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, 2000
COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER
- ----------------------------------- ------------------------------------------- ---------------------------------
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------------------------------- ------------------------------------------- ---------------------------------
33-27835-01 AmeriSource Health Corporation 23-2546940
(a Delaware Corporation)
1300 Morris Drive, Suite 100
Chesterbrook, PA 19087
(610) 727-7000
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, 2000 was: Class A--52,410,318, Class B--8,446;
Class C--159,956.
INDEX
AMERISOURCE HEALTH CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--December 31, 2000 and September 30, 2000
Consolidated statements of operations--Three months ended December 31, 2000 and December 31, 1999
Consolidated statements of cash flows--Three months ended December 31, 2000 and December 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and 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
PART 1. FINANCIAL INFORMATION
ITEM 1. AMERISOURCE HEALTH CORPORATION FINANCIAL STATEMENTS (UNAUDITED)
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------- -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents .......................... $ 162,360 $ 120,818
Accounts receivable, less allowance for doubtful
accounts: 12/00--$37,288; 9/00--$34,506 .......... 722,930 623,961
Merchandise inventories ............................ 1,917,605 1,570,504
Prepaid expenses and other ......................... 4,854 5,336
---------- ----------
Total current assets ............................. 2,807,749 2,320,619
Property and equipment, at cost:
Land ............................................... 3,832 3,832
Buildings and improvements ......................... 37,965 37,478
Machinery, equipment and other....................... 102,616 99,456
---------- ----------
144,413 140,766
Less accumulated depreciation ...................... 77,612 75,804
---------- ----------
66,801 64,962
Other assets, less accumulated amortization:
12/00--$12,161; 9/00--$11,747 81,207 72,986
---------- ----------
$2,955,757 $2,458,567
========== ==========
See notes to consolidated financial statements.
3
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------ -------------
(UNAUDITED)
Current liabilities:
Accounts payable .................................... $1,755,469 $1,584,133
Accrued expenses and other .......................... 43,267 49,398
Accrued income taxes ................................ 21,517 12,284
Deferred income taxes ............................... 107,953 105,654
---------- ----------
Total current liabilities ........................ 1,928,206 1,751,469
Long-term debt:
Revolving credit facility ........................... -- 20,000
Receivables securitization financing ................ 385,000 385,000
Convertible subordinated notes........................ 300,000 --
Other debt .......................................... 8,152 8,217
---------- ----------
693,152 413,217
Other liabilities ..................................... 11,626 11,587
Stockholders' equity:
Common stock, $.01 par value:
Class A (voting and convertible):
100,000,000 shares authorized;
issued 12/00--53,112,485 shares;
9/00--52,660,813 shares .......................... 531 527
Class B (non-voting and convertible):
15,000,000 shares authorized;
issued 5,908,445 shares............................ 59 59
Class C (non-voting and convertible):
2,000,000 shares authorized;
issued 12/00--159,956 shares;
9/00--161,978 shares ............................. 2 2
Capital in excess of par value ...................... 297,828 283,544
Retained earnings..................................... 30,573 4,382
Cost of common stock in treasury .................... (6,220) (6,220)
---------- ----------
322,773 282,294
---------- ----------
$2,955,757 $2,458,567
========== ==========
See notes to consolidated financial statements.
4
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------------
(UNAUDITED)
2000 1999
------------- -------------
Operating revenue...................................................... $3,306,751 $2,828,754
Bulk deliveries to customer warehouses................................. 444 10,628
---------- ----------
Total revenue.......................................................... 3,307,195 2,839,382
Operating cost of goods sold........................................... 3,169,318 2,708,827
Cost of goods sold - bulk deliveries................................... 444 10,628
---------- ----------
Total cost of goods sold............................................... 3,169,762 2,719,455
---------- ----------
Gross profit........................................................... 137,433 119,927
Selling and administrative expenses.................................... 79,645 70,245
Depreciation........................................................... 3,298 3,399
Amortization........................................................... 596 548
---------- ----------
Operating income....................................................... 53,894 45,735
Equity in net loss of unconsolidated affiliate......................... 774 --
Interest expense....................................................... 10,876 10,898
---------- ----------
Income before taxes.................................................... 42,244 34,837
Taxes on income........................................................ 16,053 13,238
---------- ----------
Net income............................................................. $ 26,191 $ 21,599
========== ==========
Net income per share................................................... $.50 $.42
========== ==========
Net income per share - assuming dilution............................... $.49 $.42
========== ==========
See notes to consolidated financial statements.
5
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
------------------------------------
(UNAUDITED)
2000 1999
-------------- ------------
OPERATING ACTIVITIES
Net income ................................................................... $ 26,191 $ 21,599
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation ................................................................ 3,298 3,399
Amortization, including deferred financing costs ............................ 1,228 754
Provision for losses on accounts receivable ................................. 3,682 703
Equity in net loss of unconsolidated affiliate................................ 774 --
(Gain) loss on disposal of property and equipment ........................... (124) 78
Deferred income taxes ....................................................... 3,130 5,156
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (103,620) (88,560)
Merchandise inventories ................................................... (347,101) (199,714)
Prepaid expenses and other ................................................ 186 (819)
Accounts payable, accrued expenses and income taxes ....................... 178,099 98,324
Miscellaneous............................................................... 128 (1,727)
--------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES ..................................... (234,129) (160,807)
INVESTING ACTIVITIES
Capital expenditures ......................................................... (5,443) (3,889)
Collections on ESOP note receivable............................................ -- 37
Proceeds from sales of property and equipment ................................ 265 40
--------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (5,178) (3,812)
FINANCING ACTIVITIES
Long-term debt borrowings .................................................... 852,308 496,086
Long-term debt repayments .................................................... (572,364) (334,349)
Deferred financing costs and other............................................. (8,935) (115)
Exercise of stock options .................................................... 9,840 368
--------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. 280,849 161,990
--------------- ----------------
Increase (decrease) in cash and cash equivalents .............................. 41,542 (2,629)
Cash and cash equivalents at beginning of period .............................. 120,818 59,497
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 162,360 $ 56,868
=============== ================
See notes to consolidated financial statements.
6
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 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, 2000, the results of operations for the three months
ended December 31, 2000 and 1999 and the cash flows for the three months ended
December 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
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, 2000.
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 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 drugstores, 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 drugstore cases to the United States District Court for the
Northern District of Illinois. Plaintiffs sought 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 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 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.
7
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
NOTE 2 - LEGAL MATTERS AND CONTINGENCIES - CONTINUED
After a ten-week trial in the federal class action case, 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' petition for a writ of certiorari to the United States
Supreme Court 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, but are inactive.
On or about October 2, 1997, a group of retail chain drugstores and individual
pharmacies that 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 cases. 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 was served with approximately 120
additional complaints on behalf of approximately 4,000 pharmacies and chain
retailers. Following fact and expert discovery, the Company and the other
wholesale distributors filed a joint motion for summary judgment. On November
6, 2000 the District Court granted the Company's motion for summary judgment as
to the chain and individual pharmacies' claims. Plaintiffs have appealed that
decision to the Seventh Circuit. 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.
The Company is subject to contingencies pursuant to environmental laws and
regulations at one of its former distribution centers that may require the
Company to make remediation efforts. 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, 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.
8
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
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. 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. Additionally, the fiscal 2001 calculation considers the
convertible subordinated notes as if converted and, therefore, the effect of
interest expense related to these notes is added back to net income in
determining income available to common stockholders.
Three months ended
December 31, 2000
------------------------------
2000 1999
------------ -------------
Net income........................................................... $26,191 $21,599
Interest expense - convertible subordinated notes, net of income
taxes............................................................... 559 --
------- -----------
Income available to common stockholders.............................. $26,750 $21,599
======= =======
Weighted average number of shares
of common stock outstanding..................................... 52,354 51,287
Effect of dilutive securities:
Stock options................................................... 993 205
Convertible subordinated notes.................................. 1,231 --
------- -----------
Weighted average number of shares of common stock and
dilutive potential common stock................................. 54,578 51,492
======= =======
NOTE 4 - LONG-TERM DEBT
In December 2000, the Company issued $300.0 million of Convertible
Subordinated Notes due December 1, 2007. The notes have an annual interest rate
of 5%, payable semiannually, and are convertible into Class A 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. On or after December 3, 2004, the
Company has the option to redeem all or a portion of the notes that have not
been previously converted. Net proceeds from the notes of approximately $291.1
million were used to repay existing borrowings, and for working capital and
other general corporate purposes. In connection with the issuance of the notes,
the Company incurred approximately $8.9 million of financing fees which were
deferred and are being amortized over the term of the notes.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating revenue for the three months ended December 31, 2000 increased 17%
from the prior-year quarter to $3.3 billion. During the current-year quarter,
sales to health systems increased 14%, sales to alternate site facilities
increased 74%, sales to independent drugstore customers increased 2% and sales
to the chain drugstore customer group increased 38% compared to the prior-year
period. The increase in health systems revenue was primarily due to revenue
growth with the Veterans Administration and the Novation group purchasing
organization ("GPO"). Revenue from the Veterans Administration grew 20% over the
prior-year quarter and accounted for 18% of total operating revenue in the
three-month period ended December 31, 2000. During calendar 2000 members of the
Novation GPO went through a distributor selection process and as a result of
this process AmeriSource obtained a net gain of approximately $500 million in
annualized revenue. During the first quarter of fiscal 2001, the Company
realized approximately 70% to 80% of the estimated revenue impact and
anticipates realizing 100% of the impact by the end of the second fiscal
quarter. Alternate site revenue increased significantly due to the effect of a
large mail-order customer which was added in the third fiscal quarter of last
year and the addition of a number of new customers since the prior-year quarter.
During the three months ended December 31, 2000, 53% of total operating revenue
was from sales to institutional customers which include health systems (42%) and
alternate site facilities (11%), and the remaining 47% was from retail
customers, including independent community pharmacies (34%) and chain drugstores
(13%). In the same period last year, the customer mix was 51% institutional and
49% retail.
The Company reports as revenue bulk shipments to customer warehouses, whereby
the Company acts as an intermediary in the ordering and subsequent delivery of
pharmaceutical products. After ceasing to do business with the Company's
largest bulk customer, revenue from bulk deliveries decreased to $0.4 million in
the first quarter of fiscal 2001 compared to $10.6 million in the prior-year
quarter. Due to the insignificant service fees generated from these bulk
shipments, fluctuations in volume have no significant impact on operating
margins.
Gross profit of $137.4 million in the first quarter of fiscal 2001 increased by
15% 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 2001 was 4.16% as compared to 4.24% 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 institutional
business than in the prior year and continuing price competition within the
pharmaceutical distribution industry. This decline was offset in part by higher
buy-side profits which were lower in the prior-year quarter due to changes in
manufacturer pricing practices in advance of year 2000. Gross profit may
continue to be impacted by price competition, changes in customer and product
mix, distribution center performance and manufacturer pricing policies. In
addition, the Company's cost of goods sold for interim periods includes a LIFO
provision that is based on the Company's estimated full-year provision. This
provision is subject to changes in inventory quantities, product mix, and
manufacturer pricing practices, which may be impacted by market and other
external influences.
Selling and administrative expenses and depreciation increased by $9.3 million
or 13% in the first quarter of fiscal 2001 compared with the prior year quarter,
and as a percentage of operating revenue, were 2.51% in fiscal 2001 and 2.60% in
fiscal 2000. This improvement reflects the changing customer mix to more
institutional business, which is lower gross margin business, but requires
lower operating expense as a percentage of revenue to service. The improvements
also reflect warehouse efficiencies and cost reductions related to the Company's
centralization initiatives which were completed last year. These factors were
offset in part by an increase in the bad debt provision to $3.7 million for the
first quarter of fiscal 2001 compared to a $.7 million provision in the prior
year quarter. The bad debt increase was primarily due to less than expected
recoveries from a large customer in bankruptcy. While the Company does not
believe that this higher bad debt expense is indicative of a trend, there can be
no assurance that similar events will not occur and result in additional bad
debt expense in the future.
Operating income of $53.9 million in the quarter ended December 31, 2000
increased by 18% from the prior-year period. The Company's operating margin
for the quarter, increased slightly to 1.63% in fiscal 2001 from 1.62% in fiscal
2000.
10
Interest expense, was flat at $10.9 million, reflecting the net impact of lower
average levels of debt, lower borrowing spreads and higher interest rates. In
December 2000, the Company issued $300.0 million of fixed-rate convertible
notes, which had a slight positive effect on interest expense for the quarter.
Average borrowings during the quarter ended December 31, 2000 were $629 million
as compared to average borrowings of $653 million in the prior-year quarter.
Average borrowing rates under the Company's variable-rate debt facilities
increased approximately 69 basis points from the prior-year quarter due to
higher interest rates offset in part by lower borrowing spreads reflecting the
Company's improved financial structure.
The income tax provision for the three months ended December 31, 2000, was
computed based on an estimate of the full year effective tax rate.
Net income in the first quarter of fiscal 2001 increased 21% to $26.2 million
from $21.6 million in the prior-year quarter and net income per share --
assuming dilution increased 17% to $0.49 per share as compared to $0.42 per
share in the prior-year quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended December 31, 2000, the Company's operating activities
used $234.1 million in cash as compared to $160.8 million used in the prior-year
quarter. Cash use from operations during the first quarter of fiscal 2001
resulted from an increase in merchandise inventories of $347.1 million and an
increase in accounts receivable of $103.6 million offset in part by an increase
in accounts payable, accrued expenses and income taxes of $178.1 million.
Merchandise inventories were increased to support the 17% operating revenue
increase, including the new Novation business, anticipated other new accounts,
seasonal needs and year-end buying opportunities in anticipation of manufacturer
price increases. The increase in accounts receivable reflects the increase in
operating revenue. The number of days sales outstanding during the quarter
improved by more than two days over the prior-year quarter. Centralization of
accounts payable processing and timing of vendor payments accounted for a 5%
increase in days payables outstanding over the prior-year quarter. Operating
cash uses during the three months ended December 31, 2000 included $10.3 million
in interest payments and $0.1 million in income tax payments.
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 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 at December 31, 1999 as insurance against potential Year
2000 supply problems. The accounts receivable increase in the quarter ended
December 31, 1999, was primarily a result of the strong sales growth much of
which occurred in mid to late December. Accounts payable, accrued expenses and
income taxes increased due to timing issues and certain extended terms provided
by vendors for Year 2000 related purchases.
Capital expenditures for the three months ended December 31, 2000 were $5.4
million and relate principally to investments in information technology,
warehouse improvements, and warehouse automation equipment. Similar expenditures
of approximately $18 million to $20 million are expected to occur in the next
three quarters of fiscal 2001.
11
Cash provided by financing activities during the first quarter of fiscal 2001
was $280.8 million primarily due to $300.0 million of Convertible Subordinated
Notes due December 1, 2007 which were issued by the Company in December 2000.
The notes have an annual interest rate of 5%, payable semiannually, and are
convertible into Class A 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. Net proceeds from the notes of approximately $291.1 million were used
to repay existing borrowings, and for working capital and other general
corporate purposes. At December 31, 2000, there were no borrowings under the
Company's $500 million revolving credit facility and borrowings under the $400
million receivables program were $385.0 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. Interest rates are based on prevailing market rates
for short-term commercial paper 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 lower 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'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. There were no such agreements outstanding at December 31, 2000.
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.
The Company's operating results 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 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.
The Company is subject to certain contingencies pursuant to environmental laws
and regulations at one of its former distribution centers that may require
remediation efforts. 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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See discussion in Item 2. above.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.16 -- Indenture, dated as of December 12, 2000, among AmeriSource Health
Corporation, as Issuer, AmeriSource Corporation, as Guarantor, and
Bank One Trust Company, N.A., as Trustee for the 5% Convertible
Subordinated Notes due December 15, 2007
4.17 -- Purchase Agreement, dated as of December 6, 2000, among AmeriSource
Health Corporation, the Purchasers, and AmeriSource Corporation, as
Guarantor for the 5% Convertible Subordinated Notes due December 15,
2007
4.18 -- Registration Rights Agreement, dated December 12, 2000, among
AmeriSource Health Corporation, as Issuer, AmeriSource Corporation, as
Guarantor, and the Purchasers for the 5% Convertible Subordinated
Notes due December 15, 2007
27.1 -- Financial Data Schedule for December 31, 2000
(b) Reports on Form 8-K:
Current Report on Form 8-K filed December 4, 2000, attaching press release
announcing AmeriSource Plans to Issue Convertible Subordinated Notes and
disclosing certain information which may be disclosed to prospective
purchasers of convertible subordinated notes but which had not been
previously publicly reported.
Current Report on Form 8-K filed December 7, 2000, attaching press release
announcing AmeriSource Prices $250 Million Convertible Subordinated Note
Offering.
Current Report on Form 8-K filed December 14, 2000, attaching press release
announcing AmeriSource to Issue Additional $50 Million in Convertible
Subordinated Note Offering.
13
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 13, 2001
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