795 $4,735,520
Bulk deliveries to customer warehouses ................................ 20,790 24,386
--------- ---------
Total revenue ......................................................... 5,681,585 4,759,906
Operating cost of goods sold .......................................... 5,409,462 4,501,408
Cost of goods sold--bulk deliveries ................................... 20,790 24,386
--------- ---------
Total cost of goods sold .............................................. 5,430,252 4,525,794
--------- ---------
Gross profit .......................................................... 251,333 234,112
Selling and administrative expenses ................................... 146,568 139,411
Depreciation .......................................................... 6,976 7,575
Amortization .......................................................... 940 982
--------- ---------
Operating income ...................................................... 96,849 86,144
Interest expense ...................................................... 22,820 21,666
Interest expense--adjustment of common stock put warrant to fair value -- 1,833
--------- ---------
Income before taxes ................................................... 74,029 62,645
Taxes on income ....................................................... 28,131 24,531
--------- ---------
Net income ............................................................ $ 45,898 $ 38,114
========= =========
Net income per share .................................................. $ .89 $ .76
========= =========
Net income per share--assuming dilution ............................... $ .89 $ .74
========= =========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
March 31,
--------------------
(unaudited)
2000 1999
-------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 45,898 $ 38,114
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 6,976 7,575
Amortization, including deferred financing costs....... 1,807 2,533
Adjustment of common stock put warrant to fair value... -- 1,833
Provision for losses on accounts receivable............ 2,615 2,630
Loss on disposal of property and equipment............. 71 33
Deferred income taxes.................................. 10,938 9,701
Changes in operating assets and liabilities:
Restricted cash....................................... -- 1,436
Accounts receivable................................... (31,421) (32,062)
Merchandise inventories............................... (29,642) (69,690)
Prepaid expenses and other............................ (537) (779)
Accounts payable, accrued expenses and income taxes... 78,970 47,671
Miscellaneous.......................................... (788) 576
-------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 84,887 9,571
INVESTING ACTIVITIES
Capital expenditures.................................... (7,685) (7,444)
Purchase of equity interest in a business............... -- (3,570)
Collections on ESOP note receivable..................... 186 73
Proceeds from sales of property and equipment........... 1,256 103
-------- ----------
NET CASH USED IN INVESTING ACTIVITIES................. (6,243) (10,838)
FINANCING ACTIVITIES
Long-term debt borrowings............................... 714,167 1,153,846
Long-term debt repayments............................... (803,457) (1,089,506)
Deferred financing costs and other...................... (115) --
Purchase of treasury stock.............................. -- (72)
Exercise of stock options............................... 504 7,683
-------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES... (88,901) 71,951
-------- ----------
(Decrease) increase in cash and cash equivalents......... (10,257) 70,684
Cash and cash equivalents at beginning of period......... 59,497 48,511
-------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 49,240 $ 119,195
======== ==========
</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
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 March 31, 2000, the results of operations for the
three and six months ended March 31, 2000 and 1999 and the cash flows for the
six months ended March 31, 2000 and 1999 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.
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.
8
<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
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 defendants 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 and that petition was denied.
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.
9
<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 March 31, 2000), 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 (51,370,441
and 50,554,523 for the three months ended March 31, 2000 and 1999, respectively;
and 51,328,764 and 50,443,944 for the six months ended March 31, 2000 and 1999,
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 the warrant (361,533 and
1,019,122 for the three months ended March 31, 2000 and 1999, respectively; and
283,177 and 850,668 for the six months ended March 31, 2000 and 1999,
respectively). All shares held by the ESOP are considered outstanding for the
purposes of computing earnings per share.
10
<PAGE>
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, accounted for as a
pooling-of-interests.
Results of Operations
Operating revenue for the three months ended March 31, 2000 increased 19% from
the prior year quarter to $2.8 billion. For the six months ended March 31, 2000,
operating revenue was $5.7 billion, an increase of 20% from the prior year
period. During the three and six months ended March 31, 2000, respectively,
sales to hospitals and managed care facilities increased 31% and 29%, sales to
independent drug store customers increased 9% and 12%, and sales to the chain
drug store customer group increased 13% and 7% compared to the respective prior
year period. The increase in hospital and managed care revenue was primarily due
to 48% revenue growth with the Veterans Administration, which accounted for 18%
of total operating revenue in the six-month period ended March 31, 2000. The
increase in independent and chain revenue was consistent with overall industry
growth. During the six months ended March 31, 2000, sales to hospitals and
managed care facilities accounted for 50% of total operating revenue, while
sales to independent drug stores accounted for 38% and sales to chain drug
stores accounted for 12% of the total.
Gross profit of $131.4 million in the second quarter of fiscal 2000 increased by
7% 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 second
quarter of fiscal 2000 was 4.64% as compared to 5.18% in the prior year quarter.
For the six months ended March 31, 2000, the gross profit percentage was 4.44%
as compared to 4.94% in the prior year period. The decline in gross profit
percentage in the quarter and for the six-month period was primarily due to
changes in the customer mix which included more lower margin hospital and
government hospital business than in the prior year. 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 $3.9 million
or 5% in the second quarter of fiscal 2000 compared with the prior year period,
and as a percentage of operating revenue, were 2.82% in fiscal 2000 and 3.20% in
fiscal 1999. For the first six months of fiscal 2000, selling and administrative
expenses and depreciation as a percentage of operating revenue were 2.71% as
compared to 3.10% in the prior year period.
The increase in operating expense during the quarter was due the increase in
operating revenue. The decrease in expenses as a percentage of operating revenue
in the quarter and six months 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 St. Joseph, Missouri and Boston, Massachusetts pharmaceutical
distribution facilities were converted to the centralized system at the end of
March 2000 and April 2000, respectively. 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 March 31, 2000, 64 of those employees
have been terminated.
11
<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 March 31, 2000, 18 of the original 19
targeted distribution facilities have been converted to the centralized system.
The remaining facility is scheduled to be converted in June 2000. As of March
31, 2000, approximately 30 of the 350 targeted employees have not yet been
terminated.
Operating income of $51.1 million in the quarter ended March 31, 2000 increased
by 10% from the prior year period. The Company's operating margin for the
quarter decreased to 1.80% in fiscal 2000 from 1.96% in fiscal 1999. For the six
months ended March 31, 2000, the operating margin was 1.71% compared to 1.82% in
the prior year period. 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 $11.9 million in the second quarter of fiscal 2000
represents an increase of 3% compared to the prior year quarter. The increase
from the prior year was primarily due to an increase in market interest rates of
approximately 90 basis points offset in part by a decline in average borrowings
of 5% and the extinguishment of higher cost debt facilities in July 1999 assumed
in the acquisition of C.D. Smith. Average borrowings during the quarter ended
March 31, 2000 were $706 million as compared to average borrowings of $747
million in the prior fiscal year. The decrease in average borrowings during the
quarter from the prior year was due to a reduction in inventory turns as a
result of the Company's centralization of purchasing as well as an increase in
days payable outstanding due to extended terms received by certain manufacturers
during the period as well as the timing of purchases. For the six-month period
ended March 31, 2000, interest expense increased 5% compared to the prior year
primarily due to increases in market interest rates as average borrowings for
the six-month period ended March 31, 2000, increased 1% to $679 million as
additional inventory maintained for Year 2000 concerns was offset by the
increased efficiencies. Interest expense-adjustment of common stock put warrant
to fair value of $1.2 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 and six months ended March 31, 2000, was
computed based on an estimate of the full year effective tax rate.
Net income in the second quarter of fiscal 2000 increased 20% over the prior
year quarter to $24.3 million from $20.2 million in the prior year and net
income per share -- assuming dilution increased 21% from the prior year quarter
to $0.47 per share as compared to $0.39 per share in the prior year. Net income
of $45.9 million for the six months ended March 31, 2000 represents a 20%
increase as compared to the prior year period.
12
<PAGE>
Liquidity and Capital Resources
During the six-month period ended March 31, 2000, the Company's operating
activities generated $84.9 million of cash as in increase in accounts payable,
accrued expenses and income taxes of $79.0 million offset increases in
merchandise inventories of $29.6 million and accounts receivable of $31.4
million to supplement net income of $45.9 million. Timing of vendor payments and
certain extended terms from various manufacturer promotions accounted for the 8%
increase in days payables outstanding during the period. Accounts receivable
increased 5% during the six-month period ended March 31, 2000, which is less
than the comparable 20% increase in operating revenue due to quicker payment
terms from the fast growing hospital customer class during the period.
Merchandise inventories increased 2% during the six-month period ending March
31,2000 as safety inventory held for Year 2000 concerns was liquidated and
replenishment inventory turns increased compared to the prior year as a result
of the Company's centralization efforts. During the six-month period ended March
31, 1999, the Company generated cash from operations of $9.6 million as net
income of $38.1 million and increases in accounts payable, accrued expenses and
income taxes of $47.7 million were offset in part by increases in merchandise
inventories of $69.7 million. Operating cash uses during the six- months ended
March 31, 2000, included $22.4 million in interest payments and $14.4 million in
income tax payments. Additionally, the Company paid $2.4 million of severance
and lease cancellation costs and other during the six month period ended March
31, 2000 related to its fiscal 1999, 1998, and 1997 cost reduction plans.
Severance accruals of $1.6 million and remaining contract and lease obligations
of $3.3 million at March 31, 2000 related to the cost reduction plans are
included in accrued expenses and other.
Capital expenditures for the six months ended March 31, 2000 were $7.7 million
and relate principally to investments in information technology and warehouse
automation equipment. Similar expenditures of approximately $10 million to $12
million are expected to occur in the next six months of fiscal 2000.
In April 2000, the Company and four other healthcare distributors announced that
they have agreed in principle to form an Internet-based company that would be an
independent, commercially neutral healthcare product information exchange
focused on streamlining the processes involved in identifying, purchasing and
distributing healthcare products and services. The companies expect to complete
a definitive joint venture agreement by the end of July and to begin
implementation of the exchange by the end of the year. The Company's ownership
interest and capital requirements have not yet been determined.
Cash provided by financing activities during fiscal 2000 represents borrowings
under the Company's revolving credit facility and its receivable securitization
facility primarily to fund working capital requirements. At March 31, 2000,
borrowings under the Company's $500 million revolving credit facility were
$136.0 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 receivables (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. The Company is currently in the process of
expanding the receivables securitization facility to provide an additional $75
million of borrowing capacity and expects to close this transaction by the end
of its third fiscal quarter.
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 annual interest
expense by $0.75 million.
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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 pay 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.
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 March 31, 2000), 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.
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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 -- March 31, 2000
27.2 -- March 31, 1999 (restated)
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended March 31, 2000.
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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: August 9, 2000
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