AmerisourceBergen 2005 Annual Report Download - page 26

AmerisourceBergen Corporation 2005
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or Bankers’ Acceptance Stamping Fee Spread at October 3, 2005). The
Company will pay quarterly facility fees to maintain the availability
under the Canadian Credit Facility at specific rates based on the
Company’s debt rating (0.20% at October 3, 2005). The Company may
choose to repay or reduce its commitments under the Canadian Credit
Facility at any time. The Canadian Credit Facility contains restrictions
on, among other things, additional indebtedness, distributions and
dividends to stockholders, investments and capital expenditures.
Additional covenants require compliance with financial tests, including
leverage and minimum earnings to fixed charges ratios.
During the fiscal year ended September 30, 2005, the Company
paid $100 million to redeem the Bergen 71⁄4%Senior Notes due June 1,
2005, upon their maturity.
In December 2000, the Company issued $300.0 million of 5%
convertible subordinated notes due December 1, 2007. The notes had
an annual interest rate of 5%, payable semiannually, and were convert-
ible into common stock of the Company at $52.97 per share at any
time before their maturity or their prior redemption or repurchase by
the Company. In December 2004, the Company announced that it
would redeem its 5% convertible subordinated notes at a redemption
price of 102.143% of the principal amount of the notes plus accrued
interest through the redemption date of January 3, 2005. The note-
holders were given the option to accept cash or convert the notes to
common stock of the Company. The notes were convertible into
5,663,730 shares ofcommon stock, which translated to a conversion
ratio of 18.8791 shares of common stock for each $1,000 principal
amount of notes. Through January 3, 2005, the redemption date, the
Companyissued 5,663,144 shares ofcommon stock from treasury to
noteholders to redeem substantially all of the notes and paid $31,000
to redeem the remaining notes. During fiscal 2005, the Company
subsequently repurchased 5.7 million shares of common stock,
substantially equivalent to the number of common stock shares
issued in connection with the conversion of the 5% notes.
The Company’s operating results have generated cash flow, which,
together with availability under its debt agreements and credit terms
from suppliers, has provided sufficient capital resources to finance
working capital and cash operating requirements, and to fund capital
expenditures, acquisitions, repayment of debt, the payment of interest
on outstanding debt and repurchases of shares of the Company’s
common stock. Cash flow from operations for the fiscal year ended
September 30, 2005 was $1.53 billion primarily due to the significant
decline in merchandise inventories and an increase in accounts payable
during the fiscal year ended September 30, 2005. The significant
decline in merchandise inventories during the fiscal year ended
September 30, 2005 reflected the impact of the business model transi-
tion, including increasing compliance under current inventory manage-
ment and fee-for-service agreements. We do not anticipate the
Company will experience similar amounts of working capital reduction
in future years as the Company has signed fee-for-service agreements
with a substantial majority of manufacturers as of September 30, 2005.
The Company expects cash flow from operations in fiscal 2006 to be
between $500 million and $600 million.
The Company’s primary ongoing cash requirements will be to
finance working capital, fund the payment of interest on debt, finance
merger integration initiatives and fund capital expenditures and
routine growth and expansion through new business opportunities.
Significant cash flows from operations primarily resulting from the
business model transition, as discussed above, has resulted in a near
record low debt-to-capital ratio of 18.2% and a net debt to total
capital ratio of less than zero. The Company has been and continues
to actively evaluate its alternatives to deploy its excess capital. For
example,the Company plans to repurchase $750 million of its common
stock and recently announced that it will double its 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 Trent provides the Company a solid foundation to
expand its pharmaceutical distribution capability into the Canadian
marketplace. The Company expects to pursue further strategic acquisi-
tions. Future cash flows from operations and borrowings are expected
to be sufficient to fund the Company’s ongoing cash requirements.
Following is a summary of the Company’s contractual obligations for future principal and interest payments on its debt, minimum rental
payments on its noncancelable operating leases and minimum payments on its other commitments at September 30, 2005 (in thousands):
Payments Due by Period
Total Within 1 year 1-3 years 4-5 years After 5 years
Debt, includinginterest payments $1,410,053 $109,621 $104,807 $103,750 $1,091,875
Operating Leases 239,803 64,259 86,839 49,012 39,693
Other Commitments 1,272,067 47,268 218,284 262,558 743,957
Total $2,921,923 $221,148 $409,930 $415,320 $1,875,525
The$55 million Blanco revolvingcredit facility, which expires in
April 2006, is included in the “Within 1 year” column in the above
repayment table. However, this borrowing is not classified in the
current portion of long-term debt on the consolidated balance sheet
at September 30, 2005 because the Company has the ability and intent
to refinance it on a long-term basis.
In December 2004, the Company entered into a distribution
agreement with a Canadian influenza vaccine manufacturer to
distribute product through March 31, 2015. The agreement includes
acommitmentto purchase at least 12 million doses per year of the
influenza vaccineprovided thevaccineis approved andavailable 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
theCanadian manufacturer will receive FDA approval by the 2006/2007
influenza season; however, FDA approval may be received earlier. If the
initial year of the purchase commitment begins in fiscal 2007, then
the Company anticipates its purchase commitment for that year will
approximate $66 million. The Company anticipates its total purchase
commitment (assuming the commitment commences in fiscal 2007)
will be approximately $1.1 billion. The influenza vaccine commitment
is included in Other Commitments in the above table.
As of September 30, 2005, theCompanyhas $7.1 million of
remainingcommitments relatingto theconstruction of one of its new
distribution facilities. This facility commitment is included in Other
Commitments in the above table.