CENCORA, INC. Overview
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein.
We are one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. We deliver innovative programs and services designed to increase the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health. We are organized geographically based upon the products and services we provide to our customers. At the beginning of fiscal 2022, we re-aligned our reporting structure under two reportable segments:U.S. Healthcare Solutions and International Healthcare Solutions.U.S. Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma Distribuidora de Produtos Farmacêuticos S.A.("Profarma")),MWI Animal Health ("MWI"),Xcenda ,Lash Group , and ICS 3PL.International Healthcare Solutions consists of Alliance Healthcare,World Courier , Innomar, Profarma, and Profarma Specialty (until it was divested inJune 2022 ). Profarma had previously been included in the Pharmaceutical Distribution Services reportable segment. Our previously reported segment results have been revised to conform to our re-aligned reporting structure.
TheU.S. Healthcare Solutions reportable segment distributes a comprehensive offering of brand-name, specialty brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, and other customers. TheU.S. Healthcare Solutions reportable segment also provides pharmaceutical distribution (including plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty pharmaceutical products) and additional services to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics. Additionally, theU.S. Healthcare Solutions reportable segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers. TheU.S. Healthcare Solutions reportable segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers. It also provides a full suite of integrated manufacturer services that ranges from clinical trial support to product post-approval and commercialization support. Additionally, it delivers packaging solutions to institutional and retail healthcare providers. Through its animal health business, theU.S. Healthcare Solutions reportable segment sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets. It also offers demand-creating sales force services to manufacturers.
International Healthcare Solutions Segment
The International Healthcare Solutions reportable segment consists of businesses that focus on international pharmaceutical wholesale and related service operations and global commercialization services.The International Healthcare Solutions reportable segment distributes pharmaceuticals, other healthcare products, and related services to healthcare providers, including pharmacies, doctors, health centers and hospitals primarily inEurope . It also is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. InCanada , the business drives innovative partnerships with manufacturers, providers, and pharmacies to improve product access and efficiency throughout the healthcare supply chain. 31
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Table of ContentsRecent Development PharmaLex Acquisition InSeptember 2022 , we entered into a definitive agreement to acquirePharmaLex Holding GmbH ("PharmaLex"), a leading provider of specialized services for the life sciences industry, for €1.28 billion in cash, subject to customary adjustments. PharmaLex's services include regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance. The acquisition will advance our role as a partner of choice for biopharmaceutical manufacturers by enhancing our global portfolio of solutions to support manufacturer partners across the pharmaceutical development and commercialization journey. PharmaLex will be a component of our International Healthcare Solutions reportable segment. The acquisition is expected to close byMarch 2023 and is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals.
Executive Summary
This executive summary provides highlights from the results of operations that follow:
•Revenue increased by$24.6 billion , or 11.5%, from the prior fiscal year, primarily due to ourJune 2021 acquisition of Alliance Healthcare and revenue growth in ourU.S. Healthcare Solutions segment. Revenue in International Healthcare Solutions increased by$15.0 billion , or 129.8%, from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare. TheU.S. Healthcare Solutions segment grew its revenue$9.6 billion , or 4.8%, from the prior fiscal year primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments); •Total gross profit increased by$1,353.1 million , or 19.5%, from the prior fiscal year. Gross profit was favorably impacted by increases in gross profit in International Healthcare Solutions of$1,404.7 million , or 91.1%, andU.S. Healthcare Solutions of$425.8 million , or 8.5%, from the prior fiscal year. Gross profit in International Healthcare Solutions increased from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare.U.S. Healthcare Solutions' gross profit increased from the prior fiscal year primarily due to overall revenue growth and fees earned relating to the distribution of government-owned COVID-19 treatments. These increases were offset in part by last-in, first-out ("LIFO") expense in comparison to a LIFO credit in the prior year, decreases in gains from antitrust litigation settlements, and theTurkey highly inflationary economy's unfavorable impact on the current fiscal year; •Total operating expenses increased by$1,341.0 million , or 29.2%, from the prior fiscal year primarily as a result of increases in distribution, selling, and administrative expenses and depreciation and amortization expense primarily due to theJune 2021 acquisition of Alliance Healthcare, as well as a$75.9 million goodwill impairment of our Profarma reporting unit, offset in part by lower expense accruals related to opioid litigation settlements in the current fiscal year; •Total segment operating income increased by$515.2 million , or 19.5%, from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare and 8.8% operating income growth in theU.S. Healthcare Solutions segment; and •Our effective tax rates were 23.7% and 30.5% for the fiscal years endedSeptember 30, 2022 and 2021, respectively. The effective tax rate in the fiscal year endedSeptember 30, 2022 was higher than theU.S. statutory rate primarily due toU.S. state income taxes, offset in part by the benefit of non-U.S. income taxed at rates lower than theU.S. statutory rate. Our effective tax rate in the fiscal year endedSeptember 30, 2021 was higher than the current year tax rate primarily due toUK and Swiss tax reforms (see Note 4 of the Notes to Consolidated Financial Statements). 32
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Results of Operations
Fiscal Year EndedSeptember 30, 2022 compared to the Fiscal Year EndedSeptember 30, 2021 Revenue Fiscal Year Ended September 30, (dollars in thousands) 2022 2021 ChangeU.S. Healthcare Solutions Human Health 207,284,444
197,777,128 4.8%
Animal Health 4,815,758
4,684,417 2.8%
Total U.S. Healthcare Solutions 212,100,202 202,461,545 4.8%
International Healthcare Solutions
Alliance Healthcare 21,890,402 7,373,365 196.9%
Other Healthcare Solutions 4,601,271 4,156,264 10.7%
Total International Solutions 26,491,673 11,529,629 129.8%
Intersegment eliminations (4,869)
(2,331)
Revenue $ 238,587,006 $ 213,988,843 11.5%
Our future revenue growth will continue to be affected by various factors, such
as industry growth trends, including drug utilization, the introduction of new,
innovative brand therapies, the likely increase in the number of generic drugs
and biosimilars that will be available over the next few years as a result of
the expiration of certain drug patents held by brand-name pharmaceutical
manufacturers and the rate of conversion from brand products to those generic
drugs and biosimilars, price inflation and price deflation, general economic
conditions in the United States and Europe , competition within the industry,
customer consolidation, changes in pharmaceutical manufacturer pricing and
distribution policies and practices, increased downward pressure on government
and other third-party reimbursement rates to our customers, changes in
government rules and regulations, foreign currency conversion rates, and the
impact of the COVID-19 pandemic.
Revenue increased by 11.5% from the prior fiscal year primarily due to our
TheU.S. Healthcare Solutions segment grew its revenue by$9.6 billion , or 4.8%, from the prior fiscal year, primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments).
More specifically, the increase in the
Increased sales to specialty physician practices
($2.0 )
Increased sales to other customers $8.7
The continued decline of sales relating to COVID-19 treatments and fees earned
from the distribution of government-owned COVID-19 treatments could adversely
impact our results of operations.
Revenue in International Healthcare Solutions increased by $15.0 billion , or
129.8%, from the prior fiscal year primarily due to the June 2021 acquisition of
Alliance Healthcare.
A number of our contracts with customers, including group purchasing
organizations, are typically subject to expiration each year. We may lose a
significant customer if an existing contract with such customer expires without
being extended, renewed, or replaced. During the fiscal year ended September 30,
2022 , no significant contracts expired. In January 2022 , we extended our
agreement with Express Scripts through September 2026 . Over the next twelve
months, there are no significant contracts scheduled to expire. Additionally,
from time to time, significant contracts may be terminated in accordance with
their terms or extended, renewed, or replaced prior to their expiration dates.
If those contracts are extended, renewed, or replaced at less favorable terms,
they may also negatively impact our revenue, results of operations, and cash
flows.
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Gross Profit
Fiscal Year Ended
September 30,
(dollars in thousands) 2022 2021 Change
U.S. Healthcare Solutions $ 5,454,735 $ 5,028,950 8.5%
International Healthcare Solutions 2,947,190 1,542,456 91.1%
Intersegment eliminations (189) -
Gains from antitrust litigation settlements 1,835 168,794
LIFO (expense) credit (67,171) 203,028
Turkey highly inflationary impact (40,033)
-
Gross profit $ 8,296,367 $ 6,943,228 19.5%
Gross profit increased by $1,353.1 million , or 19.5%, from the prior fiscal
year. Gross profit in the current fiscal year was favorably impacted by
increases in gross profit in International Healthcare Solutions and U.S.
Healthcare Solutions. These increases were offset in part by LIFO expense in
comparison to a LIFO credit in the prior year, decreases in gains from antitrust
litigation settlements, and the Turkey highly inflationary economy's unfavorable
impact on the current fiscal year.
U.S. Healthcare Solutions gross profit increased by $425.8 million , or 8.5%,
from the prior fiscal year due to overall revenue growth and fees earned from
the distribution of government-owned COVID-19 treatments. As a percentage of
revenue, U.S. Healthcare Solutions gross profit margin of 2.57% in the current
fiscal year increased 9 basis points compared to the prior fiscal year primarily
due to fees earned from the distribution of government-owned COVID-19
treatments.
Gross profit in International Healthcare Solutions increased $1,404.7 million ,
or 91.1%, from the prior fiscal year primarily due to the June 2021 acquisition
of Alliance Healthcare.
We recognized gains from antitrust litigation settlements with pharmaceutical
manufacturers of $1.8 million and $168.8 million in the fiscal years ended
September 30, 2022 and 2021, respectively. The gains were recorded as reductions
to Cost of Goods Sold (see Note 14 of the Notes to Consolidated Financial
Statements).
Our cost of goods sold includes a LIFO provision that is affected by
manufacturer pricing practices, which may be impacted by market and other
external influences, changes in inventory quantities, and product mix, many of
which are difficult to predict. Changes to any of the above factors may have a
material impact to our annual LIFO provision. The LIFO expense in the current
fiscal year was primarily due to lower generic pharmaceutical deflation and
inventory product mix.
We recognized an expense of $40.0 million in the fiscal year ended September 30,
2022 in Cost of Goods Sold related to the impact of Turkey highly inflationary
accounting (see Note 1 of the Notes to Consolidated Financial Statements).
Operating Expenses
Fiscal Year Ended
September 30,
(dollars in thousands) 2022 2021 Change
Distribution, selling, and administrative $ 4,848,962 $ 3,594,251 34.9%
Depreciation and amortization 693,895 505,172 37.4%
Litigation and opioid-related expenses 123,191 272,623
Acquisition, integration, and restructuring expenses 183,059 199,288
Goodwill impairment 75,936 6,373
Impairment of assets 4,946 11,324
Total operating expenses $ 5,929,989 $ 4,589,031 29.2%
Distribution, selling, and administrative expenses increased by $1,254.7
million , or 34.9%, from the prior fiscal year. The increase from the prior
fiscal year was primarily due to the June 2021 acquisition of Alliance
Healthcare. As a percentage of revenue, distribution, selling, and
administrative expenses were 2.03% in the current fiscal year and represents a
35-basis point increase compared to the prior fiscal year primarily due to the
June 2021 acquisition of Alliance Healthcare.
Depreciation expense increased 18.3% from the prior fiscal year primarily due to
depreciation of property and equipment originating from the June 2021
acquisition of Alliance Healthcare. Amortization expense increased 72.3% from
the prior fiscal year primarily due to amortization of intangible assets
originating from the June 2021 acquisition of Alliance Healthcare.
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Litigation and opioid-related expenses in the fiscal year endedSeptember 30, 2022 included a$36.6 million accrual related to opioid litigation settlements and$86.6 million of legal fees in connection with opioid lawsuits and investigations. Litigation and opioid-related expenses in the fiscal year endedSeptember 30, 2021 included a$147.7 million accrual related to opioid litigation settlements and$124.9 million of legal fees in connection with opioid lawsuits and investigations. Acquisition, integration, and restructuring expenses in the fiscal year endedSeptember 30, 2022 included$119.6 million of acquisition-related deal and integration costs primarily related to the integration of Alliance Healthcare,$35.5 million of severance and other restructuring initiatives primarily related to the write down of assets in connection with our office optimization plan, and$28.0 million related to our business transformation efforts. Acquisition, integration, and restructuring expenses in the fiscal year endedSeptember 30, 2021 included$117.0 million of acquisition-related deal and integration costs primarily related to theJune 2021 acquisition of Alliance Healthcare,$46.1 million of severance and other restructuring initiatives primarily related to the disposal of assets in connection with our office optimization plan, and$36.3 million related to our business transformation efforts. We recorded goodwill impairments of$75.9 million and$6.4 million in our Profarma reporting unit in the fiscal years endedSeptember 30, 2022 and 2021, respectively (see Note 5 of the Notes to Consolidated Financial Statements). Operating Income Fiscal Year Ended September 30, (dollars in thousands) 2022 2021 Change U.S. Healthcare Solutions$ 2,456,972 $ 2,257,918 8.8% International Healthcare Solutions 706,458 390,286 81.0% Total segment operating income 3,163,430 2,648,204 19.5% Gains from antitrust litigation settlements 1,835 168,794 LIFO (expense) credit (67,171) 203,028 Turkey highly inflationary impact (40,033) - Acquisition-related intangibles amortization (304,551) (176,221) Litigation and opioid-related expenses (123,191) (272,623) Acquisition, integration, and restructuring expenses (183,059) (199,288) Goodwill impairment (75,936) (6,373) Impairment of assets (4,946) (11,324) Operating income$ 2,366,378 $ 2,354,197 0.5%
Segment operating income is evaluated before gains from antitrust litigation
settlements; LIFO (expense) credit;
U.S. Healthcare Solutions operating income increased$199.1 million , or 8.8%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses. As a percentage of revenue,U.S. Healthcare Solutions operating income margin was 1.16% and represented an increase of 4 basis points compared to the prior fiscal year. The increase from the prior year fiscal year was primarily due to fees earned from the distribution of government-owned COVID-19 treatments.
Operating income in International Healthcare Solutions increased by
Other Income, Net
We recognized a gain of$56.2 million from the sale of non-core businesses, a$14.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform, an$11.9 million expense related to the impact ofTurkey highly inflationary accounting, and a$4.8 million gain on the remeasurement of an equity investment in the fiscal year endedSeptember 30, 2022 . We recorded a$64.7 million gain on the remeasurement of an equity investment, a$14.0 million impairment of a non-customer note receivable related to a start-up venture, and a$3.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform in the fiscal year endedSeptember 30, 2021 . 35
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Interest Expense, Net
Interest expense, net and the respective weighted average interest rates were as follows:
Fiscal Year Ended September 30,
2022 2021
Weighted Average Weighted Average
(dollars in thousands) Amount Interest Rate Amount Interest Rate
Interest expense $ 231,982 2.69% $ 182,544 2.62%
Interest income (21,309) 1.08% (8,470) 0.28%
Interest expense, net $ 210,673 $ 174,074
Interest expense, net increased $36.6 million , or 21.0%, from the prior fiscal
year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000
million of 2.700% senior notes in March 2021 , and the $500 million variable-rate
term loan that was issued in June 2021 , all of which were used to finance a
portion of the June 2021 acquisition of Alliance Healthcare, and the incremental
interest expense associated with Alliance Healthcare's debt in certain
countries, offset in part by the increase in interest income. The increase in
interest income was primarily due to higher investment interest rates, offset in
part by lower average invested cash balances. The increase in interest expense
as a result of the above-mentioned debt issuances was offset in part by
repayments of $250 million in September 2021 and again in March 2022 on the
above-mentioned $500 million variable-rate term loan, and payments of $500
million in June 2022 and $350 million in September 2022 on the above-mentioned
$1,525 million of 0.737% senior notes.
Our interest expense in future periods may vary significantly depending upon
changes in net borrowings, interest rates, amendments to our current borrowing
facilities, and strategic decisions to deploy our invested cash.
Income Tax Expense
Our effective tax rates were 23.7% and 30.5% in the fiscal years endedSeptember 30, 2022 and 2021, respectively. Our effective tax rate in the fiscal year endedSeptember 30, 2022 was higher than theU.S. statutory rate primarily due toU.S. state income taxes, offset in part by the benefit of non-U.S. income taxed at rates lower than theU.S. statutory rate. Our effective tax rate in the fiscal year endedSeptember 30, 2021 was higher than the current year tax rate primarily due toUK and Swiss tax reforms (see Note 4 of the Notes to Consolidated Financial Statements). Fiscal Year EndedSeptember 30, 2021 compared to the Fiscal Year EndedSeptember 30, 2020 Revenue Fiscal Year Ended September 30, (dollars in thousands) 2021 2020 ChangeU.S. Healthcare Solutions: Human Health$ 197,777,128 $ 182,171,487 8.6% Animal Health 4,684,417 4,216,462 11.1% Total U.S. Healthcare Solutions 202,461,545 186,387,949 8.6% International Healthcare Solutions: Alliance Healthcare 7,373,365
-
Other Healthcare Solutions 4,156,264 3,508,106 18.5% Total International Healthcare Solutions 11,529,629 3,508,106 228.7% Intersegment eliminations (2,331) (2,129) Revenue$ 213,988,843 $ 189,893,926 12.7%
Revenue increased by 12.7% from the prior fiscal year primarily due to the
revenue growth of our
TheU.S. Healthcare Solutions segment grew its revenue by$16.1 billion , or 8.6%, from the prior fiscal year, primarily due to increased sales of specialty products (which generally have higher selling prices) including COVID-19 treatments, overall market growth principally driven by unit volume growth, and growth in our animal health business. 36
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More specifically, the increase in the
Increased sales to Walgreens, our largest customer
$3.2 Increased sales to other customers$8.8 Revenue in International Healthcare Solutions increased by$8.0 billion , or 228.7%, from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare and due to growth in our Canadian business and our specialty transportation and logistics business. Gross Profit Fiscal Year Ended September 30 (dollars in thousands) 2021 2020 Change U.S. Healthcare Solutions$ 5,028,950 $ 4,504,040 11.7% International Healthcare Solutions 1,542,456 713,546 116.2% Gains from antitrust litigation settlements 168,794 9,076 LIFO credit (expense) 203,028 (7,422) PharMEDium remediation costs - (7,135) PharMEDium shutdown costs - (5,421) New York State Opioid Stewardship Act - (14,800) Gross profit$ 6,943,228 $ 5,191,884 33.7% Gross profit increased by$1,751.3 million , or 33.7%, from the prior fiscal year. Gross profit in fiscal 2021 was favorably impacted by increases in gross profit inU.S. Healthcare Solutions and International Healthcare Solutions, a LIFO credit in the current year period in comparison to a LIFO expense in the prior year period, and an increase in gains from antitrust litigation settlements.U.S. Healthcare Solutions gross profit increased by$524.9 million , or 11.7%, from the prior fiscal year due to revenue growth, including an increase in specialty product sales. As a percentage of revenue,U.S. Healthcare Solutions' gross profit margin of 2.48% in fiscal 2021 increased 6 basis points compared to the prior fiscal year primarily due to an increase in specialty product sales, including COVID-19 treatments. Gross profit in International Healthcare Solutions increased by$828.9 million , or 116.2%, from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare and revenue growth in our specialty transportation and logistics business. As a percentage of revenue, gross profit margin in International Healthcare Solutions of 13.38% in fiscal 2021 decreased from 20.34% in the prior fiscal year. The decline in gross profit margin in fiscal 2021 was primarily due to theJune 2021 acquisition of Alliance Healthcare, which has a lower gross profit margin than the other operating segments within International Healthcare Solutions. We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of$168.8 million and$9.1 million in the fiscal years endedSeptember 30, 2021 and 2020, respectively. The gains were recorded as reductions to Cost of Goods Sold (see Note 14 of the Notes to Consolidated Financial Statements). In the prior fiscal year, we incurred remediation costs in connection with the suspended production activities at PharMEDium. We also incurred shutdown costs in connection with permanently exiting the PharMEDium compounding business.New York State ("NYS") enacted the Opioid Stewardship Act ("OSA"), which went into effect onJuly 1, 2018 . The OSA established an annual$100 million Opioid Stewardship Fund (the "Fund") and required manufacturers, distributors, and importers licensed in NYS to ratably source the Fund. The ratable share of the assessment for each licensee was to be based upon opioids sold or distributed to or within NYS. InDecember 2018 , the OSA was ruled unconstitutional by theU.S. District Court for the Southern District of New York . InSeptember 2020 , theUnited States Court of Appeals for the Second Circuit reversed the District Court's decision, and, as a result, we accrued$14.8 million in the fiscal year endedSeptember 30, 2020 related to our ratable share of the assessment. 37
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Operating Expenses
Fiscal Year Ended
September 30,
(dollars in thousands) 2021 2020 Change
Distribution, selling, and administrative $ 3,594,251 $ 2,767,217 29.9%
Depreciation and amortization 505,172 391,062 29.2%
Litigation and opioid-related expenses 272,623 6,722,346
Acquisition, integration, and restructuring 199,288 84,961 expenses Goodwill impairment 6,373 - Impairment of assets 11,324 361,652 Total operating expenses$ 4,589,031 $ 10,327,238 (55.6)% Distribution, selling, and administrative expenses increased by$827.0 million , or 29.9%, from the prior fiscal year. The increase from the prior fiscal year was primarily due to theJune 2021 acquisition of Alliance Healthcare and an increase in payroll-related operating costs to support current and future revenue growth. As a percentage of revenue, distribution, selling, and administrative expenses were 1.68% in the current fiscal year and represents a 22-basis point increase compared to the prior fiscal year. The increase in distribution, selling, and administrative expenses as a percentage of revenue was primarily due to theJune 2021 acquisition of Alliance Healthcare. Depreciation expense increased 16.6% from the prior fiscal year primarily due to depreciation of property and equipment originating from theJune 2021 acquisition of Alliance Healthcare. Amortization expense increased 60.9% from the prior fiscal year primarily due to amortization of intangible assets originating from theJune 2021 acquisition of Alliance Healthcare. Litigation and opioid-related expenses in the fiscal year endedSeptember 30, 2021 included a$147.7 million accrual related to opioid litigation settlements and$124.9 million of legal fees in connection with opioid lawsuits and investigations. Litigation and opioid-related expenses in the fiscal year endedSeptember 30, 2020 included a$6.6 billion legal accrual and$115.4 million of legal fees in connection with opioid lawsuits and investigations. Acquisition, integration, and restructuring expenses in the fiscal year endedSeptember 30, 2021 included$117.0 million of acquisition-related deal and integration costs primarily related to theJune 2021 acquisition of Alliance Healthcare,$46.1 million of severance and other restructuring initiatives primarily related to the disposal of assets in connection with our office optimization plan, and$36.3 million related to our business transformation efforts. Acquisition, integration, and restructuring expenses in the fiscal year endedSeptember 30, 2020 included$38.0 million related to our business transformation efforts,$34.4 million of severance costs primarily related to position eliminations resulting from our decision to permanently exit the PharMEDium compounding business, and$12.6 million of acquisition-related deal and integration costs and other restructuring initiatives. We recorded a goodwill impairment of$6.4 million in our Profarma reporting unit in the fiscal year endedSeptember 30, 2021 in connection with our fiscal 2021 annual impairment test (see Note 5 of the Notes to Consolidated Financial Statements). We recorded a$361.7 million impairment of PharMEDium's assets in Impairment of Assets in the fiscal year endedSeptember 30, 2020 (see Note 1 of the Notes to Consolidated Financial Statements). 38
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Operating Income (Loss)
Fiscal Year Ended
September 30,
(dollars in thousands) 2021 2020 Change
U.S. Healthcare Solutions $ 2,257,918 $ 2,020,067 11.8%
International Healthcare Solutions 390,286 184,380 111.7%
Total segment operating income 2,648,204 2,204,447 20.1%
Gains from antitrust litigation settlements 168,794 9,076
LIFO credit (expense) 203,028 (7,422)
Acquisition-related intangibles amortization (176,221) (110,478)
Litigation and opioid-related expenses (272,623)
(6,722,346)
Acquisition, integration, and restructuring expenses (199,288) (84,961) Goodwill impairment (6,373) - Impairment of assets (11,324) (361,652) PharMEDium remediation costs - (16,165) PharMEDium shutdown costs - (43,206) New York State Opioid Stewardship Act - (14,800) Contingent consideration adjustment - 12,153 Operating income (loss)$ 2,354,197 $ (5,135,354) 145.8% Segment operating income is evaluated before gains from antitrust litigation settlements; LIFO credit (expense); acquisition-related intangibles amortization; litigation and opioid-related expenses; acquisition, integration, and restructuring expenses; goodwill impairment; impairment of assets; PharMEDium remediation costs; PharMEDium shutdown costs;New York State Opioid Stewardship Act; and contingent consideration adjustment.U.S. Healthcare Solutions operating income increased by$237.9 million , or 11.8%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses. As a percentage of revenue,U.S. Healthcare Solutions operating income margin was 1.12% and represented an increase of 4 basis points compared to the prior fiscal year. The increase from the prior year fiscal year was primarily due to the increase in specialty product sales, including COVID-19 treatments. Operating income in International Healthcare Solutions increased by$205.9 million , or 111.7%, from the prior fiscal year primarily due to theJune 2021 acquisition of Alliance Healthcare and an increase in operating income atWorld Courier . One of our non-wholly-owned subsidiaries, Profarma, which we consolidate based on certain governance rights (see Note 3 of the Notes to Consolidated Financial Statements), adjusted its previous estimate of contingent consideration in the prior fiscal year related to the purchase price of one of its prior business acquisitions. Other Income, Net We recorded a$64.7 million gain on the remeasurement of an equity investment, a$14.0 million impairment of a non-customer note receivable related to a start-up venture, and a$3.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform in the fiscal year endedSeptember 30, 2021 .
Interest Expense, Net
Interest expense, net and the respective weighted average interest rates were as follows:
Fiscal Year Ended September 30,
2021 2020
Weighted Average Weighted Average
(dollars in thousands) Amount Interest Rate Amount Interest Rate
Interest expense $ 182,544 2.62% $ 158,522 3.42%
Interest income (8,470) 0.28% (20,639) 0.69%
Interest expense, net $ 174,074 $ 137,883
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Interest expense, net increased by$36.2 million , or 26.2%, from the prior fiscal year due to the issuance of our$1,525 million of 0.737% senior notes,$1,000 million of 2.700% senior notes inMarch 2021 , and the$500 million variable-rate term loan that was issued inJune 2021 , all of which were used to finance a portion of theJune 2021 acquisition of Alliance Healthcare, the incremental interest expense associated with Alliance Healthcare's debt in certain countries, and the decrease in interest income resulting from a decrease in investment interest rates. The increase in interest expense as a result of the above-mentioned debt issuances was offset in part by a lower weighted-average borrowing interest rate and the repayment of our$400 million October 2018 term loan upon its maturity inOctober 2020 .
Income Tax Expense (Benefit)
Our effective tax rates were 30.5% and 35.8% in the fiscal years endedSeptember 30, 2021 and 2020, respectively. Our effective tax rate in the fiscal year endedSeptember 30, 2021 was higher than theU.S. statutory rate due to U.K. Tax Reform (see Note 4 of the Notes to Consolidated Financial Statements). Our effective tax rate in the fiscal year endedSeptember 30, 2020 was higher than theU.S. statutory rate due to our operating loss, the tax benefits associated with our decision to permanently exit the PharMEDium compounding business, Swiss Tax Reform, the CARES Act, and other discrete items and offset in part by the tax impact of the portion of the opioid legal accrual that is not expected to be tax deductible.
Net Income (Loss) Attributable to
Net income attributable to
Critical Accounting Policies and Estimates
Critical accounting policies are those policies that involve accounting estimates and assumptions that can have a material impact on our financial position and results of operations and require the use of complex and subjective estimates based upon past experience and management's judgment. Actual results may differ from these estimates due to uncertainties inherent in such estimates. Below are those policies applied in preparing our financial statements that management believes are the most dependent upon the application of estimates and assumptions. For a complete list of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.
Allowances for Returns and Credit Losses
Trade receivables are primarily comprised of amounts owed to us for our pharmaceutical distribution and services activities and are presented net of an allowance for customer sales returns and an allowance for credit losses. Our 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. We record an accrual for estimated customer sales returns at the time of sale to the customer based upon historical customer return trends. The allowance for returns as ofSeptember 30, 2022 and 2021 was$1,532.1 million and$1,271.6 million , respectively. We evaluate our receivables for risk of loss by grouping our receivables with similar risk characteristics. Expected losses are determined based on a combination of historical loss trends, current economic conditions, and forward-looking risk factors. Changes in these factors, among others, may lead to adjustments in our allowance for credit losses. The calculation of the required allowance requires judgment by management as to the impact of those and other factors on the ultimate realization of our trade receivables. Each of our business units performs ongoing credit evaluations of its customers' financial condition and maintains reserves for expected credit losses and specific credit problems when they arise. We write off balances against the reserves when collectability is deemed remote. Each business unit performs formal, documented reviews of the allowance at least quarterly, and our largest business units perform such reviews monthly. There were no significant changes to this process during the fiscal years endedSeptember 30, 2022 , 2021, and 2020, and bad debt expense was computed in a consistent manner during these periods. The bad debt expense for any period presented is equal to the changes in the period end allowance for credit losses, net of write-offs, recoveries, and other adjustments. Bad debt expense for the fiscal years endedSeptember 30, 2022 , 2021 and 2020 was$26.1 million ,$12.1 million , and$11.9 million respectively. An increase or decrease of 0.1% in the 2022 allowance as a percentage of trade receivables would result in an increase or decrease in the provision on accounts receivable of approximately$18.5 million . The allowance for credit losses was$94.7 million and$85.1 million as ofSeptember 30, 2022 and 2021, respectively.
Schedule II of this Form 10-K sets forth a rollforward of allowances for returns and credit losses.
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Business Combinations
The assets acquired and liabilities assumed upon the acquisition or consolidation of a business are recorded at fair value, with the residual of the purchase price allocated to goodwill. We engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require management to make significant judgments, estimates, and assumptions, especially with respect to intangible assets. Management makes estimates of fair value based upon assumptions it believes to be reasonable. These estimates are based upon historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets include, but are not limited to: discount rates and expected future cash flows from and economic lives of customer relationships, trade names, existing technology, and other intangible assets. Unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions or estimates.
Goodwill arises from acquisitions or consolidations of specific operating companies and is assigned to the reporting unit in which a particular operating company resides. We identify our reporting units based upon our management reporting structure, beginning with our operating segments. We aggregate two or more components within an operating segment that have similar economic characteristics. We evaluate whether the components within our operating segments have similar economic characteristics, which include the similarity of long-term gross margins, the nature of the components' products, services, and production processes, the types of customers and the methods by which products or services are delivered to customers, and the components' regulatory environment. We announced a strategic reorganization of our business and began reporting externally under the new structure as ofOctober 1, 2021 . As ofSeptember 30, 2022 , our reporting units include Pharmaceutical Distribution Services,U.S. Consulting Services, MWI, Alliance Healthcare, Innomar,World Courier , and Profarma.Goodwill and other intangible assets with indefinite lives, such as certain trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually. For the purpose of these impairment tests, we can elect to perform a qualitative assessment to determine if it is more likely than not that the fair values of its reporting units and indefinite-lived intangible assets are less than the respective carrying values of those reporting units and indefinite-lived intangible assets, respectively. Such qualitative factors can include, among others, industry and market conditions, overall financial performance, and relevant entity-specific events. If we conclude based on its qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, it performs a quantitative analysis. We elected to perform a quantitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2022. We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2021, with the exception of our testing of goodwill in the AmerisourceBergen Consulting Services (the sum ofU.S. Consulting Services and Innomar reporting units, under our prior reporting structure) and Profarma reporting units. We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2020, with the exception of our testing of goodwill and indefinite-lived intangibles in the MWI and Profarma reporting units. The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized. If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill allocated to the reporting unit. When performing a quantitative impairment assessment, we utilize an income-based approach to value our reporting units, with the exception of the Profarma reporting unit, the fair value of which is based upon its publicly-traded stock price, plus an estimated control premium. The income-based approach relies on a discounted cash flow analysis, which considers forecasted cash flows discounted at an appropriate discount rate, to determine the fair value of each reporting unit. We generally believe that market participants would use a discounted cash flow analysis to determine the fair value of our reporting units in a sale transaction. The annual goodwill impairment test requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization, capital expenditures, and working capital requirements, which are based upon our long-range plan. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium. While we use the best available information to prepare our forecasted cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology and the population of assumptions used have remained unchanged. The quantitative impairment test for indefinite-lived intangibles other than goodwill (certain trademarks and trade names) consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of 41
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the impairment testing date. We estimate the fair value of its indefinite-lived intangibles using the relief from royalty method. We believe the relief from royalty method is a widely used valuation technique for such assets. The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from owning such indefinite-lived trademarks and trade names and not having to pay a royalty for their use. We completed our required annual impairment tests relating to goodwill and indefinite-lived intangible assets in the fiscal years endedSeptember 30, 2022 , 2021, and 2020. We recorded goodwill impairments of$75.9 million and$6.4 million in our Profarma reporting unit in connection with our fiscal 2022 and 2021 impairment tests, respectively (see Note 5 of the Notes to Consolidated Financial Statements). No goodwill impairments were recorded in the fiscal years endedSeptember 30, 2020 , and no indefinite-lived intangible asset impairments were recorded in the fiscal years endedSeptember 30, 2022 , 2021, or 2020. Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets. We perform a recoverability assessment of our long-lived assets when impairment indicators are present.
We recorded impairments of intangible and tangible assets totaling
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and uncertain tax positions reflect management's assessment of estimated future taxes to be paid on items in the financial statements. Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, as well as net operating loss and tax credit carryforwards for tax purposes. We have established a valuation allowance against certain deferred tax assets for which the ultimate realization of future benefits is uncertain. Expiring carryforwards and the required valuation allowances are adjusted annually. After application of the valuation allowances described above, we anticipate that no limitations will apply with respect to utilization of any of the other deferred income tax assets described above. We prepare and file tax returns based upon our interpretation of tax laws and regulations and record estimates based upon these judgments and interpretations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law resulting from legislation, regulation, and/or as concluded through the various jurisdictions' tax court systems. Significant judgment is exercised in applying complex tax laws and regulations across multiple global jurisdictions where we conduct our operations. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based upon the technical merits of the position. We believe that our estimates for the valuation allowances against deferred tax assets and the amount of benefits recognized in our financial statements for uncertain tax positions are appropriate based upon current facts and circumstances. However, others applying reasonable judgment to the same facts and circumstances could develop a different estimate and the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued. The significant assumptions and estimates described in the preceding paragraphs are important contributors to the ultimate effective tax rate in each year. If any of our assumptions or estimates were to change, an increase or decrease in our effective tax rate by 1% on income before income taxes would have caused income tax expense to change by$21.8 million in the fiscal year endedSeptember 30, 2022 .
For a complete discussion of the tax impact of
Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 66% of our inventories as ofSeptember 30, 2022 and 2021 has been determined using the LIFO method. If we had used the first-in, first-out method of inventory valuation, which approximates current replacement cost, inventories would have been approximately$1,383.4 million and$1,316.2 million higher than the amounts reported as ofSeptember 30, 2022 and 2021, respectively. We recorded LIFO expense of$67.2 million and$7.4 million in the fiscal years endedSeptember 30, 2022 and 2020, respectively. We recorded a LIFO credit of$203.0 million in the fiscal year endedSeptember 30, 2021 . The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory 42
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quantities, and product mix, many of which are difficult to predict. Changes to any of the above factors can have a material impact to our annual LIFO provision.
Loss Contingencies
In the ordinary course of business, we become involved in lawsuits, administrative proceedings, government subpoenas, government investigations, stockholder demands, and other disputes, including antitrust, commercial, product liability, intellectual property, regulatory, employment discrimination, and other matters. Significant damages or penalties may be sought in some matters, and some matters may require years to resolve. We record a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. We also perform an assessment of the materiality of loss contingencies where a loss is either not probable or it is reasonably possible that a loss could be incurred in excess of amounts accrued. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the financial statements would be material, we provide disclosure of the loss contingency and whether a reasonable estimate of the loss or the range of the loss can made in the footnotes to our financial statements. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made. Among the loss contingencies we considered in accordance with the foregoing in connection with the preparation of the accompanying financial statements were the opioid matters described in Note 13 of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Our operating results have generated cash flows, which, together with availability under our debt agreements and credit terms from suppliers, have 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, dividends, and purchases of shares of our common stock. Our primary ongoing cash requirements will be to finance working capital, fund the repayment of debt, fund the payment of interest on debt, fund the payment of dividends, fund purchases of our common stock, finance acquisitions, 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 our ongoing cash requirements, including the opioid litigation payments that will be made over 18 years (see below).
Cash Flows
As ofSeptember 30, 2022 and 2021, our cash and cash equivalents held by foreign subsidiaries were$688.4 million and$725.4 million , respectively. We have the ability to repatriate the majority of our cash and cash equivalents held by our foreign subsidiaries without incurring significant additional taxes upon repatriation. We have increased seasonal needs related to our inventory build during the December and March quarters that, depending on our cash balance, may require the use of our credit facilities to fund short-term capital needs. Our cash balances in the fiscal years endedSeptember 30, 2022 and 2021 were supplemented by intra-period credit facility borrowings to cover short-term working capital needs. The largest amount of intra-period borrowings under our revolving and securitization credit facilities that was outstanding at any one time during the fiscal years endedSeptember 30, 2022 and 2021 was$590.0 million and$637.7 million , respectively. We had$4,435.9 million ,$4,730.5 million , and$117.4 million of cumulative intra-period borrowings that were repaid under our credit facilities during the fiscal years endedSeptember 30, 2022 , 2021, and 2020, respectively.
During the fiscal years ended
•An increase in accounts payable of
•Net income of
•Positive non-cash items of$1,176.2 million , which is primarily comprised of depreciation expense of$390.6 million , amortization expense of$319.2 million , and the provision for deferred income taxes of$196.2 million , offset in part by:
•An increase in accounts receivable of
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•A decrease in long-term accrued litigation liability of $500.2 million due to
opioid litigation settlement payments;
•A decrease in accrued expenses of $457.2 million ; and
•A decrease in income taxes payable and other liabilities of $330.1 million .
During the fiscal years ended
•An increase in accounts payable of$2,049.2 million primarily driven by the increase in inventories and the timing of scheduled payments to our suppliers; •Net income of$1,544.6 million ; •Net positive non-cash items totaling$754.7 million , which is primarily comprised of the provision for deferred income taxes of$334.9 million , depreciation expense of$326.7 million , amortization expense of$188.1 million , and a LIFO credit of$203.0 million , offset in part by: •An increase in inventories of$1,116.3 million to support the increase in business volume; and •An increase in accounts receivable of$930.1 million primarily due to our revenue growth and the timing of payments from our customers. We use days sales outstanding, days inventory on hand, and days payable outstanding to evaluate our working capital performance. The below financial metrics are calculated based upon a quarterly average and can be impacted by the timing of cash receipts and disbursements, which can vary significantly depending upon the day of the week in which the month ends. Fiscal Year Ended
2022 2021 2020
Days sales outstanding 27.7 26.2 24.7
Days inventory on hand 28.3 28.6 28.7
Days payable outstanding 60.0 58.3 57.6
Our cash flows from operating activities can vary significantly from period to
period based upon fluctuations in our period-end working capital account
balances. Additionally, any changes to payment terms with a significant customer
or manufacturer supplier could have a material impact to our cash flows from
operations. The acquisition of Alliance Healthcare increased our days sales
outstanding and days payable outstanding as it has longer payment terms with
customers and manufacturers. Operating cash flows during the fiscal year ended
September 30, 2022 included $219.8 million of interest payments and $244.4
million of income tax payments, net of refunds. Operating cash flows during the
fiscal year ended September 30, 2021 included $170.9 million of interest
payments and $93.5 million of income tax payments, net of refunds. Operating
cash flows during the fiscal year ended September 30, 2020 included $150.7
million of interest payments and $139.4 million of income tax payments, net of
refunds.
Capital expenditures in the fiscal years ended September 30, 2022 , 2021, and
2020 were $496.3 million , $438.2 million , and $369.7 million , respectively.
Significant capital expenditures in fiscal 2022 included investments in various
technology initiatives, including technology initiatives at Alliance Healthcare.
Significant capital expenditures in fiscal 2021 and 2020 included costs
associated with facility expansions, and various technology initiatives,
including costs related to enhancing and upgrading our primary information
technology operating systems.
We currently expect to spend approximately $500 million for capital expenditures
during fiscal 2023. Larger 2023 capital expenditures will include investments
relating to various technology initiatives, including technology investments at
Alliance Healthcare and those required to comply with new regulatory
requirements.
In addition to capital expenditures, net cash used in investing activities in
the fiscal year ended September 30, 2022 included $133.8 million of cash to
acquire companies, including $60.0 million that was paid to settle accrued
consideration related to the Alliance Healthcare acquisition (see Note 2 of the
Notes to Consolidated Financial Statements), and was offset in part by $272.6
million in proceeds from the sale of non-core businesses.
In addition to capital expenditures, net cash used in investing activities in
the fiscal year ended 2021 included $5,563.0 million of cash to acquire
companies, which principally related to the June 2021 acquisition of Alliance
Healthcare, net of cash acquired, and $162.6 million for equity investments.
Net cash used in financing activities in the fiscal year ended September 30,
2022 principally resulted from an $850 million repayment of our 0.737% senior
notes that mature in 2023, the repayment of our $250 million term loan, $391.7
million in cash dividends paid on our common stock, and $483.7 million in
purchases of our common stock.
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Net cash provided by financing activities in the fiscal year endedSeptember 30, 2021 principally resulted from the issuance of senior notes and theFebruary 2021 Term Loan (see above) and$198.8 million of exercises of stock options, offset in part by$650 million of repayments of our term loans,$366.6 million in cash dividends paid on our common stock, and$82.2 million in purchases of our common stock. Net cash used in financing activities in the fiscal year endedSeptember 30, 2020 principally related to$420.4 million in purchases of our common stock and$343.6 million in cash dividends paid on our common stock.
Debt and Credit Facility Availability
The following illustrates our debt structure as ofSeptember 30, 2022 , including availability under the multi-currency revolving credit facility, the receivables securitization facility, the revolving credit note, the money market facility, Alliance Healthcare debt, and the overdraft facility: Outstanding Additional (in thousands) Balance Availability Fixed-Rate Debt:
0.737% senior notes due 2023 $ 672,736 $ -
$500,000 , 3.400% senior notes due 2024 499,195 -$500,000 , 3.250% senior notes due 2025 498,347 -$750,000 , 3.450% senior notes due 2027 745,622 -$500,000 , 2.800% senior notes due 2030 495,348 -$1,000,000 , 2.700% senior notes due 2031 990,480 -$500,000 , 4.250% senior notes due 2045 495,162 -$500,000 , 4.300% senior notes due 2047 493,288
-
Nonrecourse debt 66,539 -
Total fixed-rate debt 4,956,717 -
Variable-Rate Debt:
Revolving credit note - 75,000
Money market facility - 100,000
Receivables securitization facility due 2025 350,000 1,100,000
Overdraft facility due 2024 (£10,000) - 11,169
Multi-currency revolving credit facility due 2027 -
2,400,000
Alliance Healthcare debt 336,886 109,624
Nonrecourse debt 59,230 -
Total variable-rate debt 746,116 3,795,793
Total debt $ 5,702,833 $ 3,795,793
In May 2020 , we issued $500 million of 2.80% senior notes due May 15, 2030 (the
"2030 Notes"). The 2030 Notes were sold at 99.71% of the principal amount and
have an effective yield of 2.81%. Interest on the 2030 Notes is payable
semi-annually in arrears and commenced on November 15, 2020 .
We used the proceeds from the 2030 Notes to finance the early retirement of the
InMarch 2021 , we issued$1,525 million of 0.737% senior notes dueMarch 15, 2023 (the "2023 Notes"). The 2023 Notes were sold at 100.00% of the principal amount. Interest on the 2023 Notes is payable semi-annually in arrears, commencing onSeptember 15, 2021 . InMarch 2021 , we issued$1,000 million of 2.700% senior notes dueMarch 15, 2031 (the "2031 Notes"). The 2031 Notes were sold at 99.79% of the principal amount and have an effective yield of 2.706%. Interest on the 2031 Notes is payable semi-annually in arrears and commenced onSeptember 15, 2021 . The 2023 Notes and 2031 Notes rank pari passu to our other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility. We used the proceeds from the 2023 Notes and 2031 Notes to finance a portion of theJune 2021 Alliance Healthcare acquisition.
In fiscal 2022, we elected to repay
In addition to the 2023 Notes, the 2030 Notes, and the 2031 Notes, we have$500 million of 3.40% senior notes dueMay 15, 2024 ,$500 million of 3.25% senior notes dueMarch 1, 2025 ,$750 million of 3.45% senior notes dueDecember 15, 2027 ,$500 million of 4.25% senior notes dueMarch 1, 2045 , and$500 million of 4.300% senior notes dueDecember 15, 2047 (collectively, the "Notes"). Interest on the Notes is payable semiannually in arrears. 45
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We have a$2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire inNovember 2026 , with a syndicate of lenders. InOctober 2022 , we amended and restated the Multi-Currency Revolving Credit Facility to extend the expiration toOctober 2027 and to make changes to effect a transition from the LIBOR interest rate benchmark to Term SOFR. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon our debt rating and ranges from 80.5 basis points to 122.5 basis points over SOFR/EURIBOR/CDOR/RFR, as applicable (101.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as ofSeptember 30, 2022 ) and from 0 basis points to 22.5 basis points over the alternate base rate and Canadian prime rate, as applicable. We pay facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based upon our debt rating, ranging from 7 basis points to 15 basis points, annually, of the total commitment (11 basis points as ofSeptember 30, 2022 ). We may choose to repay or reduce our commitments under the Multi-Currency Revolving Credit Facility at any time. The Multi-Currency Revolving Credit Facility contains covenants, including compliance with a financial leverage ratio test, as well as others that impose limitations on, among other things, indebtedness of subsidiaries and asset sales, with which we were compliant as ofSeptember 30, 2022 . We have a commercial paper program whereby we may from time to time issue short-term promissory notes in an aggregate amount of up to$2.4 billion at any one time. Amounts available under the program may be borrowed, repaid, and re-borrowed from time to time. The maturities on the notes will vary, but may not exceed 365 days from the date of issuance. The notes will bear interest, if interest bearing, or will be sold at a discount from their face amounts. The commercial paper program does not increase our borrowing capacity as it is fully backed by our Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under our commercial paper program as ofSeptember 30, 2022 and 2021. We have a$1,450 million receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire inNovember 2024 . InOctober 2022 , we amended the Receivables Securitization Facility ("Receivables Amendment") to extend the expiration for an additional one year untilOctober 2025 . In addition, the Receivables Amendment made changes to (i) substitute Term SOFR for LIBOR as a benchmark and establish procedures to choose a new benchmark if Term SOFR becomes unavailable, (ii) provide for the return of erroneous payments, if any, by purchasers, (iii) update provisions regarding compliance with sanctions and anti-money laundering laws, and (iv) implement certain other technical amendments. We have available to us an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to$250 million , subject to lender approval, for seasonal needs during the December and March quarters. Interest rates are based upon prevailing market rates for short-term commercial paper or 30-day Term SOFR plus a program fee. We pay a customary unused fee at prevailing market rates, annually, to maintain the availability under the Receivables Securitization Facility. In connection with the Receivables Securitization Facility,AmerisourceBergen Drug Corporation and a specialty distribution subsidiary sell on a revolving basis certain accounts receivable toAmerisource Receivables Financial Corporation , a wholly-owned special purpose entity, which in turn sells a percentage ownership interest in the receivables to financial institutions and commercial paper conduits sponsored by financial institutions.AmerisourceBergen Drug Corporation is the servicer of the accounts receivable under the Receivables Securitization Facility. As sold receivables are collected, additional receivables may be sold up to the maximum amount available under the facility. We use the facility as a financing vehicle because it generally offers an attractive interest rate relative to other financing sources. We securitize our trade accounts, which are generally non-interest bearing, in transactions that are accounted for as borrowings. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which we were compliant as ofSeptember 30, 2022 . We have an uncommitted, unsecured line of credit available to us pursuant to a revolving credit note ("Revolving Credit Note"). The Revolving Credit Note provides us with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed$75 million . The Revolving Credit Note may be decreased or terminated by the bank or us at any time without prior notice. We also have a £10 million uncommittedU.K. overdraft facility ("Overdraft Facility"), which expires inFebruary 2024 , to fund short-term normal trading cycle fluctuations related to ourMWI Animal Health business. We have an uncommitted, unsecured line of credit available to us pursuant to a money market credit agreement ("Money Market Facility"). The Money Market Facility provides us with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed$100 million . The Money Market Facility may be decreased or terminated by the bank or us at any time without prior notice.
Our
InFebruary 2021 , we entered into a$1.0 billion variable-rate term loan ("February 2021 Term Loan"), which was available to be drawn on the closing date of the acquisition of Alliance Healthcare. InApril 2021 , we reduced our commitment under theFebruary 2021 Term Loan to$500 million . InJune 2021 , we borrowed$500 million under theFebruary 2021 Term Loan to finance a portion of theJune 2021 Alliance Healthcare acquisition. We elected to make principal payments of$250 million inSeptember 2021 and again inMarch 2022 to repay the loan that was scheduled to mature in 2023. 46
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Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates. A majority of the outstanding borrowings were held inEgypt (which is 50% owned) as ofSeptember 30, 2022 and 2021. These facilities are used to fund its working capital needs.
Nonrecourse debt is comprised of short-term and long-term debt belonging to the
Share Purchase Programs and Dividends
InOctober 2018 , our board of directors authorized a share repurchase program allowing us to purchase up to$1.0 billion of our shares of common stock, subject to market conditions. During the fiscal year endedSeptember 30, 2019 , we purchased$538.9 million of our common stock under this program, which included$14.8 million ofSeptember 2019 purchases that cash settled inOctober 2019 . During the fiscal year endedSeptember 30, 2020 , we purchased$405.6 million of our common stock, which excluded$14.8 million ofSeptember 2019 purchases that cash settled inOctober 2019 . During the fiscal year endedSeptember 30, 2021 , we purchased$55.5 million of our common stock to complete our authorization under this program. InMay 2020 , our board of directors authorized a share repurchase program allowing us to purchase up to$500 million of our outstanding shares of common stock, subject to market conditions. During the fiscal year endedSeptember 30, 2021 , we purchased$26.6 million of our common stock. During the fiscal year endedSeptember 30, 2022 , we purchased$473.4 million of our common stock to complete our authorization under this program. InMay 2022 , the Company's board of directors authorized a new share repurchase program allowing the Company to purchase up to$1.0 billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year endedSeptember 30, 2022 , we purchased$38.7 million of our common stock, which included$28.4 million ofSeptember 2022 purchases that cash settled inOctober 2022 . As ofSeptember 30, 2022 , we had$961.3 million of availability remaining under this program. InOctober 2022 , under this program, we purchased 0.6 million shares of our common stock for$78.8 million . InNovember 2022 , under this program, we purchased 3.2 million shares of our common stock from WBA for$500.0 million .
Our board of directors approved the following quarterly dividend increases:
Dividend Increases
Per Share
Date New Rate Old Rate % Increase
January 2020 $0.420 $0.400 5%
November 2020 $0.440 $0.420 5%
November 2021 $0.460 $0.440 5%
November 2022 $0.485 $0.460 5%
We anticipate that we will continue to pay quarterly cash dividends in the
future. However, the payment and amount of future dividends remain within the
discretion of our board of directors and will depend upon our future earnings,
financial condition, capital requirements, and other factors.
Commitments and Obligations
As discussed in Note 13 of the Notes to Consolidated Financial Statements, onJuly 21, 2021 , it was announced that we and the two other national pharmaceutical distributors had negotiated a comprehensive opioid settlement agreement. The comprehensive settlement agreement became effective onApril 2, 2022 , and as ofSeptember 30, 2022 , it included 48 of 49 eligible states (the "Settling States") as well as 99% by population of the eligible political subdivisions in the Settling States. Pursuant to the comprehensive settlement agreement and related agreements with Settling States, we will pay up to approximately$6.4 billion over 18 years. Our estimated liability related to theState of Alabama (with whom we have not reached a settlement agreement), as well as other opioid-related litigation for which we have reached settlement agreements is approximately$0.4 billion . Net of$0.8 billion of payments made throughSeptember 30, 2022 , we have a$6.0 billion liability on our Consolidated Balance Sheet as ofSeptember 30, 2022 for litigation relating to our comprehensive opioid settlement as well as other opioid-related litigation. The payment of the aforementioned litigation liability has not and is not expected to have an impact on our ability to pay dividends. 47
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The following is a summary of our contractual obligations for future principal and interest payments on our debt, minimum rental payments on our noncancellable operating leases, and minimum payments on our other commitments as ofSeptember 30, 2022 : Debt, Including Interest Operating Other Payments Due by Period (in thousands) Payments Leases Commitments Total Within 1 year$ 1,245,995 $ 192,031 $ 123,771 $ 1,561,797 1-3 years 1,688,379 333,213 137,111 2,158,703 4-5 years 235,886 257,090 57,788 550,764 After 5 years 4,215,090 456,276 - 4,671,366 Total$ 7,385,350 $ 1,238,610 $ 318,670 $ 8,942,630 The 2017 Tax Act required a one-time transition tax to be recognized on historical foreign earnings and profits. We expect to pay$157.1 million , net of overpayments and tax credits, related to this transition tax, as ofSeptember 30, 2022 , which is payable in installments over a six-year period that commenced inJanuary 2021 . The transition tax commitment is included in "Other Commitments" in the above table. Our liability for uncertain tax positions was$553.2 million (including interest and penalties) as ofSeptember 30, 2022 . This liability represents an estimate of tax positions that we have taken in our tax returns which may ultimately not be sustained upon examination by taxing authorities. Since the amount and timing of any future cash settlements cannot be predicted with reasonable certainty, the estimated liability has been excluded from the above contractual obligations table. Our liability for uncertain tax positions as ofSeptember 30, 2022 primarily includes an uncertain tax benefit related to the$6.8 billion legal accrual for litigation related to the distribution of prescription opioid pain medications, as disclosed in Note 13 of the Notes to Consolidated Financial Statements.
Market Risk
We have exposure to foreign currency and exchange rate risk from our non-U.S. operations. Our largest exposure to foreign exchange rates exists primarily with the U.K. Pound Sterling , the Euro, the Turkish Lira, the Egyptian Pound, the Brazilian Real, and the Canadian Dollar. During the quarter endedMarch 31, 2022 ,Turkey became a highly inflationary economy, as defined underU.S. GAAP (see Note 1 of the Notes to Consolidated Financial Statements). Also, with theJune 2021 acquisition of Alliance Healthcare, our foreign currency and exchange rate risk increased; therefore, we now use forward contracts to hedge against the foreign currency exchange rate impact on certain intercompany receivable and payable balances. We may use derivative instruments to hedge our foreign currency exposure, but not for speculative or trading purposes. Revenue from our foreign operations during the fiscal year endedSeptember 30, 2022 was approximately 11% of our consolidated revenue. We have market risk exposure to interest rate fluctuations relating to our debt. We manage interest rate risk by using a combination of fixed-rate and variable-rate debt. The amount of variable-rate debt fluctuates during the year based on our working capital requirements. We had$746.1 million of variable-rate debt outstanding as ofSeptember 30, 2022 . We periodically evaluate financial instruments to manage our exposure to fixed and variable interest rates. However, there are no assurances that such instruments will be available in the combinations we want and/or on terms acceptable to us. There were no such financial instruments in effect as ofSeptember 30, 2022 . We also have market risk exposure to interest rate fluctuations relating to our cash and cash equivalents. We had$3,388.2 million in cash and cash equivalents as ofSeptember 30, 2022 . The unfavorable impact of a hypothetical decrease in interest rates on cash and cash equivalents would be partially offset by the favorable impact of such a decrease on variable-rate debt. For every$100 million of cash invested that is in excess of variable-rate debt, a 10-basis point decrease in interest rates would increase our annual net interest expense by$0.1 million . Deterioration of general economic conditions, among other factors, could adversely affect the number of prescriptions that are filled and the amount of pharmaceutical products purchased by consumers and, therefore, could reduce purchases by our customers. In addition, volatility in financial markets may also negatively impact our customers' ability to obtain credit to finance their businesses on acceptable terms. Reduced purchases by our customers or changes in the ability of our customers to remit payments to us could adversely affect our revenue growth, our profitability, and our cash flow from operations. Recent elevated levels of inflation in the global andU.S. economies have not had a significant impact on our results of operations. If elevated levels of inflation persist or increase, our operations and financial results could be adversely affected, particularly in certain global markets. 48
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We have risks from other geopolitical trends and events, such as the
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's most significant market risks are the effects of changing interest rates, foreign currency risk, and the changes in the price of the Company's common stock. See discussion under the heading "Market Risk," which is incorporated by reference herein.
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