AmerisourceBergen 2005 Annual Report Download

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2005 Annual Report
Focusing on Our Strengths

Table of contents

  • Page 1
    2005 Annual Report Focusing on Our Strengths

  • Page 2
    ... and pharmaceutical consulting services, and physician education. With more than $54 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA and employs more than 13,000 people. page 32 page 1 Letter to Shareholders R. David Yost, AmerisourceBergen Chief Executive Officer...

  • Page 3
    ... transition in how our Company is compensated by brand-name manufacturers for our distribution services. The good news is that we are now largely through this business model transition, and our strengths in distribution and related services in the pharmaceutical supply channel, and positive industry...

  • Page 4
    We are focused on the Pharmaceutical Supply Channel. R. David Yost, Chief Executive Officer

  • Page 5
    ... 2005, we opened an additional new distribution center in Kansas City, MO and expect to complete the sixth and final one in Bethlehem, PA in late spring of 2006. Installation of our new warehouse management system is already driving productivity improvements ahead of our expectations. Our packaging...

  • Page 6
    ...strong leadership skills. I look forward to working with him. AmerisourceBergen is well-positioned in an industry with strong growth trends. Our future is bright. Thank you for your interest and continuing commitment to AmerisourceBergen. R. David Yost Chief Executive Officer December 23, 2005 -4-

  • Page 7
    The change to Fee-For-Service is largely complete. Our pharmacy automation technology enables pharmacists to spend Over $70 billion in branded drugs may lose patent protection in the next 5 years. more time counseling patients without sacrificing safety and efficiency. -5-

  • Page 8
    Our disciplined use of cash has yielded tremendous financial flexibility. Our Specialty Group had revenues of over $7 billion in fiscal year 2005. Our state-of-the-art distribution centers and Customer Care philosophy drive exceptional service levels. -6-

  • Page 9
    ...new value-added programs for its pharmaceutical manufacturer and healthcare provider customers, and to leverage its scale and financial flexibility in order to grow earnings faster than revenues. In this growing market, AmerisourceBergen focuses on services linked to the safe and secure distribution...

  • Page 10
    ... that join Good Neighbor Pharmacy receive national advertising support, merchandising assistance, and access to a managed care network that rivals that of the largest retail drug store chains. Being a member of Good Neighbor Pharmacy gives independent pharmacies access services show them how...

  • Page 11
    ...Cross. The Company and its associates contributed $1.2 million to Our customer mix and ability to drive compliance are key strengths in our relationships with generic manufacturers. $400 million in its distribution network over the last 2 fiscal years. AmerisourceBergen has invested nearly -9-

  • Page 12
    Our Packaging Group is testing numerous RFID and product serialization initiatives to further enhance safety. AmerisourceBergen offers third party payers the nation's third largest network of pharmacy providers, with over 4,100 member pharmacies. Over the last two fiscal years, the Company has ...

  • Page 13
    ... the overall drug market, driven by new product introductions, especially in oncology. Our market leading oncology business is the cornerstone of our specialty distribution business, focusing on distributing products and related services to physician offices. The specialty drug pipeline is rich...

  • Page 14
    ... Company 1*,3,4 Corporate Officers R. David Yost Chief Executive Officer Kurt J. Hilzinger President and Chief Operating Officer Michael D. DiCandilo Executive Vice President and Chief Financial Officer Steven H. Collis Thomas H. Murphy Senior Vice President and Chief Information Officer William...

  • Page 15
    ... more closely to net income. ABDC also provides scalable automated pharmacy dispensing equipment, medication and supply dispensing cabinets and supply Pharmaceutical Distribution The Pharmaceutical Distribution reportable segment includes the operations of AmerisourceBergen Drug Corporation ("ABDC...

  • Page 16
    ... Corporation 2005 management software to a variety of retail and institutional healthcare providers. ABSG, through a number of individual operating businesses, provides distribution and other services, including group purchasing services, to physicians and alternate care providers who specialize...

  • Page 17
    ... 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," the Company records bulk deliveries to customer warehouses as gross revenues. Due to the insignificant service fees generated from bulk deliveries, fluctuations in volume have no significant impact on operating margins. However...

  • Page 18
    ...of customer recoveries. In 2001, the Company developed an integration plan to consolidate its distribution network and eliminate duplicative administrative functions. During the fiscal year ended September 30, 2005, the Company decided to outsource a significant portion of its information technology...

  • Page 19
    ... market growth of the specialty pharmaceutical distribution business and the market growth of ABDC. During the fiscal year ended September 30, 2005, 57% of operating revenue was from sales to institutional customers and 43% was from sales to retail customers; this compared to a customer mix in the...

  • Page 20
    ... in the Pharmaceutical Distribution segment, offset slightly by a decline in operating revenue in the PharMerica segment. The Company's customer sales return policy generally allows customers to return products only if the products can be resold at full value or returned to suppliers for full credit...

  • Page 21
    ... for national accounts. Additionally, improvements in the financial strength of the nursing home industry had a favorable impact on PharMerica's bad debt expense. In 2001, the Company developed an integration plan to consolidate its distribution network and eliminate duplicative administrative...

  • Page 22
    ... fiscal 2004 primarily due to the above market rate growth of the specialty pharmaceutical business and higher revenues from customers engaged in the mail order sale of pharmaceuticals, which was offset in part by the discontinuance of servicing the VA during the fiscal year ended September 30, 2004...

  • Page 23
    ... amounts represent the elimination of the Pharmaceutical Distribution segment's sales to PharMerica. ABDC is the principal supplier of pharmaceuticals to PharMerica. they arise. The Company writes off balances against the reserves when collectibility is deemed remote. Each business unit performs...

  • Page 24
    ... customer relationships, non-compete agreements, patents and software technology, will continue to be amortized over their useful lives. In order to test goodwill and intangible assets with indefinite lives under SFAS No. 142, a determination of the fair value of the Company's reporting units...

  • Page 25
    ...30, 2005). The Company pays quarterly facility fees to maintain the availability under the Senior Revolving Credit Facility at specific rates based on the Company's debt rating. In April 2005, the rate payable to maintain the availability of the $700 million commitment was reduced to 20 basis points...

  • Page 26
    ... quarterly cash dividend. Additionally, on October 5, 2005, the Company acquired Trent Drugs (Wholesale) Ltd ("Trent"), one of the largest national pharmaceutical distributors in Canada, for a purchase price of $81.7 million, which included the assumption of debt of $41.3 million. The acquisition of...

  • Page 27
    ... due to the strong revenue growth of AmerisourceBergen Specialty Group, which generally has a higher receivable investment than the core distribution business. Average days sales outstanding for the PharMerica segment improved to 39.3 days in fiscal 2002 from 43.5 days in the prior year as a result...

  • Page 28
    ..., the Company acquired US Bioservices Corporation ("US Bio"), a national pharmaceutical products and services provider focused on the management of high-cost complex therapies and reimbursement support for a total base purchase price of $160.2 million, which included the repayment of US Bio debt of...

  • Page 29
    ... $100 million of unhedged variable-rate debt outstanding, a 45 basis-point increase in interest rates (one-tenth of the average variable rate at September 30, 2005) would increase the Company's annual interest expense by $0.45 million. Recently Issued Financial Accounting Standards In December 2004...

  • Page 30
    AmerisourceBergen Corporation 2005 Consolidated Balance Sheets (in thousands, except share and per share data) September 30, 2005 2004 Assets Current assets: Cash and cash equivalents Accounts receivable, less allowances for returns and doubtful accounts: 2005 - $420,538; 2004 - $464,354 ...

  • Page 31
    ... deliveries to customer warehouses Total revenue Cost of goods sold Gross profit Operating expenses: Distribution, selling and administrative Depreciation Amortization Facility consolidations, employee severance and other Impairment charge Operating income Other (income) loss Interest expense, net...

  • Page 32
    ... pension liability, net of tax of $5,246 Total comprehensive income Cash dividends declared, $0.10 per share Exercise of stock options Tax benefit from exercise of stock options Stock issued for acquisitions Restricted shares earned by directors Net shares purchased pursuant to stock purchase plan...

  • Page 33
    ... Loss on early retirement of debt Loss on sales of discontinued operations Cumulative effect of change in accounting, net of tax Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: Accounts receivable Merchandise inventories Prepaid expenses and other...

  • Page 34
    ... Summary of Significant Accounting Policies AmerisourceBergen Corporation (the "Company") is a national pharmaceutical services company providing drug distribution and related healthcare services and solutions to its customers. The Company also provides pharmaceuticals to long-term care and workers...

  • Page 35
    ..., relating to the purchase or distribution of inventory, as a reduction to cost of goods sold, in accordance with Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer for Certain Consideration Received from a Vendor." The Company considers these fees to represent product...

  • Page 36
    ... 30, 2005 and 2004, the Company's accrual for customer sales returns was $280.4 million and $316.8 million, respectively. The Company reports the gross dollar amount of bulk deliveries to customer warehouses in revenue and the related costs in cost of goods sold. Bulk delivery transactions are...

  • Page 37
    ... cash. In fiscal 2004, the Company paid a final post-closing working capital adjustment of $0.3 million. In January 2003, the Company acquired US Bioservices Corporation ("US Bio"), a national pharmaceutical products and services provider focused on the management of high-cost complex therapies and...

  • Page 38
    ... of the Company's Pharmaceutical Distribution reportable segment, for $11.0 million. The Bridge sale closed in July 2005 and is subject to a working capital adjustment. The Company recorded an estimated loss on sale of the business of $4.6 million, net of tax. In December 2004, the Company sold Rita...

  • Page 39
    ... million, $4.0 million and $14.4 million, respectively, related to the exercise of employee stock options were recorded as additional paid-in capital. As of September 30, 2005, the Company had $31.2 million of potential tax benefits from federal net operating loss carryforwards expiring in 16 to 17...

  • Page 40
    ...30, 2005). The Company pays quarterly facility fees to maintain the availability under the Senior Revolving Credit Facility at specific rates based on the Company's debt rating. In April 2005, the rate payable to maintain the availability of the $700 million commitment was reduced to 20 basis points...

  • Page 41
    ... terminated the AmeriSource and Bergen securitization facilities. In connection with the Securitization Facility, AmerisourceBergen Drug Corporation ("ABDC") sells on a revolving basis certain accounts receivable to AmeriSource Receivables Financial Corporation, a wholly-owned special purpose entity...

  • Page 42
    AmerisourceBergen Corporation 2005 The Blue Hill Securitization Program previously provided a total borrowing capacity of $450 million. In connection with the Blue Hill Securitization Program, ABDC sold on a revolving basis certain accounts receivable to a 100%-owned special purpose entity ("Blue ...

  • Page 43
    ... noncontributory defined benefit pension plans consisting of a salaried plan, a union plan and a supplemental executive retirement plan. For each employee, the benefits are based on years of service and average compensation. Pension costs, which are computed using the projected unit credit cost...

  • Page 44
    ... year) in computing the benefit obligation were as follows: 2005 Discount rate Rate of increase in compensation levels Expected long-term rate of return on assets 5.25% 4.00% 8.00% 2004 6.25% 4.00% 8.00% The expected rate of return for the plans represents the average rate of return to be earned on...

  • Page 45
    ... Plans The Company provides medical benefits to certain retirees, principally former employees of Bergen. Employees became eligible for such postretirement benefits after meeting certain age and years of service criteria. During fiscal 2002, the plans were closed to new participants and benefits...

  • Page 46
    ... by the Company that vest in full after five years of credited service. PharMerica sponsors the PharMerica, Inc. 401(k) Profit Sharing Plan, which is a defined contribution 401(k) plan, that is generally available to its employees with 90 days of service and excludes those employees covered under...

  • Page 47
    ...a committee of the board of directors. Options generally vest over four years and expire in ten years. The Company also has six non-employee director stock option plans that provide for the granting of nonqualified stock options to acquire shares of Common Stock to non-employee directors at the fair...

  • Page 48
    ... the vaccine is approved and available for distribution in the United States by the Food and Drug Administration ("FDA"). The Company will be required to purchase the annual doses at market prices, as adjusted for inflation and other factors. We expect the Canadian manufacturer will receive FDA...

  • Page 49
    .... New York Attorney General Subpoena In April 2005, the Company received a subpoena from the Office of the Attorney General of the State of New York (the "NYAG") requesting documents and responses to interrogatories concerning the manner and degree to which the Company purchases pharmaceuticals from...

  • Page 50
    ... and chain retail pharmacies, mail order facilities, physicians, clinics and other alternate site facilities, and skilled nursing and assisted living centers. ABSG, through a number of individual operating businesses, provides distribution and other services, including group purchasing services, to...

  • Page 51
    AmerisourceBergen Corporation 2005 The following tables present reportable segment information for the periods indicated (dollars in thousands): Revenue Fiscal year ended September 30, Pharmaceutical Distribution PharMerica Intersegment eliminations Operating revenue Bulk deliveries to customer ...

  • Page 52
    AmerisourceBergen Corporation 2005 Note 16. Quarterly Financial Information (Unaudited) (in thousands, except per share amounts) Fiscal year ended September 30, 2005 First Quarter (a)(b) Operating revenue Bulk deliveries to customer warehouses Total revenue Gross profit (d) Distribution, selling ...

  • Page 53
    AmerisourceBergen Corporation 2005 Note 16. Quarterly Financial Information (Unaudited) continued (in thousands, except per share amounts) Fiscal year ended September 30, 2004 First Quarter (a) Operating revenue (c) Bulk deliveries to customer warehouses Total revenue Gross profit (d) Distribution...

  • Page 54
    AmerisourceBergen Corporation 2005 The Company's historical earnings per share for the fiscal years ended September 30, 2005, 2004 and 2003 on a pro forma basis, assuming the stock dividend had occurred as of October 1, 2002, would be as follows (unaudited): Fiscal year ended September 30, ...

  • Page 55
    ... 2005. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AmerisourceBergen Corporation's internal control over financial reporting as of September 30, 2005, based on criteria established in Internal Control...

  • Page 56
    ... 2005 New York Stock Exchange Annual CEO Certification for 2005 As required by Section 303A.12(a) of the new York Stock Exchange (the "NYSE") Listed Company Manual, AmerisourceBergen's Chief Executive Officer, R. David Yost, certified to the NYSE within 30 days after AmerisourceBergen's 2005 Annual...

  • Page 57
    ... or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: December 9, 2005 R. David Yost, Chief Executive Officer Michael D. DiCandilo, Executive Vice President and Chief Financial Officer -55-

  • Page 58
    ..., Chief Executive Officer December 9, 2005 Michael D. DiCandilo, Executive Vice President and Chief Financial Officer December 9, 2005 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock is traded on the New York...

  • Page 59
    ... the Company's senior notes and in the credit agreement for the Company's senior credit facility. Through June 30, 2005, the Company had purchased $94.2 million of its common stock under this program for a weighted average price of $65.50. In August 2005, the Company's board of directors authorized...

  • Page 60
    AmerisourceBergen Corporation 2005 Selected Financial Data On August 29, 2001, AmeriSource and Bergen merged to form the Company. The merger was accounted for as an acquisition of Bergen under the purchase method of accounting. Accordingly, the financial data for the fiscal year ended September 30...

  • Page 61
    ...Mail: The Bank of New York Shareholder Relations Department P.O. Box 11258 Church Street Station New York, NY 10286 Additional Information Financial documents, such as our Annual Report on Form 10-K, quarterly reports on Form 10-Q, the Company's Code of Ethics and Business Conduct and other reports...

  • Page 62
    AmerisourceBergen Corporation P.O. Box 959 Valley Forge, Pennsylvania 19482 610-727-7000 www.amerisourcebergen.com