AmerisourceBergen 2005 Annual Report Download - page 48

AmerisourceBergen Corporation 2005
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Employee Stock Purchase Plan
In February 2002, the stockholders approved the adoption of the
AmerisourceBergen 2002 Employee Stock Purchase Plan, under which
up to an aggregate of 4,000,000 shares of Common Stock may be sold
to eligible employees (generally defined as employees with at least
30 days of service with the Company). Under this plan, the participants
may elect to have the Company withhold up to 25% of base salary to
purchase shares of the Company’s Common Stock at a price equal to
85% of the fair market value of the stock on the first or last business
day of each six-month purchase period, whichever is lower. Each
participant is limited to $25,000 of purchases during each calendar
year. During the fiscal years ended September 30, 2005 and 2004, the
Company acquired 104,309 shares and 115,281 shares, respectively,
from the open market for issuance to participants in this plan. As
of September 30, 2005, the Company has withheld $1.3 million
from eligible employees for the purchase of additional shares of
Common Stock.
Note 10. Leases and Other Commitments
AtSeptember 30, 2005, future minimum payments totaling
$239.8 million under noncancelable operating leases with remaining
terms of more than one fiscal year were due as follows: 2006 — $64.3
million; 2007 — $48.4 million; 2008 — $38.4 million; 2009 — $28.6
million; 2010 — $20.4 million; and thereafter — $39.7 million. In the
normal course of business, operating leases are generally renewed or
replaced by other leases. Certain operating leases include escalation
clauses. Total rental expense was $63.4 million in fiscal 2005, $63.2
million in fiscal 2004 and$61.2 million in fiscal 2003.
Duringthefiscal year ended September 30, 2005, the Company
entered into three sale-leaseback agreements with a financial institu-
tion relatingto certain equipmentlocated at two ofthe Company’s
new distribution facilities and certain equipment located at one of
the Company’s existing distribution facilities that was significantly
expanded.The net book value ofall oftheequipment under the three
leases totaled $35.3 million and was sold for $36.7 million. During
fiscal 2004, the Company entered into a sale-leaseback agreement with
afinancial institution relating to certain equipment located at one of
theCompany’s new distribution facilities. The net book value of the
equipment, totaling $15.1 million was sold for $15.6 million. The
Company deferred the gains associated with these sale-leaseback
agreements, which are being amortized as a reduction of lease expense
over the respective operating lease terms.
In December 2004, theCompany entered into a distribution
agreementwith a Canadian influenza vaccine manufacturer to
distribute product through March 31, 2015. The agreement includes
acommitment to purchase at least 12 million doses per year of the
influenza vaccineprovided the vaccine is approved and available for
distribution in the United States by the Food and Drug Administration
(“FDA”). TheCompanywill 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 approval by the 2006/2007
influenza season; however, FDA approval may be received earlier. If the
initial year ofthepurchase commitmentbeginsin 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.
Duringthefiscal year ended September 30, 2005, the Company
decided to outsource a significant portion of its information technology
activities and entered into a ten-year commitment, effective July 1,
2005, with IBM Global Services, which will assume responsibility for
performing the outsourced information technology activities
following the completion of certain transition matters. The minimum
commitment under the outsourcing arrangement is approximately
$200 million (excluding the above-mentioned transition costs) over
aten-year period; however, the Company believes it will likely spend
between $300 million and $400 million under the outsourcing
arrangement to maintain and improve its information technology
infrastructure during that period.
Note 11. Facility Consolidations, Employee
Severance and Other
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 activities as part of the integration plan. The
Company’s plan, as revised, is to have a distribution facility network
numbering in the mid-20’s within the next two years and to have
successfully completed the outsourcing of such information technology
activities by the end of fiscal 2006. The plan includes building six new
facilities (four of which were operational as of September 30, 2005)
and closing facilities (twenty-three of which have been closed through
September 30, 2005). The fifth facility opened in October 2005 and
the sixth facility is scheduled to open during fiscal 2006, thereby
reducing the Company’s total number of distribution facilities to 28
by theend of fiscal 2006. During fiscal 2005 and 2004, the Company
closed six and four distribution facilities, respectively. The Company
anticipates closingsix additional facilities in fiscal 2006.
In September 2001, theCompanyannounced plans to close
seven distribution facilities in fiscal 2002, consisting of six former
AmeriSource facilities andoneformer Bergen facility. A charge of
$10.9 million was recognized in the fourth quarter of fiscal 2001
related to the AmeriSource facilities, and included $6.2 million of
severance for approximately 260 warehouse andadministrative
personnel to be terminated, $2.3 million in lease and contract
cancellations, and $2.4 million for the write-down of assets related to
thefacilities to be closed. During the fiscal year ended September 30,
2003, severance accruals of $1.8 million recorded in September 2001
werereversed into income because certain employees who were
expected to be severed either voluntarily left the Company or were
retained in other positions within the Company.
During the fiscal year ended September 30, 2002, the Company
announced further integration initiatives relating to the closure of
Bergen’s repackaging facility andtheelimination of certain Bergen
administrative functions, including the closure of a related office
facility. The cost of these initiatives of approximately $19.2 million,
which included $15.8 million of severance for approximately 310
employees to be terminated, $1.6 million for lease cancellation
costs,and$1.8 million for thewrite-down of assets related to the
facilities to be closed, resulted in additional goodwill being recorded
during fiscal 2002. At September 30, 2003, all of the employees had
been terminated.
Duringthefiscal year ended September 30, 2003, theCompany
closed six distribution facilities and eliminated certain administrative
and operational functions (“the fiscal 2003 initiatives”). During the
fiscal years ended September 30, 2004 and 2003, the Company
recorded $0.9 million and $10.3 million, respectively, of employee
severance costs relatingto the fiscal 2003 initiatives. Approximately
780 employees received termination notices as a result of the fiscal
2003 initiatives, of which substantially all have been terminated.
During the fiscal year ended September 30, 2004, the Company