Company Quick10K Filing
Quick10K
Amerisourcebergen
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$81.01 210 $17,026
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-11-07 Earnings, Regulation FD, Exhibits
8-K 2019-09-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-08-01 Earnings, Regulation FD, Exhibits
8-K 2019-06-19 Other Events
8-K 2019-05-17 Other Events
8-K 2019-05-02 Earnings, Regulation FD, Exhibits
8-K 2019-02-28 Officers, Shareholder Vote
8-K 2019-01-31 Earnings, Regulation FD, Exhibits
8-K 2019-01-11 Officers, Exhibits
8-K 2018-11-09 Officers, Exhibits
8-K 2018-11-06 Regulation FD
8-K 2018-11-06 Earnings, Regulation FD, Exhibits
8-K 2018-10-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-05 Regulation FD
8-K 2018-08-02 Earnings, Regulation FD, Exhibits
8-K 2018-04-04 Officers
8-K 2018-04-02 Regulation FD
8-K 2018-03-01 Shareholder Vote
8-K 2018-01-02 M&A, Regulation FD, Exhibits
MCK McKesson 26,207
CAH Cardinal Health 12,441
HLF Herbalife Nutrition 5,252
ALLO Allogene Therapeutics 3,173
NUS NU Skin Enterprises 2,254
AKCA Akcea Therapeutics 1,841
PETQ Petiq 695
STRO Sutro Biopharma 222
ACET Aceto 112
MICR Micron Solutions 7
ABC 2019-06-30
Part I. Financial Information
Note 1. Summary of Significant Accounting Policies
Note 2. Acquisitions and Investments
Note 3. Variable Interest Entity
Note 4. Income Taxes
Note 5. Goodwill and Other Intangible Assets
Note 6. Debt
Note 7. Stockholders' Equity and Earnings per Share
Note 8. Related Party Transactions
Note 9. Employee Severance, Litigation, and Other
Note 10. Legal Matters and Contingencies
Note 11. Litigation Settlements
Note 12. Fair Value of Financial Instruments
Note 13. Business Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311-q32019.htm
EX-31.2 exhibit312-q32019.htm
EX-32 exhibit32-q32019.htm

Amerisourcebergen Earnings 2019-06-30

ABC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED June 30, 2019
 
OR
 
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM ___________ TO___________
 
Commission file number 1-16671
 
AMERISOURCEBERGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
23-3079390
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
 
 
1300 Morris Drive
Chesterbrook,
PA
 
19087-5594
(Address of principal executive offices)
 
(Zip Code)
 (610727-7000
(Registrant’s telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common stock
ABC
New York Stock Exchange
(NYSE)

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  ý  No  o
 
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
 
Large accelerated filer ý  Accelerated filer o  Non-accelerated filer o  Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  ý
 
The number of shares of common stock of AmerisourceBergen Corporation outstanding as of July 30, 2019 was 208,325,501.
 


Table of Contents

AMERISOURCEBERGEN CORPORATION
 
TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

PART I. FINANCIAL INFORMATION 
ITEM I. Financial Statements (Unaudited)
 
AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
June 30,
2019
 
September 30,
2018
 
 
(Unaudited)
 
 
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
2,999,559

 
$
2,492,516

Accounts receivable, less allowances for returns and doubtful accounts:
$1,070,182 as of June 30, 2019 and $1,036,333 as of September 30, 2018
 
11,989,030

 
11,314,226

Inventories (Note 1)
 
11,247,776

 
11,918,508

Right to recover asset (Note 1)
 
1,001,632

 

Prepaid expenses and other
 
163,781

 
169,122

Total current assets
 
27,401,778

 
25,894,372

 
 
 
 
 
Property and equipment, at cost:
 
 

 
 

Land
 
44,249

 
39,875

Buildings and improvements
 
936,006

 
1,086,909

Machinery, equipment, and other
 
2,344,702

 
2,281,124

Total property and equipment
 
3,324,957

 
3,407,908

Less accumulated depreciation
 
(1,557,531
)
 
(1,515,484
)
Property and equipment, net
 
1,767,426

 
1,892,424

 
 
 
 
 
Goodwill
 
6,706,506

 
6,664,272

Other intangible assets
 
2,330,457

 
2,947,828

Other assets
 
272,371

 
270,942

 
 
 
 
 
TOTAL ASSETS
 
$
38,478,538

 
$
37,669,838

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
27,807,403

 
$
26,836,873

Accrued expenses and other
 
815,331

 
881,157

Short-term debt
 
166,137

 
151,657

Total current liabilities
 
28,788,871

 
27,869,687

 
 
 
 
 
Long-term debt
 
4,018,565

 
4,158,532

Long-term financing obligation
 
321,364

 
352,296

Accrued income taxes
 
276,708

 
299,600

Deferred income taxes
 
1,871,549

 
1,829,410

Other liabilities
 
94,284

 
110,352

 
 
 
 
 
Stockholders’ equity:
 
 
 
 

Common stock, $0.01 par value - authorized, issued, and outstanding:
600,000,000 shares, 284,921,792 shares, and 208,379,917 shares as of June 30, 2019, respectively, and 600,000,000 shares, 283,588,463 shares, and 213,217,882 shares as of September 30, 2018, respectively
 
2,849

 
2,836

Additional paid-in capital
 
4,818,333

 
4,715,473

Retained earnings
 
4,186,782

 
3,720,582

Accumulated other comprehensive loss
 
(86,883
)
 
(79,253
)
Treasury stock, at cost: 76,541,875 shares as of June 30, 2019 and 70,370,581 shares as of September 30, 2018
 
(5,931,659
)
 
(5,426,814
)
Total AmerisourceBergen Corporation stockholders' equity
 
2,989,422

 
2,932,824

Noncontrolling interest
 
117,775

 
117,137

Total equity
 
3,107,197

 
3,049,961

 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
38,478,538

 
$
37,669,838

See notes to consolidated financial statements.

2

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
June 30,
 
Nine months ended
June 30,
(in thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
45,239,265

 
$
43,142,309

 
$
133,951,319

 
$
124,642,499

Cost of goods sold
 
44,008,026

 
41,930,968

 
129,997,744

 
121,062,823

Gross profit
 
1,231,239

 
1,211,341

 
3,953,575

 
3,579,676

Operating expenses:
 
 
 
 

 
 
 
 

Distribution, selling, and administrative
 
656,943

 
626,548

 
1,941,564

 
1,802,496

Depreciation
 
71,716

 
72,447

 
222,297

 
210,072

Amortization
 
35,880

 
47,598

 
131,565

 
134,497

Employee severance, litigation, and other
 
60,006

 
75,553

 
156,067

 
143,023

Impairment of long-lived assets (Note 5)
 

 

 
570,000

 

Operating income
 
406,694

 
389,195

 
932,082

 
1,289,588

Other (income) loss
 
(342
)
 
(3,158
)
 
(11,739
)
 
26,289

Interest expense, net
 
35,921

 
47,151

 
121,366

 
131,652

Loss on consolidation of equity investments
 

 

 

 
42,328

Loss on early retirement of debt
 

 

 

 
23,766

Income before income taxes
 
371,115

 
345,202

 
822,455

 
1,065,553

Income tax expense (benefit)
 
69,113

 
67,327

 
100,627

 
(356,335
)
Net income
 
302,002

 
277,875

 
721,828

 
1,421,888

Net (income) loss attributable to noncontrolling interest
 
(43
)
 
(2,066
)
 
918

 
3,229

Net income attributable to AmerisourceBergen    Corporation
 
$
301,959

 
$
275,809

 
$
722,746

 
$
1,425,117

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.44

 
$
1.26

 
$
3.45

 
$
6.52

Diluted
 
$
1.43

 
$
1.25

 
$
3.42

 
$
6.44

 
 
 
 


 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 

 
 

Basic
 
209,705

 
218,569

 
209,484

 
218,698

Diluted
 
211,161

 
220,760

 
211,151

 
221,297

 
 
 
 
 
 
 
 
 
Cash dividends declared per share of common stock
 
$
0.40

 
$
0.38

 
$
1.20

 
$
1.14

 See notes to consolidated financial statements.


3

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) 
 
 
Three months ended
June 30,
 
Nine months ended
June 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
Net income
 
$
302,002

 
$
277,875

 
$
721,828

 
$
1,421,888

Other comprehensive (loss) income
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(1,158
)
 
(38,620
)
 
(5,118
)
 
(32,195
)
Loss on consolidation of equity investments
 

 

 

 
45,941

Other
 
33

 
106

 
146

 
84

Total other comprehensive (loss) income
 
(1,125
)
 
(38,514
)
 
(4,972
)
 
13,830

Total comprehensive income
 
300,877

 
239,361

 
716,856

 
1,435,718

Comprehensive (income) loss attributable to     noncontrolling interest
 
(659
)
 
(2,066
)
 
(1,740
)
 
3,229

Comprehensive income attributable to AmerisourceBergen Corporation
 
$
300,218

 
$
237,295

 
$
715,116

 
$
1,438,947

See notes to consolidated financial statements.


4

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

(in thousands, except per share data)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Noncontrolling Interest
 
Total
March 31, 2019
 
$
2,846

 
$
4,790,507

 
$
3,969,459

 
$
(85,142
)
 
$
(5,756,455
)
 
$
117,116

 
$
3,038,331

Net income
 

 

 
301,959

 

 

 
43

 
302,002

Other comprehensive (loss) income
 

 

 

 
(1,741
)
 

 
616

 
(1,125
)
Cash dividends, $0.40 per share
 

 

 
(84,636
)
 

 

 

 
(84,636
)
Exercises of stock options
 
3

 
17,267

 

 

 

 

 
17,270

Share-based compensation expense
 

 
10,562

 

 

 

 

 
10,562

Purchases of common stock
 

 

 

 

 
(174,912
)
 

 
(174,912
)
Employee tax withholdings related to    restricted share vesting
 

 

 

 

 
(292
)
 

 
(292
)
Other
 

 
(3
)
 

 

 

 

 
(3
)
June 30, 2019
 
$
2,849

 
$
4,818,333

 
$
4,186,782

 
$
(86,883
)
 
$
(5,931,659
)
 
$
117,775

 
$
3,107,197


(in thousands, except per share data)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Noncontrolling Interest
 
Total
March 31, 2018
 
$
2,831

 
$
4,674,295

 
$
3,376,993

 
$
(43,506
)
 
$
(4,823,063
)
 
$
176,046

 
$
3,363,596

Net income
 

 

 
275,809

 

 

 
2,066

 
277,875

Other comprehensive loss
 

 

 

 
(38,514
)
 

 

 
(38,514
)
Cash dividends, $0.38 per share
 

 

 
(83,431
)
 

 

 

 
(83,431
)
Exercises of stock options
 
3

 
12,270

 

 

 

 

 
12,273

Share-based compensation expense
 

 
9,396

 

 

 

 

 
9,396

Purchases of common stock
 

 

 

 

 
(265,236
)
 

 
(265,236
)
Employee tax withholdings related to    restricted share vesting
 

 

 

 

 
(26
)
 

 
(26
)
Other
 
(1
)
 
1

 

 

 

 
(1
)
 
(1
)
June 30, 2018
 
$
2,833

 
$
4,695,962

 
$
3,569,371

 
$
(82,020
)
 
$
(5,088,325
)
 
$
178,111

 
$
3,275,932
























See notes to consolidated financial statements.

5

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

(in thousands, except per share data)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Noncontrolling Interest
 
Total
September 30, 2018
 
$
2,836

 
$
4,715,473

 
$
3,720,582

 
$
(79,253
)
 
$
(5,426,814
)
 
$
117,137

 
$
3,049,961

Adoption of ASC 606 (Note 1)
 

 

 
(1,482
)
 

 

 
(1,102
)
 
(2,584
)
Net income (loss)
 

 

 
722,746

 

 

 
(918
)
 
721,828

Other comprehensive (loss) income
 

 

 

 
(7,630
)
 

 
2,658

 
(4,972
)
Cash dividends, $1.20 per share
 

 

 
(255,064
)
 

 

 

 
(255,064
)
Exercises of stock options
 
11

 
54,849

 

 

 

 

 
54,860

Share-based compensation expense
 

 
48,431

 

 

 

 

 
48,431

Purchases of common stock
 

 

 

 

 
(498,886
)
 

 
(498,886
)
Employee tax withholdings related to    restricted share vesting
 

 

 

 

 
(5,959
)
 

 
(5,959
)
Other
 
2

 
(420
)
 

 

 

 

 
(418
)
June 30, 2019
 
$
2,849

 
$
4,818,333

 
$
4,186,782

 
$
(86,883
)
 
$
(5,931,659
)
 
$
117,775

 
$
3,107,197


(in thousands, except per share data)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Noncontrolling Interest
 
Total
September 30, 2017
 
$
2,806

 
$
4,517,635

 
$
2,395,218

 
$
(95,850
)
 
$
(4,755,348
)
 
$

 
$
2,064,461

Consolidation of variable interest entity
 

 

 

 

 

 
181,341

 
181,341

Net income (loss)
 

 

 
1,425,117

 

 

 
(3,229
)
 
1,421,888

Other comprehensive income
 

 

 

 
13,830

 

 

 
13,830

Cash dividends, $1.14 per share
 

 

 
(250,964
)
 

 

 

 
(250,964
)
Exercises of stock options
 
25

 
127,484

 

 

 

 

 
127,509

Share-based compensation expense
 

 
53,604

 

 

 

 

 
53,604

Common stock purchases for    employee stock purchase plan
 

 
(202
)
 

 

 

 

 
(202
)
Purchases of common stock
 

 

 

 

 
(325,444
)
 

 
(325,444
)
Employee tax withholdings related to    restricted share vesting
 

 

 

 

 
(7,533
)
 

 
(7,533
)
Other
 
2

 
(2,559
)
 

 

 

 
(1
)
 
(2,558
)
June 30, 2018
 
$
2,833

 
$
4,695,962

 
$
3,569,371

 
$
(82,020
)
 
$
(5,088,325
)
 
$
178,111

 
$
3,275,932














See notes to consolidated financial statements.

6

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 

Nine months ended
June 30,
(in thousands)

2019

2018
OPERATING ACTIVITIES

 



Net income
 
$
721,828

 
$
1,421,888

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation, including amounts charged to cost of goods sold

246,290


233,508

Amortization, including amounts charged to interest expense

137,835


149,144

Provision for doubtful accounts

15,045


5,492

Provision (benefit) for deferred income taxes

44,681


(747,367
)
Share-based compensation

48,431


53,604

LIFO credit
 
(79,747
)
 
(16,142
)
Impairment of long-lived assets
 
570,000

 

Gain on sale of an equity investment
 
(13,692
)
 

Impairment of non-customer note receivable
 

 
30,000

Loss on consolidation of equity investments
 

 
42,328

Loss on early retirement of debt
 

 
23,766

Other

(11,603
)

(15,559
)
Changes in operating assets and liabilities, excluding the effects of acquisitions:






Accounts receivable

(672,742
)

(1,107,631
)
Inventories

(280,148
)

(51,724
)
Prepaid expenses and other assets

(5,265
)

(79,115
)
Accounts payable

964,667


463,939

Income taxes payable
 
(32,589
)
 
269,464

Accrued expenses and other liabilities
 
18,210

 
70,448

NET CASH PROVIDED BY OPERATING ACTIVITIES

1,671,201


746,043

INVESTING ACTIVITIES

 


 

Capital expenditures

(230,767
)

(248,359
)
Cost of acquired companies, net of cash acquired

(64,044
)

(783,262
)
Other

(2,222
)

5,749

NET CASH USED IN INVESTING ACTIVITIES

(297,033
)

(1,025,872
)
FINANCING ACTIVITIES

 


 

Senior notes and other loan borrowings

479,365


1,243,242

Senior notes and other loan repayments
 
(480,718
)
 
(561,419
)
Borrowings under revolving and securitization credit facilities

607,815


24,523,375

Repayments under revolving and securitization credit facilities

(736,955
)

(24,506,039
)
Payment of premium on early retirement of debt
 

 
(22,348
)
Purchases of common stock

(522,778
)

(300,444
)
Exercises of stock options

54,860


127,509

Cash dividends on common stock

(255,064
)

(250,964
)
Tax withholdings related to restricted share vesting
 
(5,959
)
 
(7,533
)
Other

(7,691
)

(11,737
)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

(867,125
)

233,642

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

507,043


(46,187
)
Cash and cash equivalents at beginning of period

2,492,516


2,435,115

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
2,999,559


$
2,388,928

 See notes to consolidated financial statements.

7

Table of Contents

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.  Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying financial statements present the consolidated financial position, results of operations, and cash flows of AmerisourceBergen Corporation and its subsidiaries, including less than wholly-owned subsidiaries in which AmerisourceBergen Corporation has a controlling financial interest (the "Company"), as of the dates and for the periods indicated.  All intercompany accounts and transactions have been eliminated in consolidation.
 
The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals, except as otherwise disclosed herein) considered necessary to present fairly the financial position as of June 30, 2019 and the results of operations and cash flows for the interim periods ended June 30, 2019 and 2018 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP, 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, 2018.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimated amounts.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605 - "Revenue Recognition" and most industry-specific guidance throughout the Codification. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard's core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 was originally scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the FASB deferred the effective date of ASU 2014-09 by one year.

In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations" ("ASU 2016-08"), which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing" ("ASU 2016-10"), which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. The Company was required to adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09, collectively ASC 606.

The Company adopted ASC 606 as of October 1, 2018 on a modified retrospective basis for all open contracts as of October 1, 2018. The adoption had an immaterial impact on the Company’s October 1, 2018 retained earnings and will not have a material impact on the Company's revenues, results of operations, or cash flows. The Company did not record any material contract assets, contract liabilities, or deferred contract costs in its Consolidated Balance Sheet upon adoption.

The Company's revenues are primarily generated from the distribution of pharmaceutical products. The Company also generates revenues from global commercialization services, which include clinical trial support, post-approval and commercialization support, and global specialty transportation and logistics for the biopharmaceutical industry. See Note 13 for the Company's disaggregated revenue.

The Company recognizes revenue related to the distribution of products at a point in time when title and control transfers to customers and there is no further obligation to provide services related to such products. Service revenue is recognized over the period that services are provided to the customer. The Company is generally the principal in a transaction; therefore, revenue is

8


primarily recorded on a gross basis. When the Company is the principal in a transaction, it has determined that it controls the ability to direct the use of the product or service prior to the transfer to a customer, it is primarily responsible for fulfilling the promise to provide the product or service to its customer, it has discretion in establishing pricing, and it controls the relationship with the customer. Revenue is recognized at the amount of consideration expected to be received, which is generally based on a purchase order, and is net of estimated sales returns and allowances, other customer incentives, and sales tax.

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. The Company records an accrual for estimated customer sales returns at the time of sale to the customer based upon historical return trends. As of June 30, 2019 and September 30, 2018, the Company’s accrual for estimated customer sales returns was $1,001.6 million and $988.8 million, respectively. In fiscal 2019, due to the adoption of ASC 606, the Company records an asset for the right to recover products from its customers in Right to Recover Asset on its Consolidated Balance Sheet. The Company's asset for the right to recover products from its customers was included in Inventories on its Consolidated Balance Sheet as of September 30, 2018 and for all prior periods.

The Company elected the practical expedient to expense costs to obtain a contract when incurred when the amortization period would have been one year or less. Additionally, the Company elected the practical expedients to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed, and (iii) for contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

Recently Issued Accounting Pronouncements Not Yet Adopted

 In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 aims to increase transparency and comparability across organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet as well as key information to be disclosed regarding lease arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Entities are permitted to adopt the standard early, and a modified retrospective application is required. The Company anticipates that the adoption of this new accounting standard will have a material impact on the Company's Consolidated Balance Sheets. The Company continues to evaluate the impact of adopting this new accounting standard, and, therefore, cannot reasonably estimate the impact on the results of operations or cash flows at this time. The Company continues the process of implementing the adoption of this standard, including the implementation of new lease accounting software, policies, processes, and controls. The Company will adopt this standard in the first quarter of fiscal 2020.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Entities are permitted to adopt the standard early in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this new accounting guidance.

As of June 30, 2019, there were no other recently-issued accounting standards that may have a material impact on the Company’s financial position, results of operations, or cash flows upon their adoption.
 
Note 2Acquisitions and Investments

NEVSCO

In December 2017, the Company acquired Northeast Veterinary Supply Company ("NEVSCO") for $70.0 million. NEVSCO was an independent, regional distributor of veterinary pharmaceuticals and medical supplies serving primarily the northeast region of the United States and strengthens MWI Animal Health's ("MWI") support of independent veterinary practices and provides even greater value and care to current and future animal health customers. NEVSCO is included within the MWI operating segment.


9


The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by $30.4 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable and accrued expenses acquired was $8.5 million, $6.7 million, and $2.9 million, respectively. The fair value of the intangible assets acquired of $29.8 million primarily consisted of customer relationships, which the Company is amortizing over its estimated useful life of 15 years. Goodwill and intangible assets resulting from the acquisition are deductible for income tax purposes.

H.D. Smith

In January 2018, the Company acquired H.D. Smith Holding Company ("H.D. Smith") for $815.0 million. The Company funded the acquisition through the issuance of new long-term debt. H.D. Smith was the largest independent pharmaceutical wholesaler in the United States and provides full-line distribution of brand, generic, and specialty drugs, as well as high-value services and solutions for manufacturers and healthcare providers. H.D. Smith's customers include retail pharmacies, specialty pharmacies, long-term care facilities, institutional/hospital systems, and independent physicians and clinics. The acquisition strengthens the Company's core business, expands and enhances its strategic scale in pharmaceutical distribution, and expands the Company's support for independent community pharmacies. H.D. Smith is included within the Pharmaceutical Distribution Services reportable segment.

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by $499.9 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable and accrued expenses acquired was $163.1 million, $350.7 million, and $366.1 million, respectively. The fair value of the intangible assets acquired of $167.8 million consisted of customer relationships of $156.6 million and a tradename of $11.2 million. The Company is amortizing the fair value of the customer relationships and the tradename over their estimated useful lives of 12 years and 2 years, respectively. The Company established a deferred tax liability of $60.6 million primarily in connection with the intangible assets acquired. Goodwill and intangible assets resulting from the acquisition are not deductible for income tax purposes.

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Profarma and Specialty Joint Venture

As of September 30, 2017, the Company held a noncontrolling ownership interest in Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), a leading pharmaceutical wholesaler in Brazil, and an ownership interest in a joint venture with Profarma to provide specialty distribution and services to the Brazilian marketplace (the "specialty joint venture"). The Company had accounted for these interests as equity method investments, which were reported in Other Assets on the Company's Consolidated Balance Sheets. In January 2018, the Company invested an additional $62.5 million in Profarma and an additional $15.6 million in the specialty joint venture to increase its ownership interests to 38.2% and 64.5%, respectively. In connection with the additional investment in Profarma, the Company received substantial governance rights, thereby requiring it to begin consolidating the operating results of Profarma as of March 31, 2018 (see Note 3). The Company also began to consolidate the operating results of the specialty joint venture as of March 31, 2018 due to its majority ownership interest. In September 2018, the Company made an additional investment of $23.6 million in the specialty joint venture to increase its ownership interest to 89.9%. Profarma and the specialty joint venture are included within the Pharmaceutical Distribution Services reportable segment and Other, respectively.

The fair value of Profarma, including the noncontrolling interest, was determined based upon an agreed-upon stock price and was allocated to the underlying assets and liabilities consolidated based upon their fair values at the time of the January 2018 investment. The fair value of Profarma upon obtaining control exceeded the fair value of the net tangible and intangible assets consolidated by $142.0 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, accounts payable and accrued expenses was $160.1 million, $190.5 million, and $167.7 million, respectively. The Company consolidated short-term debt and long-term debt of $209.9 million and $12.4 million, respectively, cash of $150.8 million, and recorded a noncontrolling interest of $168.0 million. The estimated fair value of the intangible assets consolidated of $84.6 million consisted of customer relationships of $25.9 million and a tradename of $58.7 million. The Company is amortizing the customer relationships over its estimated useful life of 15 years and the tradenames over their estimated useful lives of between 15 years and 25 years. The Company established a deferred tax liability of $50.1 million primarily in connection with the intangible assets that were recognized. Goodwill and intangible assets resulting from the consolidation are not deductible for income tax purposes.

The fair value of the specialty joint venture was determined based upon the cost of the incremental ownership percentage acquired from the January 2018 investment and was allocated to the underlying assets and liabilities consolidated based upon their fair values at the time of the January 2018 investment. The fair value of the specialty joint venture exceeded the fair value of the net tangible and intangible assets consolidated by $3.5 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, accounts payable and accrued expenses was $65.0 million, $29.1 million, and $54.3 million, respectively. The Company consolidated short-term debt and cash of $32.7 million and $28.9 million, respectively. The estimated fair value of the intangible assets consolidated of $4.6 million is being amortized over its estimated useful life of 15 years. Goodwill and intangible assets resulting from the consolidation are not deductible for income tax purposes.

In connection with the incremental January 2018 Brazil investments, the Company adjusted the carrying values of its previously held equity interests in Profarma and the specialty joint venture to equal their fair values, which were determined to be $103.1 million and $31.2 million, respectively. These represent Level 2 nonrecurring fair value measurements. The adjustments resulted in a pretax loss of $42.3 million in the nine months ended June 30, 2018 and were comprised of foreign currency translation adjustments from Accumulated Other Comprehensive Loss of $45.9 million, a $12.4 million gain on the remeasurement of Profarma's previously held equity interest, and an $8.8 million loss on the remeasurement of the specialty joint venture's previously held equity interest.

Note 3. Variable Interest Entity

As discussed in Note 2, the Company made an additional investment in Profarma in January 2018. In connection with this investment, the Company obtained substantial governance rights, allowing it to direct the activities that significantly impact Profarma’s economic performance. As such, the Company consolidated the operating results of Profarma in its consolidated financial statements as of and for the periods ended June 30, 2019 and September 30, 2018. The Company is not obligated to provide future financial support to Profarma.


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The following assets and liabilities of Profarma are included in the Company's Consolidated Balance Sheets:
(in thousands)
 
June 30,
2019
 
September 30,
2018
Cash and cash equivalents
 
$
26,676

 
$
26,801

Accounts receivables, net
 
152,696

 
144,646

Inventories
 
185,342

 
168,931

Prepaid expenses and other
 
64,339

 
61,924

Property and equipment, net
 
33,444

 
32,667

Goodwill
 
82,309

 
82,309

Other intangible assets
 
76,389

 
80,974

Other long-term assets
 
8,952

 
8,912

Total assets
 
$
630,147

 
$
607,164

 
 
 
 
 
Accounts payable
 
$
163,224

 
$
150,102

Accrued expenses and other
 
52,260

 
37,195

Short-term debt
 
132,459

 
115,461

Long-term debt
 
46,453

 
39,704

Deferred income taxes
 
42,847

 
46,137

Other long-term liabilities
 
6,291

 
31,988

Total liabilities
 
$
443,534

 
$
420,587



Profarma's assets can only be used to settle its obligations, and its creditors do not have recourse to the general credit of the Company.

Note 4Income Taxes

Tax Cuts and Jobs Act
    
On December 22, 2017, the Tax Cuts and Jobs Act (the "2017 Tax Act") was signed into law. The 2017 Tax Act includes a broad range of tax reform provisions affecting businesses, including lower corporate tax rates, changes in business deductions, and international tax provisions. In response to the 2017 Tax Act, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides that the measurement period is complete when a company's accounting is complete, and that measurement period shall not extend beyond one year from the enactment date.

The Company completed the accounting for the effects of the 2017 Tax Act in the fiscal quarter ended December 31, 2018 and recognized an income tax benefit of $37.0 million related to a decrease in its tax on historical foreign earnings and profits through December 31, 2017 (the "transition tax"). This measurement period adjustment favorably impacted the Company's effective tax rate by 4.5% for the nine months ended June 30, 2019. The Company expects to pay $182.6 million related to the transition tax, which is net of overpayments and tax credits, over a six-year period commencing in January 2021. There were no adjustments recorded to deferred income taxes related to the 2017 Tax Act during the three months ended December 31, 2018.

Other Information    

The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. As of June 30, 2019, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, of $112.5 million ($85.0 million, net of federal benefit). If recognized, $66.8 million of these tax benefits would have reduced income tax expense and the effective tax rate. Included in this amount is $17.4 million of interest and penalties, which the Company records in Income Tax Expense (Benefit) in the Company's Consolidated Statements of Operations. In the nine months ended June 30, 2019, unrecognized tax benefits decreased by $0.4 million. Over the next 12 months, it is reasonably possible that state tax audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $4.6 million.

The Company's effective tax rates were 18.6% and 12.2% for the three and nine months ended June 30, 2019, respectively. The Company's effective tax rates were 19.5% and (33.4)% for the three and nine months ended June 30, 2018, respectively. The effective tax rate in the nine months ended June 30, 2019 was primarily impacted by the $570.0 million impairment of long-lived

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assets (see Note 5), which changed the mix of domestic and international income. The effective tax rate in the nine months ended June 30, 2019 was also impacted by the $37.0 million decrease to the Company's transition tax related to the 2017 Tax Act. The effective tax rate in the nine months ended June 30, 2018 was primarily impacted by the effect of the 2017 Tax Act. The Company's effective tax rates for all periods reported herein were favorably impacted by the Company's international businesses in Switzerland and Ireland, which have lower income tax rates, and the benefit from stock option exercises and restricted stock vesting.
 
Note 5.  Goodwill and Other Intangible Assets
 
The following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the nine months ended June 30, 2019:
(in thousands)
 
Pharmaceutical
Distribution
Services
 
Other
 
Total
Goodwill as of September 30, 2018
 
$
4,852,775

 
$
1,811,497

 
$
6,664,272

Goodwill recognized in connection with acquisitions
 

 
43,245

 
43,245

Foreign currency translation
 

 
(1,011
)
 
(1,011
)
Goodwill as of June 30, 2019
 
$
4,852,775

 
$
1,853,731

 
$
6,706,506



The following is a summary of other intangible assets:
 
 
June 30, 2019
 
September 30, 2018
(in thousands)
 
Weighted Average Remaining Useful Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount