|
| Gross profit | | $ | 8,959,493 | | | $ | 8,296,367 | | | 8.0% |
Gross profit increased by $663.1 million, or 8.0%, from the prior fiscal year. Gross profit in the current fiscal year was favorably impacted by increases in gross profit in both reportable segments and an increase in gains from antitrust litigation settlements, offset in part by an increase in LIFO expense.
U.S. Healthcare Solutions gross profit increased by $366.4 million, or 6.7%, from the prior fiscal year due to increased sales. As a percentage of revenue, U.S. Healthcare Solutions' gross profit margin of 2.48% in the current fiscal year decreased 9 basis points compared to the prior fiscal year primarily due to higher sales of GLP-1 products, which have lower gross profit margins, and lower sales of COVID-19 treatments, which have higher gross profit margins.
Gross profit in International Healthcare Solutions increased $243.7 million, or 8.3%, from the prior fiscal year due to the January 2023 acquisition of PharmaLex and increases in our global specialty logistics business, our European distribution business, and our less-than-wholly-owned Brazil full-line distribution business, offset in part by the June 2022 divestiture of our Brazil specialty business. Our European distribution business' gross profit in the current fiscal year was negatively impacted by unfavorable foreign currency exchange rates in comparison to the prior fiscal year.
We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $239.1 million and $1.8 million in the fiscal years ended September 30, 2023 and 2022, 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 on our annual LIFO provision. The increase in LIFO expense in the current fiscal year was primarily driven by lower generic pharmaceutical deflation and higher brand inventory product mix, offset in part by lower brand pharmaceutical inflation.
We recognized an expense in Cost of Goods Sold of $87.0 million and $40.0 million in the fiscal years ended September 30, 2023 and 2022, respectively, related to the impact of Turkey highly inflationary accounting. The expense recognized in each period was driven by the continued weakening of the Turkish Lira.
Operating Expenses
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended
September 30, | | |
| (dollars in thousands) | | 2023 | | 2022 | | Change |
| Distribution, selling, and administrative | | $ | 5,309,984 | | | $ | 4,848,962 | | | 9.5% |
| Depreciation and amortization | | 963,904 | | | 693,895 | | | 38.9% |
| Litigation and opioid-related (credit) expenses | | (24,693) | | | 123,191 | | | |
| Acquisition-related deal and integration expenses | | 139,683 | | | 119,561 | | | |
| Restructuring and other expenses | | 229,884 | | | 63,498 | | | |
| Goodwill impairment | | — | | | 75,936 | | | |
| Impairment of assets | | — | | | 4,946 | | | |
| Total operating expenses | | $ | 6,618,762 | | | $ | 5,929,989 | | | 11.6% |
Distribution, selling, and administrative expenses increased by $461.0 million, or 9.5%, from the prior fiscal year. The increase from the prior fiscal year was primarily to support revenue growth and included inflationary impacts on certain operating expenses. As a percentage of revenue, distribution, selling, and administrative expenses were 2.03% in the current fiscal year and was flat compared to the prior fiscal year as inflationary impacts on certain operating expenses were offset in
part by recent initiatives undertaken to improve operating efficiency across many of our businesses and administrative functions.
Depreciation expense increased 6.1% from the prior fiscal year. Amortization expense increased 80.1% from the prior fiscal year primarily due to accelerated amortization expense recorded in connection with the shortened useful lives of certain trade names resulting from our company name change and the gradual transition away from other tradenames used, which were acquired through prior acquisitions.
Litigation and opioid-related credit in the fiscal year ended September 30, 2023 included the receipt of $83.4 million from the H.D. Smith opioid litigation indemnity escrow. Litigation and opioid-related credit was offset in part by $58.7 million of legal fees in connection with opioid lawsuits and investigations in the fiscal year ended September 30, 2023. Litigation and opioid-related expenses in the fiscal year ended September 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.
Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2023 primarily related to the continued integration of Alliance Healthcare and the acquisition of PharmaLex. Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2022 primarily related to the integration of Alliance Healthcare.
Restructuring and other expenses are comprised of the following:
| | | | | | | | | | | | | | |
| | Fiscal year ended September 30, |
| (in thousands) | | 2023 | | 2022 |
| Restructuring and employee severance costs | | $ | 105,220 | | | $ | 35,316 | |
| Business transformation efforts | | 82,117 | | | 27,990 | |
| Other expenses | | 42,547 | | | 192 | |
| Total restructuring and other expenses | | $ | 229,884 | | | $ | 63,498 | |
Restructuring and employee severance costs in the fiscal year ended September 30, 2023 primarily included expenses incurred in connection with workforce reductions in both of our reportable segments. Restructuring and employee severance costs in the fiscal year ended September 30, 2022 included costs primarily related to the write down of assets related to our office optimization plan and restructuring activities within certain businesses in the U.S. Healthcare Solutions reportable segment.
Business transformation efforts in the fiscal year ended September 30, 2023 included rebranding costs associated with our name change to Cencora and non-recurring expenses related to significant strategic initiatives to improve operational efficiency, including certain technology initiatives. The majority of these costs related to services provided by third-party consultants.
Business transformation efforts in the fiscal year ended September 30, 2022 primarily related to costs associated with reorganizing to further align the organization to its customers' needs, including certain technology initiatives. The majority of these costs related to services provided by third-party consultants.
In March 2023, one of our foreign business units experienced a cybersecurity event that impacted a standalone legacy information technology platform in one country and the foreign business unit's ability to operate in that country for approximately two weeks. In connection with this isolated event, we incurred costs to restore the foreign business unit's operations in that country, which was recorded in Other expenses in the above table. The majority of Other expenses in the fiscal year ended September 30, 2023 related to this cybersecurity event.
We recorded a goodwill impairment of $75.9 million in our Profarma reporting unit in the fiscal year ended September 30, 2022.
Operating Income
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended
September 30, | | |
| (dollars in thousands) | | 2023 | | 2022 | | Change |
| U.S. Healthcare Solutions | | $ | 2,596,559 | | | $ | 2,456,972 | | | 5.7% |
| International Healthcare Solutions | | 692,562 | | | 706,458 | | | (2.0)% |
| Total segment operating income | | 3,289,121 | | | 3,163,430 | | | 4.0% |
| | | | | | |
| Gains from antitrust litigation settlements | | 239,092 | | | 1,835 | | | |
| LIFO expense | | (204,595) | | | (67,171) | | | |
| Turkey highly inflationary impact | | (86,967) | | | (40,033) | | | |
| Acquisition-related intangibles amortization | | (551,046) | | | (304,551) | | | |
| Litigation and opioid-related credit (expenses) | | 24,693 | | | (123,191) | | | |
| Acquisition-related deal and integration expenses | | (139,683) | | | (119,561) | | | |
| Restructuring and other expenses | | (229,884) | | | (63,498) | | | |
| Goodwill impairment | | — | | | (75,936) | | | |
| Impairment of assets | | — | | | (4,946) | | | |
|
|
|
|
| Operating income | | $ | 2,340,731 | | | $ | 2,366,378 | | | (1.1)% |
U.S. Healthcare Solutions operating income increased $139.6 million, or 5.7%, 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 1.11% and represented a decrease of 5 basis points compared to the prior fiscal year. The decrease from the prior year fiscal year was primarily due to the declines in gross profit margins, as described above in the Gross Profit section.
Operating income in International Healthcare Solutions decreased by $13.9 million, or 2.0%, from the prior fiscal year due to a decrease in operating income in our European distribution business primarily due to unfavorable foreign currency exchange rates in comparison to the prior fiscal year and a significant decline in operating income at its less-than-wholly-owned subsidiary in Egypt (that was divested on September 30, 2023), and the June 2022 divestiture of our Brazil specialty business. The above-mentioned declines were offset in part by the strong performance of our global specialty logistics business.
Other Income, Net
Included in Other Income, Net, we recognized $40.7 million and $56.2 million from the divestiture of non-core businesses in the fiscal years ended September 30, 2023 and 2022, respectively.
Interest Expense, Net
Interest expense, net and the respective weighted average interest rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended September 30, |
| | | 2023 | | 2022 |
| (dollars in thousands) | | Amount | | Weighted Average
Interest Rate | | Amount | | Weighted Average
Interest Rate |
| Interest expense | | $ | 275,650 | | | 3.59% | | $ | 231,982 | | | 2.69% |
| Interest income | | (46,719) | | | 4.60% | | (21,309) | | | 1.08% |
| Interest expense, net | | $ | 228,931 | | | | | $ | 210,673 | | | |
Interest expense, net increased $18.3 million, or 8.7%, from the prior fiscal year primarily due to the increase in interest expense. The increase in interest expense was primarily driven by an increase in our variable-rate borrowings and associated interest rates. The increase in interest expense was offset in part by an increase in interest income, which was primarily driven by higher investment interest rates in the current fiscal year in comparison to the prior fiscal year. The higher investment interest rates were offset in part by a lower average investment cash balance in the current fiscal year in comparison to the prior fiscal year.
Income Tax Expense
Our effective tax rates were 19.8% and 23.7% in the fiscal years ended September 30, 2023 and 2022, respectively. Our effective tax rate in the fiscal year ended September 30, 2023 was lower than the U.S. statutory rate primarily due to the benefit of non-U.S. income taxed at rates lower than the U.S. statutory rate, benefits from tax authority audit resolutions, and tax benefits associated with the vesting of restricted stock units and stock option exercises, offset in part by U.S. state income taxes. Our effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S. statutory rate primarily due to U.S. state income taxes, offset in part by the benefit of non-U.S. income taxed at rates lower than the U.S. statutory rate.
Fiscal Year Ended September 30, 2022 compared to the Fiscal Year Ended September 30, 2021
For a discussion of the comparison of our results of operations for the fiscal years ended September 30, 2022 and 2021, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our previously filed Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
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 of September 30, 2023 and 2022 was $1,314.9 million and $1,532.1 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. We perform ongoing credit evaluations of our customers' financial condition and maintain reserves for expected credit losses and specific credit problems when they arise. We write off balances against the reserves when collectability is deemed remote. We perform formal, documented reviews of the allowance at least quarterly and perform monthly credit loss reviews in connection with our largest businesses and our higher risk customer accounts. There were no significant changes to this process during the fiscal years ended September 30, 2023, 2022, and 2021, 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 ended September 30, 2023, 2022 and 2021 was $54.4 million, $26.1 million, and $12.1 million respectively. An increase or decrease of 0.1% in the 2023 allowance as a percentage of trade receivables would result in an increase or decrease in the provision on accounts receivable of approximately $21.0 million. The allowance for credit losses was $118.5 million and $94.7 million as of September 30, 2023 and 2022, respectively.
Schedule II of this Form 10-K sets forth a rollforward of allowances for returns and credit losses.
Business Combinations
The assets acquired and liabilities assumed upon the acquisition or consolidation of a business are recorded at estimated 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 and Other Intangible Assets
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. As of September 30, 2023, our reporting units include U.S. Pharmaceutical Distribution Services, U.S. Consulting Services, MWI Animal Health, Alliance Healthcare, Innomar, World Courier, PharmaLex, 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 our 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 our qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. We elected to perform a quantitative impairment assessment of goodwill for our reporting units in fiscal 2023 and 2022 with the exception of our PharmaLex reporting unit, which was recently acquired. We elected to perform a qualitative impairment assessment of indefinite-lived intangible assets in fiscal 2023 and a quantitative impairment assessment of 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 of U.S. Consulting Service and Innomar reporting units, under our prior reporting structure) 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 approach or a weighted-average of an income and market approach to value our reporting units. The income 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 the impairment testing date. We estimate the fair value of its indefinite-lived intangibles using the relief from royalty method, which 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 ended September 30, 2023, 2022, and 2021. 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 (see Note 5), respectively. No goodwill impairments were recorded in the fiscal year ended September 30, 2023, and no indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2023, 2022, or 2021.
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.
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 $21.6 million in the fiscal year ended September 30, 2023.
For a complete discussion of the tax impact of UK Tax Reform and Swiss Tax Reform, refer to Note 4 of the Notes to Consolidated Financial Statements.
Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 66% of our inventories as of September 30, 2023 and 2022 has been determined using the last-in, first-out ("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 $1,588.0 million and $1,383.4 million higher than the amounts reported as of September 30, 2023 and 2022, respectively. We recorded LIFO expense of $204.6 million and $67.2 million in the fiscal years ended September 30, 2023 and 2022, respectively. We recorded a LIFO credit of $203.0 million in the fiscal year ended September 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 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 the next 15 years (see below).
Cash Flows
As of September 30, 2023 and 2022, our cash and cash equivalents held by foreign subsidiaries were $640.5 million and $688.4 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 ended September 30, 2023 and 2022 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 ended September 30, 2023 and 2022 was $2,121.0 million and $590.0 million, respectively. We had $77,851.0 million, $4,435.9 million, and $4,730.5 million of cumulative intra-period borrowings that were repaid under our credit facilities during the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
During the fiscal year ended September 30, 2023, our operating activities provided cash of $3,911.3 million and was principally the result of the following:
•An increase in accounts payable of $6,103.5 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;
•Net income of $1,732.6 million;
•Positive non-cash items of $1,304.2 million, which is primarily comprised of amortization expense of $562.0 million, depreciation expense of $418.8 million, and LIFO expense of $204.6 million, offset in part by:
◦An increase in accounts receivable of $2,711.8 million primarily due to an increase in sales and the timing of scheduled payments from our customers;
◦An increase in inventories of $2,183.4 million to support the increase in business volume; and
◦A decrease in long-term accrued litigation liability of $400.0 million due to opioid litigation settlement payments.
During the fiscal years ended September 30, 2022, our operating activities provided cash of $2,703.1 million and was principally the result of the following:
•An increase in accounts payable of $3,320.7 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;
•Net income of $1,666.5 million;
•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 $1,659.5 million primarily due to an increase in sales and the timing of scheduled payments from our customers;
◦An increase in inventories of $665.4 million to support the increase in business volume;
◦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.
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 September 30, |
| | | 2023 | | 2022 | | 2021 |
| Days sales outstanding | | 27.7 | | 27.7 | | 26.2 |
| Days inventory on hand | | 27.7 | | 28.3 | | 28.6 |
| Days payable outstanding | | 60.0 | | 60.0 | | 58.3 |
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. Operating cash flows during the fiscal year ended September 30, 2023 included $271.3 million of interest payments and $463.1 million of income tax payments, net of refunds. 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.
Capital expenditures in the fiscal years ended September 30, 2023, 2022, and 2021 were $458.4 million, $496.3 million, and $438.2 million, respectively. Significant capital expenditures in fiscal 2023 and 2022 included investments in various technology initiatives, including technology initiatives at Alliance Healthcare. Significant capital expenditures in fiscal 2021 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 2024. Larger 2024 capital expenditures will include investments relating to various technology initiatives, including technology investments at Alliance Healthcare.
In addition to capital expenditures, net cash used in investing activities in the fiscal year ended September 30, 2023 included $1,406.5 million for the acquisition of PharmaLex and $718.4 million for our investment in OneOncology (see Note 2 of the Notes to Consolidated Financial Statements).
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 divestiture 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, 2023 principally resulted from $1,180.7 million purchases of our common stock, a $675 million repayment of our 0.737% senior notes that matured in March 2023, and $398.8 million in cash dividends paid on our common stock.
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 matured 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.
Debt and Credit Facility Availability
The following illustrates our debt structure as of September 30, 2023, 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:
| | | | | | | | | | | | | | |
| (in thousands) | | Outstanding
Balance | | Additional
Availability |
| Fixed-Rate Debt: | | | | |
| $500,000, 3.400% senior notes due 2024 | | $ | 499,677 | | | $ | — | |
| $500,000, 3.250% senior notes due 2025 | | 499,026 | | | — | |
| $750,000, 3.450% senior notes due 2027 | | 746,464 | | | — | |
| $500,000, 2.800% senior notes due 2030 | | 495,959 | | | — | |
| $1,000,000, 2.700% senior notes due 2031 | | 991,600 | | | — | |
| $500,000, 4.250% senior notes due 2045 | | 495,378 | | | — | |
| $500,000, 4.300% senior notes due 2047 | | 493,554 | | | — | |
| Nonrecourse debt | | 74,684 | | | — | |
| Total fixed-rate debt | | 4,296,342 | | | — | |
| | | | |
| Variable-Rate Debt: | | | | |
| Multi-currency revolving credit facility due 2028 | | — | | | 2,400,000 | |
| Receivables securitization facility due 2025 | | 350,000 | | | 1,100,000 | |
| Revolving credit note | | — | | | 75,000 | |
| Overdraft facility due 2024 (£10,000) | | — | | | 12,200 | |
| Money market facility | | — | | | 100,000 | |
| Alliance Healthcare debt | | 68,017 | | | 465,185 | |
| Nonrecourse debt | | 73,098 | | | — | |
| Total variable-rate debt | | 491,115 | | | 4,152,385 | |
| Total debt | | $ | 4,787,457 | | | $ | 4,152,385 | |
In March 2021, we issued $1,525 million of 0.737% senior notes due March 15, 2023 (the "2023 Notes"). The 2023 Notes were sold at 100.00% of the principal amount. Interest on the 2023 Notes was payable semi-annually in arrears and commenced on September 15, 2021. In the fiscal year ended September 30, 2022, we elected to repay $850 million of 2023 Notes due in March 2023. In March 2023, the remaining balance of $675 million on the original $1.5 billion of 0.737% senior notes matured and was repaid.
In March 2021, we issued $1,000 million of 2.70% senior notes due March 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 on September 15, 2021. The 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 the June 2021 Alliance Healthcare acquisition.
We have a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire in October 2027, with a syndicate of lenders. In October 2023, we amended and restated the Multi-Currency Revolving Credit Facility to extend the expiration to October 2028. 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 (102.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2023) 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 (10 basis points as of September 30, 2023). 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 of September 30, 2023.
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 of September 30, 2023 and 2022.
We have a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which is scheduled to expire in October 2025. 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 to Amerisource 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 of September 30, 2023.
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 uncommitted U.K. overdraft facility ("Overdraft Facility"), which expires in February 2024, to fund short-term normal trading cycle fluctuations related to our MWI 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.
In February 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. In April 2021, we reduced our commitment under the February 2021 Term Loan to $500 million. In June 2021, we borrowed $500 million under the February 2021 Term Loan to finance a portion of the June 2021 Alliance Healthcare acquisition. We elected to make principal payments of $250 million in September 2021 and again in March 2022 to repay the loan that was scheduled to mature in 2023.
Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates. A vast majority of the outstanding borrowings were held in Turkey as of September 30, 2023. These facilities are used to fund its working capital needs.
Nonrecourse debt is comprised of short-term and long-term debt belonging to the Brazil subsidiaries and is repaid solely from the Brazil subsidiaries' cash flows and such debt agreements provide that the repayment of the loans (and interest thereon) is secured solely by the capital stock, physical assets, contracts, and cash flows of the Brazil subsidiaries.
Share Purchase Programs and Dividends
In October 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 ended September 30, 2021, we purchased $55.5 million of our common stock to complete our authorization under this program.
In May 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 ended September 30, 2021, we purchased $26.6 million of our common stock. During the fiscal year ended September 30, 2022, we purchased $473.4 million of our common stock to complete our authorization under this program.
In May 2022, our Board of Directors authorized a share repurchase program allowing us to purchase up to $1.0 billion of our outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2022, we purchased $38.7 million of common stock, which included $28.4 million of September 2022 purchases that cash settled in October 2022. During the fiscal year ended September 30, 2023, we purchased $961.3 million of our common stock, including $882.5 million from WBA, to complete our authorization under this program.
In March 2023, our Board of Directors authorized a new share repurchase program allowing us to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2023, we purchased $191.0 million of our common stock, including $167.5 million from WBA. As of September 30, 2023, we had $809.0 million of availability under this program. From October 1, 2023 through November 20, 2023, we purchased $325.3 million of our common stock, including $250.0 million from WBA.
Our Board of Directors approved the following quarterly dividend increases:
| | | | | | | | | | | | | | | | | | | | |
| Dividend Increases |
| | | Per Share | | |
| Date | | New Rate | | Old Rate | | % Increase |
| November 2020 | | $0.440 | | $0.420 | | 5% |
| November 2021 | | $0.460 | | $0.440 | | 5% |
| November 2022 | | $0.485 | | $0.460 | | 5% |
| November 2023 | | $0.510 | | $0.485 | | 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 and defined in Note 13 of the Notes to Consolidated Financial Statements, on July 21, 2021, it was announced that we and the two other national pharmaceutical distributors had negotiated a Distributor Settlement Agreement. The Distributor Settlement Agreement became effective on April 2, 2022, and as of September 30, 2023, 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. Our remaining estimated liability related to the Distributor Settlement Agreement, the State of Alabama (with whom we have not reached a settlement agreement), and other opioid-related litigation for which we have reached settlement agreements is approximately $5.5 billion on our Consolidated Balance Sheet as of September 30, 2023 and is expected to be paid over the next 15 years. The payment of the aforementioned litigation liability has not and is not expected to have an impact on our ability to pay dividends.
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 of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period (in thousands) | | Debt, Including Interest Payments | | Operating
Leases | | Other Commitments | | Total |
| Within 1 year | | $ | 824,443 | | | $ | 218,139 | | | $ | 123,829 | | | $ | 1,166,411 | |
| 1-3 years | | 1,174,777 | | | 373,502 | | | 143,820 | | | 1,692,099 | |
| 4-5 years | | 973,160 | | | 280,546 | | | 6 | | | 1,253,712 | |
| After 5 years | | 3,386,625 | | | 441,242 | | | — | | | 3,827,867 | |
| Total | | $ | 6,359,005 | | | $ | 1,313,429 | | | $ | 267,655 | | | $ | 7,940,089 | |
The 2017 Tax Act required a one-time transition tax to be recognized on historical foreign earnings and profits. We expect to pay $139.0 million, net of overpayments and tax credits, related to this transition tax, as of September 30, 2023, which is payable in installments over a six-year period that commenced in January 2021. The transition tax commitment is included in "Other Commitments" in the above table.
Our liability for uncertain tax positions was $551.9 million (including interest and penalties) as of September 30, 2023. 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 of September 30, 2023 primarily includes an uncertain tax benefit related to the 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 Brazilian Real, and the Canadian Dollar. We 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 ended September 30, 2023 was approximately 10% 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 $491.1 million of variable-rate debt outstanding as of September 30, 2023. 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 of September 30, 2023.
We also have market risk exposure to interest rate fluctuations relating to our cash and cash equivalents. We had $2,592.1 million in cash and cash equivalents as of September 30, 2023. 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 and higher borrowing costs 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 and U.S. economies have impacted certain operating expenses. If elevated levels of inflation persist or increase, our operations and financial results could be adversely affected, particularly in certain global markets.
We have risks from other geopolitical trends and events, such as the ongoing conflicts in Ukraine and between Israel and Hamas. Although the long-term implications of these conflicts are difficult to predict at this time, the financial impact of these conflicts has not been material.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Cencora, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cencora, Inc. and subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 21, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.
| | | | | |
| Legal Matters and Contingencies - Opioid Lawsuits and Investigations |
| Description of the Matter | As discussed in Note 13 of the consolidated financial statements, the Company is involved in a significant number of lawsuits and government investigations relating to the distribution of prescription opioid pain medications and other controlled substances (“opioid litigation and investigations”). The Company recognizes a liability for those legal contingencies for which it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount is reasonably estimable. In connection with these liabilities, the Company recognizes a related income tax benefit, which reflects an unrecognized tax benefit resulting from uncertainty in the amount that is more likely than not to be deductible for U.S. federal and state income tax purposes. The Company used significant judgment in measuring the amount of income tax benefit that may ultimately be deductible for U.S. federal and state purposes. |
| | | | | |
| Auditing management’s determination of whether the risk of loss related to opioid litigation and investigations is probable and reasonably estimable, and the related disclosures is highly subjective and requires significant judgment. Auditing management’s judgments related to unsettled cases was challenging due to the significant judgment applied in determining the likelihood of resolution of matters through settlement or litigation and the magnitude of the liability. In addition, auditing management's estimate of the amount of income tax benefit related to the Company's uncertain tax positions is challenging because the evaluation of the technical merits of income tax benefits that qualify for a deduction related to the opioid litigation and investigations requires significant judgment. |
| |
How We Addressed the Matter in Our Audit
| We tested the Company’s internal controls that address the risks of material misstatement related to the completeness and presentation and disclosure of the opioid litigation and investigations liability and related uncertain tax position. This included testing controls related to the Company’s process for identification, recognition, completeness, and disclosure of the opioid litigation and testing controls related to the Company’s process to assess the technical merits of its tax position, including the Company’s assessment as to the amount of benefit that is more likely than not to be realized upon ultimate settlement with taxing authorities. For example, we tested controls over management’s review of the assessment of the completeness of the opioid litigation and investigations liability and whether a range of possible loss in excess of the amount accrued is reasonably estimable to determine the accuracy of the opioid litigation and investigations liability and the related financial statement footnote disclosures. |
| |
| To test the Company’s opioid litigation and investigations liability, our substantive audit procedures included, among others, testing the completeness of the contingencies subject to evaluation by the Company and evaluating the Company’s analysis of its assessment of the probability of outcome for each material legal contingency, through inspection of responses to inquiry letters sent to both internal and external legal counsel, discussions with internal general counsel and external legal counsel to confirm our understanding of the allegations and any settlement discussions, inspection of proposed settlement agreements, and obtaining written representations from executives of the Company. We also compared the Company’s assessment with its relevant history of similar legal contingencies that have been settled or otherwise resolved to evaluate the consistency of the Company’s assessment for unsettled opioid litigation and investigations. |
| |
| For those legal contingencies for which the Company has determined that a loss is probable and reasonably estimable and is therefore required to be recognized, and for those legal contingencies for which the Company has determined that a loss is either probable or reasonably possible, but the Company is unable to estimate the range of loss, and is therefore required to be disclosed, we evaluated the method of measuring the amounts of the recorded and disclosed contingencies. We assessed the Company’s estimate of the amount of the loss, for both contingencies that are probable and reasonably possible, through inspection of responses to inquiry letters sent to both internal and external legal counsel, direct discussions with internal legal counsel, inspection of any proposed settlement agreements and obtaining written representations from executives of the Company. In addition, we evaluated the adequacy of the Company’s financial statement disclosures. |
| | | | | |
| We involved our tax subject matter professionals in assessing the technical merits and measurement of the Company’s tax positions related to the opioid litigation and investigation liability. We examined the Company’s analyses and evaluated the underlying facts upon which the tax positions were based. We used our knowledge of historical settlement activity in similar matters involving legal settlements to evaluate the Company’s measurement of the uncertain tax position associated with the opioid litigation and investigations. We also evaluated the adequacy of the Company’s financial statement disclosures and obtained written representations from executives of the Company related to this income tax matter. |
We have served as the Company's auditor since 1985.
November 21, 2023
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | September 30, |
| (in thousands, except share and per share data) | | 2023 | | 2022 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | | | | $ | | |
Accounts receivable, less allowances for returns and credit losses: 2023 — $; 2022 — $ | | | | | | |
| Inventories | | | | | | |
| Right to recover assets | | | | | | |
Income tax receivable | | | | | | |
| Prepaid expenses and other | | | | | | |
| Total current assets | | | | | | |
| | | | |
| Property and equipment, net | | | | | | |
| Goodwill | | | | | | |
| Other intangible assets | | | | | | |
| Deferred income taxes | | | | | | |
| Other assets | | | | | | |
| | | | |
| TOTAL ASSETS | | $ | | | | $ | | |
| | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | | | | $ | | |
| Accrued expenses and other | | | | | | |
| Short-term debt | | | | | | |
| Total current liabilities | | | | | | |
| | | | |
| Long-term debt | | | | | | |
| Accrued income taxes | | | | | | |
| Deferred income taxes | | | | | | |
| Accrued litigation liability | | | | | | |
Other liabilities | | | | | | |
Commitments and contingencies (Note 13) | | | | |
| | | | |
| Stockholders' equity: | | | | |
Common stock, $ par value — authorized, issued, and outstanding: 2023 — shares, shares and shares; 2022 — shares, shares and shares | | | | | | |
| Additional paid-in capital | | | | | | |
| Retained earnings | | | | | | |
| Accumulated other comprehensive loss | | () | | | () | |
Treasury stock, at cost: 2023 — shares; 2022 — shares | | () | | | () | |
| Total Cencora, Inc. stockholders' equity (deficit) | | | | | () | |
| Noncontrolling interests | | | | | | |
| Total stockholders' equity | | | | | | |
| | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | | | | $ | | |
See notes to consolidated financial statements.
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended September 30, |
| (in thousands, except per share data) | | 2023 | | 2022 | | 2021 |
| Revenue | | $ | | | | $ | | | | $ | | |
| Cost of goods sold | | | | | | | | | |
| Gross profit | | | | | | | | | |
| Operating expenses: | | | | | | |
| Distribution, selling, and administrative | | | | | | | | | |
| Depreciation | | | | | | | | | |
| Amortization | | | | | | | | | |
| Litigation and opioid-related (credit) expenses | | () | | | | | | | |
| Acquisition-related deal and integration expenses | | | | | | | | | |
| Restructuring and other expenses | | | | | | | | | |
| Goodwill impairment | | | | | | | | | |
| Impairment of assets | | | | | | | | | |
| Operating income | | | | | | | | | |
| Other income, net | | () | | | () | | | () | |
| Interest expense, net | | | | | | | | | |
| Income before income taxes | | | | | | | | | |
| Income tax expense | | | | | | | | | |
| Net income | | | | | | | | | |
| Net loss (income) attributable to noncontrolling interests | | | | | | | | () | |
| Net income attributable to Cencora, Inc. | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | | | | $ | | | | $ | | |
| Diluted | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Weighted average common shares outstanding: | | | | | | |
| Basic | | | | | | | | | |
| Diluted | | | | | | | | | |
See notes to consolidated financial statements.
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended September 30, |
| (in thousands) | | 2023 | | 2022 | | 2021 |
| Net income | | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustments | | | | | () | | | () | |
| Other, net | | | | | | | | | |
| Total other comprehensive income (loss) | | | | | () | | | () | |
| Total comprehensive income | | | | | | | | | |
| Comprehensive loss (income) attributable to noncontrolling interests | | | | | | | | () | |
| Comprehensive income attributable to Cencora, Inc. | | $ | | | | $ | | | | $ | | |
See notes to consolidated financial statements.
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except per share data) | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Treasury
Stock | | Non-controlling Interest | | Total |
| September 30, 2020 | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | () | |
Adoption of ASC 326, net of tax (Note 1) | | — | | | — | | | () | | | — | | | — | | | () | | | () | |
| Net income | | — | | | — | | | | | | — | | | — | | | | | | | |
| Other comprehensive (loss) income | | — | | | — | | | — | | | () | | | — | | | | | | () | |
Cash dividends, $ per share | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Exercises of stock options | | | | | | | | — | | | — | | | — | | | — | | | | |
| Share-based compensation expense | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Purchases of common stock | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
Employee tax withholdings related to restricted share vesting | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Equity consideration issued for acquisition of Alliance Healthcare (Note 2) | | — | | | | | | — | | | — | | | | | | — | | | | |
| Acquisition of Alliance Healthcare (Note 2) | | — | | | — | | | — | | | — | | | — | | | | | | | |
| Other, net | | | | | () | | | — | | | — | | | — | | | () | | | () | |
| September 30, 2021 | | | | | | | | | | | () | | | () | | | | | | | |
| Net income (loss) | | — | | | — | | | | | | — | | | — | | | () | | | | |
| Other comprehensive loss | | — | | | — | | | — | | | () | | | — | | | () | | | () | |
Cash dividends, $ per share | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Exercises of stock options | | | | | | | | — | | | — | | | — | | | — | | | | |
| Share-based compensation expense | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Purchases of common stock | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
Employee tax withholdings related to restricted share vesting | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Divestiture of business | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| Other, net | | | | | | | | — | | | — | | | — | | | () | | | | |
| September 30, 2022 | | | | | | | | | | | () | | | () | | | | | | | |
| Net income (loss) | | — | | | — | | | | | | — | | | — | | | () | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | | | | — | | | () | | | | |
Cash dividends, $ per share | | — | | | — | | | () | | | — | | | — | | | — | | | () | |
| Exercises of stock options | | | | | | | | — | | | — | | | — | | | — | | | | |
| Share-based compensation expense | | — | | | | | | — | | | — | | | — | | | — | | | | |
| Purchases of common stock | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
Employee tax withholdings related to restricted share vesting | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Divestiture of business | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| Other, net | | | | | | | | — | | | — | | | — | | | () | | | () | |
| September 30, 2023 | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | |
See notes to consolidated financial statements.
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended September 30, |
| (in thousands) | | 2023 | | 2022 | | 2021 |
| OPERATING ACTIVITIES | | | | | | |
| Net income | | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation, including amounts charged to cost of goods sold | | | | | | | | | |
| Amortization, including amounts charged to interest expense | | | | | | | | | |
| Provision for credit losses | | | | | | | | | |
| (Benefit) provision for deferred income taxes | | () | | | | | | | |
| Share-based compensation expense | | | | | | | | | |
| LIFO expense (credit) | | | | | | | | () | |
| Impairment of assets, including goodwill | | | | | | | | | |
| Gain on divestiture of businesses | | () | | | () | | | | |
|
| Turkey highly inflationary impact | | | | | | | | | |
| Gain on remeasurement of equity investment | | () | | | () | | | () | |
| Other, net | | | | | | | | | |
| Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures: | | | | | | |
| Accounts receivable | | () | | | () | | | () | |
| Inventories | | () | | | () | | | () | |
| Income tax receivable | | | | | | | | | |
| Prepaid expenses and other assets | | | | | | | | | |
| Accounts payable | | | | | | | | | |
| Accrued expenses | | | | | () | | | | |
| Income taxes payable and other liabilities | | () | | | () | | | () | |
| Long-term accrued litigation liability | | () | | | () | | | () | |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | |
| Capital expenditures | | () | | | () | | | () | |
| Cost of acquired companies, net of cash acquired | | () | | | () | | | () | |
| Cost of equity investments | | () | | | () | | | () | |
| Proceeds from divestiture of businesses | | | | | | | | | |
| Other, net | | | | | | | | | |
| NET CASH USED IN INVESTING ACTIVITIES | | () | | | () | | | () | |
| FINANCING ACTIVITIES | | | | | | |
| Senior notes and other loan borrowings | | | | | | | | | |
| Senior notes and other loan repayments | | () | | | () | | | () | |
| Borrowings under revolving and securitization credit facilities | | | | | | | | | |
| Repayments under revolving and securitization credit facilities | | () | | | () | | | () | |
| Purchases of common stock | | () | | | () | | | () | |
| Exercises of stock options | | | | | | | | | |
| Cash dividends on common stock | | () | | | () | | | () | |
| Employee tax withholdings related to restricted share vesting | | () | | | () | | | () | |
| Other, net | | () | | | () | | | | |
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | | () | | | () | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | | | | | () | | | () | |
| (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, INCLUDING CASH CLASSIFIED WITHIN ASSETS HELD FOR SALE | | () | | | | | | () | |
| LESS: INCREASE IN CASH CLASSIFIED WITHIN ASSETS HELD FOR SALE | | | | | () | | | () | |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | () | | | | | | () | |
| Cash, cash equivalents, and restricted cash at beginning of year | | | | | | | | | |
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF YEAR | | $ | | | | $ | | | | $ | | |
See notes to consolidated financial statements.
CENCORA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
Note 1.
million, net of tax of $ million, cumulative adjustment to retained earnings. For the Company's credit loss policy, refer to the "Concentrations of Credit Risk and Allowance for Credit Losses" section of Note 1.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of September 30, 2023, there were no 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.
| | $ | | | | $ | | | | Restricted cash (included in Prepaid Expenses and Other) | | | | | | | | | |
| Restricted cash (included in Other Assets) | | | | | | | | | |
| Cash, cash equivalents, and restricted cash | | $ | | | | $ | | | | $ | | |
% of revenue and represented approximately % of accounts receivable, net of incentives, as of September 30, 2023. Express Scripts, Inc., the Company's second largest customer in the fiscal year ended September 30, 2023, accounted for approximately % of revenue and represented approximately % of accounts receivable as of September 30, 2023. The Company generally does not require collateral for trade receivables. The Company evaluates its receivables for risk of loss by grouping its 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 the Company's allowance for credit losses. The calculation of the required allowance requires judgment by Company management as to the impact of those and other factors on the ultimate realization of its trade receivables. The Company performs ongoing credit evaluations of its customers' financial condition and maintains reserves for expected credit losses for specific credit problems when they arise. There were no significant changes to this process during the fiscal years ended September 30, 2023, 2022, and 2021, and bad debt expense was computed in a consistent manner during these periods.The Company maintains cash, cash equivalents, and restricted cash with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and, therefore, bear minimal credit risk. The Company seeks to mitigate such risks by monitoring the risk profiles of these counterparties. The Company also seeks to mitigate risk by monitoring the investment strategy of money market accounts in which it is invested, which are classified as cash equivalents.
million and $ million, respectively, in Cost of Goods Sold related to the consumption of inventory and expenses of $ million and $ million, respectively, within Other Income, Net related to the currency remeasurement of monetary assets and liabilities.
million and $ million in its Profarma reporting unit in connection with its fiscal 2022 and 2021 impairment tests (see Note 5), respectively. goodwill impairments were recorded in the fiscal year ended September 30, 2023, and indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2023, 2022, or 2021.Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets. The Company performs a recoverability assessment of its long-lived assets when impairment indicators are present.
% of the Company's inventories as of September 30, 2023 and 2022 has been determined using the last-in, first-out ("LIFO") method. If the Company had used the first-in, first-out method of inventory valuation, which approximates current replacement cost, inventories would have been approximately $ million and $ million higher than the amounts reported as of September 30, 2023 and 2022, respectively. The Company recorded LIFO expense of $ million and $ million in the fiscal years ended September 30, 2023 and 2022, respectively, and a LIFO credit of $ million in the fiscal year ended September 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 quantities, and product mix, many of which are difficult to predict. Changes to any of the above factors can have a material impact to the Company's annual LIFO provision.
to years for buildings and improvements and from to years for machinery, equipment, and other. The costs of repairs and maintenance are charged to expense as incurred.The Company capitalizes project costs relating to computer software developed or obtained for internal use when the activities related to the project reach the application development stage. Costs that are associated with preliminary stage activities, training, maintenance, and all other post-implementation stage activities are expensed as they are incurred. Software development costs are depreciated using the straight-line method over the estimated useful lives, which range from to years.
| | $ | | | | Buildings and improvements | | | | | | |
| Machinery, equipment, and other | | | | | | |
| Total property and equipment | | | | | | |
| Less accumulated depreciation | | () | | | () | |
| Property and equipment, net | | $ | | | | $ | | |
As of September 30, 2023 and 2022, the Company's accrual for estimated customer sales returns was $ million and $ million, respectively.
These costs, which were $ million, $ million, and $ million for the fiscal years ended September 30, 2023, 2022, and 2021, respectively, are included in Distribution, Selling, and Administrative in the Company's Consolidated Statements of Operations.
Note 2.
billion, subject to customary adjustments, including a $ million cash holdback. PharmaLex is a leading provider of specialized services for the life sciences industry. PharmaLex's services include regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance. PharmaLex is headquartered in Germany and operates in over countries. The acquisition advances the Company's role as a partner of choice for biopharmaceutical partners across the pharmaceutical development and commercialization journey. PharmaLex is a component of the Company's International Healthcare Solutions reportable segment.The purchase price has been preliminarily allocated to the underlying assets acquired, including $ million of cash and cash equivalents, and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The preliminary allocation is pending the finalization of the working capital account balances and goodwill.
The purchase price exceeded the current estimated fair value of the net tangible and intangible assets acquired by $ million, which was allocated to goodwill. Goodwill resulting from this acquisition is not deductible for income tax purposes.
million, and the estimated useful lives are as follows: | | | | | | | | | | | | | | |
| (in thousands, except useful lives) | | Fair Value | | Useful Lives |
| Customer relationships | | $ | | | | |
| Trade names | | | | | |
| Software technology | | | | | |
| Total | | $ | | | | |
The Company established an estimated deferred tax liability of $ million primarily in connection with the intangible assets acquired.
Investment in OneOncology
In June 2023, the Company and TPG, a global alternative asset management firm, acquired OneOncology, LLC ("OneOncology"), a network of leading oncology practices. Including all direct transaction costs, the Company invested $ million (representing %) in a joint venture formed to acquire OneOncology for approximately $ billion, and TPG acquired the majority interest in the joint venture. The Company accounts for its interest in the joint venture as an equity method investment, which is included in Other Assets on its Consolidated Balance Sheet.
Beginning on the third anniversary of the closing of the joint venture's acquisition of OneOncology and ending on the day before the fourth anniversary of that closing, TPG will have a put option under which TPG may require the Company to purchase all of the other interests in the joint venture, including TPG's interest, at a price equal to times OneOncology's adjusted earnings before interest, taxes, depreciation and amortization for the most recently ended period prior to TPG’s exercise of the put option, all of which is subject to various other adjustments and qualifications. In addition, on the date that is the third anniversary of the closing and again beginning on the fourth anniversary of the closing and ending on the day before the fifth anniversary of the closing, the Company will have a call option to purchase all of the other interests in the joint venture, including TPG's, also at the price set forth above. The fair value of the net put option, which is a Level 3 measurement, was determined using a Monte Carlo simulation, which relies on assumptions, including cash flow projections, risk-free rates, volatility, and details specific to the put and call options. In September 2023, the Company adjusted the preliminary estimated net fair value of the net put option from $ million to $ million, which is recorded within Other Liabilities with a
million difference between the carrying value of the Company's investment in OneOncology and its underlying equity in net assets, which has been allocated to intangible assets of $ million, a related deferred tax liability of $ million, and goodwill of $ million. The intangible assets and related deferred tax liability are being amortized over a weighted-average life of years.Alliance Healthcare Acquisition
On June 1, 2021, the Company acquired a majority of Walgreens Boots Alliance, Inc.'s ("WBA") Alliance Healthcare businesses ("Alliance Healthcare") for $ million in cash, $ million of the Company's common stock ( million shares at the Company's June 1, 2021 opening stock price of $ per share), and $ million of other equity consideration. The net cash payment was $ million, as the Company acquired $ million of cash and cash equivalents and $ million of restricted cash. The shares issued were from the Company's treasury stock on a first-in, first-out basis and were originally purchased for $ million. In the fiscal year ended September 30, 2022, the Company's previous estimate of $ million of accrued consideration was settled for $ million, which resulted in a $ million reduction to Goodwill. The $ million cash payment is included in the total $ million cash consideration. The Company funded the cash purchase price through a combination of cash on hand and new debt financing. The acquisition expands the Company's reach and solutions in pharmaceutical distribution and adds to the Company's depth and breadth of global manufacturer services.
million, increased the corresponding deferred tax assets by $ million, and decreased other assets by $ million, which resulted in a $ million increase to Goodwill. There were no measurement period adjustments recorded to the previously-reported opening balance sheet that would have had a material impact on the Company's previously-reported results of operations had those adjustments been recorded in the previous reporting periods. The final purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition in the table that follows:
| Equity ( million shares of Cencora, Inc. common stock) | | | |
| Other equity consideration | | | |
| Fair value of total consideration | | $ | | |
| | |
| Recognized amounts of identifiable assets acquired and liabilities assumed | | |
| Cash and cash equivalents | | $ | | |
| Accounts receivable | | | |
| Inventories | | | |
| Prepaid expenses and other | | | |
| Property and equipment | | | |
| Goodwill | | | |
| Other intangible assets | | | |
| Deferred income taxes | | | |
| Other assets | | | |
| Total assets acquired | | | |
| | |
| Accounts payable | | () | |
| Accrued expenses and other | | () | |
| Short-term debt | | () | |
| Deferred income taxes | | () | |
| Other liabilities | | () | |
| Total liabilities assumed | | () | |
| | |
| Net assets acquired | | | |
| | |
| Noncontrolling interest | | () | |
| Equity consideration | | () | |
Cash acquired, including restricted cash of $ included in Prepaid Expenses and Other | | () | |
| Net cash paid | | $ | | |
billion and the estimated useful lives are as follows: | | | | | | | | | | | | | | |
| (in thousands, except useful lives) | | Fair Value | | Weighted-Average Useful Life |
| Customer relationships | | $ | | | | |
| Trade names | | | | | |
| Total | | $ | | | | |
Goodwill resulting from this acquisition is t deductible for income tax purposes.
The fair value of the $ million noncontrolling interest in Alliance Healthcare Egypt, a %-owned subsidiary, was estimated by applying income and market-based approaches. This fair value measurement is based on inputs that are not observable in the market and; therefore, represents a fair value measurement categorized within Level 3 of the fair value hierarchy.
The Company incurred $ million of acquisition-related costs in connection with this acquisition. These costs are included in Acquisition-Related Deal and Integration Expenses in the Company's Statements of Operations for the fiscal year ended September 30, 2021.
Note 3.
| | $ | | | | Accounts receivables, net | | | | | | |
| Inventories | | | | | | |
| Prepaid expenses and other | | | | | | |
| Property and equipment, net | | | | | | |
| Other intangible assets | | | | | | |
| Other long-term assets | | | | | | |
| Total assets | | $ | | | | $ | | |
| | | | |
| Accounts payable | | $ | | | | $ | | |
| Accrued expenses and other | | | | | | |
| Short-term debt | | | | | | |
| Long-term debt | | | | | | |
| Deferred income taxes | | | | | | |
| Other long-term liabilities | | | | | | |
| Total liabilities | | $ | | | | $ | | |
Note 4.
| | $ | | | | $ | | | | Foreign | | | | | | | | | |
| Total | | $ | | | | $ | | | | $ | | |
Income Tax Expense
| | $ | | | | $ | | | | State and local | | | | | | | | | |
| Foreign | | | | | | | | | |
| Total current provision | | | | | | | | | |
| Deferred (benefit) provision: | | | | | | |
| Federal | | () | | | | | | | |
| State and local | | | | | | | | | |
| Foreign | | () | | | | | | | |
| Total deferred (benefit) provision | | () | | | | | | | |
| Provision for income taxes | | $ | | | | $ | | | | $ | | |
Tax Rate Reconciliation
% | % | | % | | State and local income tax rate, net of federal tax benefit | | | | | |
| Tax effect of foreign operations | () | | () | | () |
Tax law changes 1 | () | | | | |
| Other, net | () | | | | () |
| Effective income tax rate | % | | % | | % |
| | | | | |
1 Tax law changes include % related to UK Tax Reform and % related to Swiss Tax Reform in fiscal 2021. |
United Kingdom Tax Reform
The United Kingdom ("UK") government delivered a Spring Budget in March 2021 that set out a plan to provide continuing support for jobs and businesses as the UK recovers from the COVID-19 pandemic. The UK government Finance Act 2021 includes a provision to increase the corporate tax rate from 19% to 25% beginning on April 1, 2023. As a result, the Company recognized a deferred tax expense of $ million to increase its deferred tax liabilities for the change in the tax rate in the fiscal year ended September 30, 2021.
years. As a result of the aforementioned Swiss tax law change and ruling, the Company recorded a deferred tax asset in the fiscal year ended September 30, 2020 that is expected to be realized over the following years. As of September 30, 2023, the deferred tax asset of $ million was reduced by a $ million valuation allowance for the amount that more likely than not will not be realized.
In November 2020, the Canton of Bern approved its Budget 2021, which called for lowering its corporate income tax rate applicable to the Company’s Swiss operations effective October 1, 2020. As a result, the Company recognized a deferred tax expense to reduce its Swiss deferred tax asset for the change in tax rate.
Deferred Tax Liabilities and Assets
Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts.
| | $ | | | | Property and equipment | | | | | | |
| Goodwill and other intangible assets | | | | | | |
| Right-of-use assets | | | | | | |
| Other | | | | | | |
| Gross deferred tax liabilities | | | | | | |
| | | | |
| Net operating loss and tax credit carryforwards | | () | | | () | |
| Allowance for credit losses | | () | | | () | |
| Accrued expenses | | () | | | () | |
| Accrued litigation liability | | () | | | () | |
| Employee and retiree benefits | | () | | | () | |
| Goodwill and other intangible assets | | () | | | () | |
| Lease liabilities | | () | | | () | |
| Share-based compensation | | () | | | () | |
| Other | | () | | | () | |
| Gross deferred tax assets | | () | | | () | |
| Valuation allowance for deferred tax assets | | | | | | |
| Deferred tax assets, net of valuation allowance | | () | | | () | |
| Net deferred tax liabilities | | $ | | | | $ | | |
As of September 30, 2023, the Company had $ million of potential tax benefits from state net operating loss carryforwards and $ million of potential tax benefits from foreign net operating loss carryforwards, which have varying expiration dates. The Company had $ million of state tax credit carryforwards and $ million in foreign alternative minimum tax credit carryforwards.
The Company assesses the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets. For the fiscal year ended September 30, 2023 and 2022, the Company increased the valuation allowance on deferred tax assets by $ million and $ million, respectively. The increases in the valuation allowance in the fiscal years ended September 30, 2023 and 2022 were primarily due to the increase in the valuation allowance against foreign net operating loss carryforwards.
million, $ million and $ million, respectively, related to the exercise of employee stock options and lapses of restricted stock units were recorded in Income Tax Expense in the Company's Consolidated Statements of Operations. The tax benefits recognized in the fiscal years ended September 30, 2023, 2022, and 2021 are not necessarily indicative of amounts that may arise in future periods.Income tax payments, net of refunds, were $ million, $ million, and $ million in the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
Cumulative undistributed earnings of international subsidiaries were $ billion as of September 30, 2023, $ billion of which is considered permanently reinvested. It is not practicable to estimate the taxes that would be due if such earnings were to be repatriated in the future.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is currently undergoing certain state and local income tax audits for various years. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years before 2020. The Company believes it has adequate tax reserves to cover potential federal, state or foreign tax exposures.
Unrecognized Tax Benefits
As of September 30, 2023 and 2022, 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 $ million and $ million, respectively ($ million and $ million, net of federal tax benefit, respectively). If recognized in the fiscal years ended September 30, 2023 and 2022, $ million and $ million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. As of September 30, 2023 and 2022, included in the unrecognized tax benefits are $ million and $ million of interest and penalties, respectively, which the Company records in Income Tax Expense in the Company's Consolidated Statements of Operations.
| | $ | | | | $ | | | | Additions of tax positions of the current year | | | | | | | | | |
| Additions to tax positions of the prior years | | | | | | | | | |
| Reductions of tax positions of the prior years | | () | | | | | | | |
| Settlements and expiration of statutes of limitations | | () | | | () | | | () | |
| Effects of foreign currency translation | | () | | | | | | | |
| Unrecognized tax benefits at end of period | | $ | | | | $ | | | | $ | | |
During the next 12 months, it is reasonably possible that tax audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $ million.
Note 5.
| | $ | | | | $ | | | | Purchase accounting adjustments | | | | | | | | | |
| Goodwill recognized in connection with acquisition | | | | | | | | | |
| Goodwill derecognized in connection with divestiture | | () | | | | | | () | |
| Goodwill impairment | | | | | () | | | () | |
| Foreign currency translation | | () | | | () | | | () | |
| Goodwill as of September 30, 2022 | | | | | | | | | |
| Goodwill recognized in connection with acquisitions | | | | | | | | | |
| Goodwill derecognized in connection with divestiture | | | | | () | | | () | |
| Foreign currency translation | | | | | | | | | |
| Goodwill as of September 30, 2023 | | $ | | | | $ | | | | $ | | |
As a result of a prolonged decline in Profarma’s stock price, the Company performed an impairment assessment over the Profarma reporting unit as of June 30, 2022 and recorded a goodwill impairment of $ million in the fiscal year ended September 30, 2022. The Company determined the fair value of the Profarma reporting unit based upon Profarma’s publicly-traded stock price, plus an estimated control premium. This represents a level 2 nonrecurring fair value measurement.
| | $ | — | | | $ | | | | $ | | | | $ | — | | | $ | | | | Finite-lived: | | | | | | | | | | | | | | |
| Customer relationships | | years | | | | | () | | | | | | | | | () | | | | |
| Trade names and other | | years | | | | | () | | | | | | | | | () | | | | |
| Total other intangible assets | | | | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
As described in Note 1, the Company changed its name to Cencora, Inc. on August 30, 2023. In connection with the name change and gradual and planned transition away from other tradenames used, the Company reclassified $ million of trade names from indefinite-lived to finite-lived. The shortened useful lives of these trade names, all of which were acquired through prior acquisitions made by the Company, range from less than to . The future amortization expense amounts below reflect the impact of the intangible assets' revised useful lives.
Amortization expense for finite-lived intangible assets was $ million, $ million, and $ million in the fiscal years ended September 30, 2023, 2022, and 2021, respectively. Amortization expense for finite-lived intangible assets is estimated to be $ million in fiscal 2024, $ million in fiscal 2025, $ million in fiscal 2026, $ million in fiscal 2027, $ million in 2028, and $ million thereafter.
Note 6.
| | $ | | | | Receivables securitization facility due 2025 | | | | | | |
| Revolving credit note | | | | | | |
Overdraft facility due 2024 (£) | | | | | | |
| Money market facility | | | | | | |
% senior notes due 2023 | | | | | | |
$, % senior notes due 2024 | | | | | | |
$, % senior notes due 2025 | | | | | | |
$, % senior notes due 2027 | | | | | | |
$, % senior notes due 2030 | | | | | | |
$, % senior notes due 2031 | | | | | | |
$, % senior notes due 2045 | | | | | | |
$, % senior notes due 2047 | | | | | | |
| Alliance Healthcare debt | | | | | | |
| Nonrecourse debt | | | | | | |
| Total debt | | | | | | |
| Less Cencora, Inc. current portion | | | | | | |
| Less Alliance Healthcare current portion | | | | | | |
| Less nonrecourse current portion | | | | | | |
| Total, net of current portion | | $ | | | | $ | | |
Multi-Currency Revolving Credit Facility
The Company has a $ billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility") with a syndicate of lenders, which was scheduled to expire in October 2027. In October 2023, the Company amended the Multi-Currency Revolving Credit Facility to extend the expiration to October 2028. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon the Company's debt rating and ranges from basis points to basis points over SOFR/EURIBOR/CDOR/RFR, as applicable ( basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2023) and from basis points to basis points over the alternate base rate and Canadian prime rate, as applicable. The Company pays facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on its debt rating, ranging from basis points to basis points, annually, of the total commitment ( basis points as of September 30, 2023). The Company may choose to repay or reduce its 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 the Company was compliant as of September 30, 2023.
Commercial Paper Program
The Company has a commercial paper program whereby it may from time to time issue short-term promissory notes in an aggregate amount of up to $ 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 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 the Company's borrowing capacity as it is fully backed by the Company's Multi-Currency Revolving Credit Facility. There were borrowings outstanding under the commercial paper program as of September 30, 2023 and 2022.
million receivables securitization facility ("Receivables Securitization Facility"), which is scheduled to expire in October 2025. The Company has available to it an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to $ million, subject to lender approval, for seasonal needs during the December and March quarters. Interest rates are based on prevailing market rates for short-term commercial paper or 30-day Term SOFR, plus a program fee. The Company pays 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 to Amerisource 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. The facility is a financing vehicle utilized by the Company because it generally offers an attractive interest rate relative to other financing sources. The Company securitizes its 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 the Company was compliant as of September 30, 2023.
Revolving Credit Note, Overdraft Facility, and Money Market Facility
The Company has an uncommitted, unsecured line of credit available to it pursuant to a revolving credit note ("Revolving Credit Note"). The Revolving Credit Note provides the Company with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $ million. The Revolving Credit Note may be decreased or terminated by the bank or the Company at any time without prior notice. The Company also has a £ million uncommitted U.K. overdraft facility ("Overdraft Facility") to fund short-term normal trading cycle fluctuations related to its MWI Animal Health business, which expires in February 2024. The Company has an uncommitted, unsecured line of credit available to it pursuant to a money market credit agreement ("Money Market Facility"). The Money Market Facility provides the Company with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $ million. The Money Market Facility may be decreased or terminated by the bank or the Company at any time without prior notice.
Term Loans
In February 2021, the Company entered into a $ 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. In April 2021, the Company reduced its commitment under the February 2021 Term Loan to $ million. In June 2021, the Company borrowed $ million under the February 2021 Term Loan to finance a portion of the June 2021 Alliance Healthcare acquisition. The Company elected to make principal payments of $ million in September 2021 and again in March 2022 to repay the loan that was scheduled to mature in 2023.
Senior Notes
In March 2021, the Company issued $ million of % senior notes due March 15, 2023 (the "2023 Notes"). The 2023 Notes were sold at % of the principal amount. Interest on the 2023 Notes was payable semi-annually in arrears and commenced on September 15, 2021. In March 2021, the Company issued $ million of % senior notes due March 15, 2031 (the "2031 Notes"). The 2031 Notes were sold at % of the principal amount and have an effective yield of %. Interest on the 2031 Notes is payable semi-annually in arrears and commenced on September 15, 2021. The 2023 Notes and 2031 Notes rank pari passu to the Company's other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility. The Company used the proceeds from the 2023 Notes and the 2031 Notes to finance a portion of the June 2021 Alliance Healthcare acquisition.
In the fiscal year ended September 30, 2022, the Company elected to repay $ million of 2023 Notes due in March 2023. In March 2023, the remaining balance of $ million on the original $ billion of % senior notes matured and was repaid.
The senior notes discussed above and also illustrated in the above debt table are collectively referred to as the "Notes." Interest on the Notes is payable semiannually in arrears. Most of the Notes were sold at small discounts to the principal amounts and, therefore, have effective yields that are greater than the stated interest rates in the table above. Costs incurred in connection with the issuance of the Notes were deferred and are being amortized over the terms of the Notes. The indentures governing the Notes contain restrictions and covenants, which include limitations on additional indebtedness; distributions to stockholders;
million in fiscal 2024, $ million in fiscal 2025, $ million in fiscal 2026, $ million in fiscal 2027, $ million in fiscal 2028, and $ million thereafter. Interest paid on the above indebtedness during the fiscal years ended September 30, 2023, 2022, and 2021 was $ million, $ million, and $ million, respectively.
Total amortization of financing fees and the accretion of original issue discounts, which are recorded as components of Interest Expense, Net on the Consolidated Statements of Operations, were $ million, $ million, and $ million, for the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
Note 7.
shares of common stock, par value $ per share (the "common stock"), and shares of preferred stock, par value $ per share (the "preferred stock").The holders of the Company's common stock are entitled to vote per share and have the exclusive right to vote for the Board of Directors and for all other purposes as provided by law. Subject to the rights of holders of the Company's preferred stock, holders of common stock are entitled to receive ratably on a per share basis such dividends and other distributions in cash, stock, or property of the Company as may be declared by the Board of Directors from time to time out of the legally available assets or funds of the Company.
| | $ | () | | | Foreign currency translation | | () | | | () | |
| Other | | () | | | () | |
| Total accumulated other comprehensive loss | | $ | () | | | $ | () | |
The decrease in total accumulated other comprehensive loss from foreign currency translation primarily relates to the translation of the Company's Alliance Healthcare business' goodwill and intangible assets balances.
In October 2018, the Company's Board of Directors authorized a share repurchase program allowing the Company to purchase up to $ billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2021, the Company purchased million shares of its common stock for a total of $ million to complete its authorization under this program.
In May 2020, the Company's Board of Directors authorized a share repurchase program allowing the Company to purchase up to $ million of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2021, the Company purchased million shares of its common stock for $ million. During the fiscal year ended September 30, 2022, the Company purchased million shares of its common stock for $ million to complete its authorization under this program.
billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2022, the Company purchased million shares of its common stock for a total of $ million, which included $ million of September 2022 purchases that cash settled in October 2022. During the fiscal year ended September 30, 2023, the Company purchased million shares of its common stock for a total of $ million, including million shares from WBA for $ million, to complete its authorization under this program. In March 2023, the Company's Board of Directors authorized a new share repurchase program allowing the Company to purchase up to $ billion of its outstanding shares of common stock, subject to market conditions. During the fiscal year ended September 30, 2023, the Company purchased million shares of its common stock for a total of $ million, including million shares from WBA for $ million. As of September 30, 2023, the Company had $ million of availability under this program. From October 1, 2023 through November 20, 2023, the Company purchased million shares of its common stock for a total of $ million, including million shares from WBA for $ million.
Common Shares Outstanding
Basic earnings per share is computed by dividing net income attributable to Cencora, Inc. by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed by dividing net income attributable to Cencora, Inc. by the weighted average number of shares of common stock outstanding, plus the dilutive effect of stock options and restricted stock units during the periods presented.
| | | | | | | Effect of dilutive securities - stock options and restricted stock units | | | | | | | | | |
| Weighted average common shares outstanding - diluted | | | | | | | | | |
thousand, thousand, and thousand for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.
Note 8.
% of the Company's outstanding common stock and is, therefore, considered a related party. The Company operates under various agreements and arrangements with WBA, including a pharmaceutical distribution agreement pursuant to which the Company distributes pharmaceutical products to WBA and an agreement that provides the Company the ability to access favorable economic pricing and generic products through a generic purchasing services arrangement with Walgreens Boots Alliance Development GmbH (both through 2029) as well as a distribution agreement pursuant to which it will supply branded and generic pharmaceutical products to WBA’s Boots UK Ltd. subsidiary (through 2031).
billion, $ billion, and $ billion in the fiscal years ended September 30, 2023, 2022, and 2021, respectively. The Company's receivable from WBA, net of incentives, was $ billion and $ billion as of September 30, 2023 and 2022, respectively.
Note 9.
% to % of their regular compensation before taxes. The Company contributes $ for each $1.00 invested by the participant up to the first % of the participant's salary and $ for each additional $1.00 invested by the participant of up to an additional % of salary. An additional discretionary contribution, in an amount not to exceed the limits established by the Internal Revenue Code ("IRC"), may also be made depending upon the Company's performance. Based on the Company's performance in fiscal 2023, 2022, and 2021, the Company recognized expenses for discretionary contributions to the Plan in the fiscal years ended September 30, 2023, 2022, and 2021. All contributions are invested at the direction of the employee in one or more funds. All contributions vest immediately except for the discretionary contributions made by the Company, which vest in full after of credited service. The Company's international businesses sponsor various country-specific retirement plans.
Costs of above retirement benefit plans charged to expense for the fiscal years ended September 30, 2023, 2022, and 2021 were $ million, $ million, and $ million, respectively.
The Company also sponsors the AmerisourceBergen Corporation Benefit Restoration Plan. This unfunded plan provides benefits to selected key management, including each of the Company's executive officers. This plan provides eligible participants with an annual amount equal to % of the participant's total cash compensation to the extent that his or her compensation exceeds the annual compensation limit established by Section 401(a) (17) of the IRC.
Deferred Compensation Plan
The Company sponsors the AmerisourceBergen Corporation 2001 Deferred Compensation Plan. This unfunded plan allows eligible officers, directors, and key management employees to defer a portion of their annual compensation. The amount deferred may be allocated by the employee among a selection of mutual funds. The Company's liability relating to its deferred compensation plan as of September 30, 2023 and 2022 was $ million and $ million, respectively.
Note 10.
million shares available to be granted for employee and non-employee director stock restricted stock units, performance stock units, and stock options under the 2022 Plan.Stock Options
The Company's employee stock option plans provide for the granting of incentive and nonqualified stock options to acquire shares of common stock to employees at a price not less than the fair market value of the common stock on the dates options are granted. Option terms and vesting periods are determined at the date of grant by the Compensation Committee of the Board of Directors. Employee stock options generally vest ratably, in equal amounts, over a service period and expire in . The Company's non-employee director stock option plans provide for the granting of nonqualified stock options to acquire shares of common stock to non-employee directors at the fair market value of the common stock on the date of the grant. Non-employee director options vest ratably, in equal amounts, over a service period and expire in .
The estimated fair value of options granted is expensed on a straight-line basis over the requisite service periods of the awards and are net of estimated forfeitures. The Company estimates the fair values of option grants using a binomial option pricing model. Expected volatilities are based upon the historical volatility of the Company's common stock and other factors, such as implied market volatility. The Company uses historical exercise data, taking into consideration the optionees' ages at grant date, to estimate the terms for which the options are expected to be outstanding. The risk-free rates during the terms of such options are based upon the U.S. Treasury yield curve in effect at the time of grant.
The Company has not granted any stock options to employees since fiscal 2020, and it does not expect to grant any stock options in fiscal 2024.
During the fiscal years ended September 30, 2022 and 2021, the Company recognized stock option expense of $ million and $ million, respectively.
| | $ | | years | | $ | | | | Exercised | | () | | | $ | | | | |
| Outstanding as of September 30, 2023 | | | | | $ | | years | | $ | | |
| Exercisable as of September 30, 2023 | | | | | $ | | years | | $ | | |
| Expected to vest after September 30, 2023 | | | | | $ | | years | | $ | | |
The intrinsic value of stock options exercised during the fiscal years ended September 30, 2023, 2022, and 2021 was $ million, $ million, and $ million, respectively.
| | $ | | Vested | | () | | | $ |
| Nonvested as of September 30, 2023 | | | | | $ |
During the fiscal years ended September 30, 2023, 2022, and 2021, the total fair values of options vested were $ million, $ million, and $ million, respectively.
Restricted Stock Units
Restricted stock units granted prior to fiscal 2021 vested in full after . The majority of the restricted stock units granted beginning in fiscal 2021 and thereafter vest ratably over a period. The estimated fair value of restricted stock units under the Company's restricted stock unit plans is determined by the product of the number of shares granted and the closing grant date market price of the Company's common stock. The estimated fair value of restricted stock units is expensed on a straight-line basis over the requisite service period, net of estimated forfeitures. During the fiscal years ended September 30, 2023, 2022, and 2021, the Company recognized restricted stock unit expense of $ million, $ million, and $ million, respectively.
| | $ | | Granted | | | | | $ |
| Vested | | () | | | $ |
| Forfeited | | () | | | $ |
| Nonvested as of September 30, 2023 | | | | | $ |
During the fiscal years ended September 30, 2023, 2022, and 2021, the total fair values of restricted stock units vested were $ million, $ million, and $ million, respectively. Expected future compensation expense relating to the million restricted stock units outstanding as of September 30, 2023 is $ million, which will be recognized over a weighted average period of years.
performance period based upon achievement of specific performance goals. Based upon the extent to which the targets are achieved, vested shares may range from % to % of the target award amount. The fair value of performance stock units is determined by the grant date market price of the Company's common stock. Compensation expense associated with nonvested performance stock units is recognized over the requisite service period and is dependent on the Company's periodic assessment of the probability of the targets being achieved and its estimate of the number of shares that will ultimately be issued. During the fiscal years ended September 30, 2023, 2022, and 2021, the Company recognized performance stock expense of $ million, $ million, and $ million, respectively. | | $ | | Granted | | | | | $ |
| Vested | | () | | | $ |
| Forfeited | | () | | | $ |
| Nonvested as of September 30, 2023 | | | | | $ |
Shares that vested over the performance period ended September 30, 2023 were distributed to employees in November 2023.
Note 11.
| | $ | | | | $ | | | | Short-term lease cost | | | | | | | | | |
| Variable lease cost | | | | | | | | | |
| Total lease cost | | $ | | | | $ | | | | $ | | |
| | $ | | | | | | | |
| Lease liabilities | | | | |
| Accrued expenses and other | | $ | | | | $ | | |
| Other long-term liabilities | | | | | | |
| Total lease liabilities | | $ | | | | $ | | |
| | | | |
| Weighted-average remaining lease term | | years | | years |
| Weighted-average discount rate | | % | | % |
| | $ | | | | $ | | | | | | | | | |
| Right-of-use assets obtained in exchange for lease liabilities | | | | | | |
| New operating leases | | $ | | | | $ | | | | $ | | |
| | 2025 | | | |
| 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| Thereafter | | | |
| Total future undiscounted lease payments | | | |
Less: Future payments for leases that have not yet commenced 1 | | () | |
| Less: Imputed interest | | () | |
| Total lease liabilities | | $ | | |
| | |
1 The Company has certain leases that it has executed of which it does not control the underlying assets; therefore, liabilities and ROU assets related to these leases were not recorded on the Company's Consolidated Balance Sheet as of September 30, 2023. |
Note 12.
| | $ | | | | $ | | | | Business transformation efforts | | | | | | | | | |
| Other expenses | | | | | | | | | |
| Total | | $ | | | | $ | | | | $ | | |
Restructuring and employee severance costs in the fiscal year ended September 30, 2023 primarily included expenses incurred in connection with workforce reductions in both of the Company's reportable segments. Restructuring and employee severance costs in the fiscal year ended September 30, 2022 included costs primarily related to the write down of assets related to the Company's office optimization plan and restructuring activities within certain businesses in the U.S. Healthcare Solutions reportable segment. Restructuring and employee severance costs in the fiscal year ended September 30, 2021 included costs primarily related to the disposal of assets related to the Company's office optimization plan and restructuring activities primarily within one business unit in the International Healthcare Solutions reportable segment.
Business transformation efforts in the fiscal year ended September 30, 2023 included rebranding costs associated with the Company's name change to Cencora and non-recurring expenses related to significant strategic initiatives to improve operational efficiency, including certain technology initiatives. The majority of these costs related to services provided by third-party consultants. Business transformation efforts in the fiscal year ended September 30, 2022 and 2021 primarily related to costs associated with reorganizing the Company to further align the organization to its customers' needs, including certain technology initiatives. The majority of these costs related to services provided by third-party consultants.
of the Company’s foreign business units experienced a cybersecurity event that impacted a standalone legacy information technology platform in country and the foreign business unit's ability to operate in that country for approximately two weeks. In connection with this isolated event, the Company incurred costs to restore the foreign business unit's operations in that country, which were recorded in Other expenses in the above table. The majority of Other expenses in the fiscal year ended September 30, 2023 related to the cybersecurity event.
Note 13.
cases were transferred to Multidistrict Litigation ("MDL") proceedings before the United States District Court for the Northern District of Ohio (the "Court"). Since then, several cases filed by government and tribal plaintiffs that were selected as bellwether cases in the MDL have been resolved through trial or settlement. Following trial in two consolidated cases in West Virginia federal court, the court entered judgment in favor of the defendants, including the Company. The plaintiffs filed an appeal of the court’s decision on August 2, 2022, which remains pending. The MDL Court is in the process of selecting cases filed by third-party payors to serve as additional litigation bellwethers. On July 21, 2021, the Company announced that it and the two other national pharmaceutical distributors had negotiated a Distributor Settlement Agreement that, if all conditions were satisfied, would result in the resolution of a substantial majority of opioid lawsuits filed by state and local governmental entities. The Distributor Settlement Agreement became effective on April 2, 2022, and as of September 30, 2023, it included of 49 eligible states (the “Settling States”) as well as % by population of the eligible political subdivisions in the Settling States. Pursuant to the Distributor Settlement Agreement and related agreements with Settling States, the Company will pay up to approximately $ billion over years and comply with other requirements, including establishment of a clearinghouse that will consolidate data from all national distributors. The exact payment amount will depend on several factors, including the extent to which states take action to foreclose opioid lawsuits by subdivisions (e.g., laws barring opioid lawsuits by subdivisions). West Virginia and its subdivisions and Native American tribes are not a part of the Distributor Settlement Agreement, and the Company has reached separate agreements with those groups. The State of Alabama is not participating in the Distributor Settlement Agreement and has an active case pending against the Company (and another distributor) in Alabama state court, which is scheduled to begin trial on February 26, 2024.
The Company’s accrued litigation liability related to the Distributor Settlement Agreement, including an estimate for the State of Alabama and non-participating government subdivisions (with whom the Company has not reached a settlement agreement), as well as other opioid-related litigation for which it has reached settlement agreements, as described above, was $ billion as of September 30, 2023 and $ billion as of September 30, 2022. The Company currently estimates that
million will be paid prior to September 30, 2024, which is recorded in Accrued Expenses and Other on the Company’s Consolidated Balance Sheet. The remaining long-term liability of $ billion is recorded in Accrued Litigation Liability on the Company’s Consolidated Balance Sheet. While the Company has accrued its estimated liability for opioid litigation, it is unable to estimate the range of possible loss associated with the matters that are not included in the accrual. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The Company regularly reviews opioid litigation matters to determine whether its accrual is adequate. The amount of ultimate loss may differ materially from the amount accrued to date. Until such time as otherwise resolved, the Company will continue to litigate and prepare for trial and to vigorously defend itself in all such matters. Since these matters are still developing, the Company is unable to predict the outcome, but the result of these lawsuits could include excessive monetary verdicts and/or injunctive relief that may affect the Company’s operations. Additional lawsuits regarding the distribution of prescription opioid pain medications are ongoing in cases filed by a variety of types of plaintiffs. In Alabama, a jury trial was scheduled to begin on July 24, 2023 in a case that involves up to eight plaintiff hospitals. That case was stayed by order of the Alabama Supreme Court on July 10, 2023, pending further order of that court, so there currently is no trial date. In Maryland, a trial is scheduled for September 16, 2024 in a case filed by the Mayor and City Council of Baltimore. Additional litigation is anticipated in cases filed by subdivisions that are not participating in the Distributor Settlement Agreement, as well as in cases filed by non-governmental or non-political entities, including hospitals, third-party payors, and individuals, among others. The Company is vigorously defending itself in the pending lawsuits and intends to vigorously defend itself against any threatened lawsuits or enforcement proceedings.
Since July 2017, the Company has received subpoenas from several U.S. Attorney’s Offices, including grand jury subpoenas from the U.S. Attorney's Office for the District of New Jersey ("USAO-NJ") and the U.S. Attorney's Office for the Eastern District of New York ("USAO-EDNY"). Those subpoenas requested the production of a broad range of documents pertaining to the Company’s distribution of controlled substances through its various subsidiaries, including ABDC, and its diversion control programs. The Company produced documents in response to the subpoenas and engaged in discussions with the various U.S. Attorney’s Offices, including the Health Care and Government Fraud Unit of the Criminal Division of the USAO-NJ, the U.S. Department of Justice Consumer Protection Branch and the U.S. Drug Enforcement Administration, in an attempt to resolve these matters. On December 29, 2022, the Department of Justice filed a civil Complaint against the Company, ABDC, and Integrated Commercialization Services, LLC ("ICS"), a subsidiary of the Company, alleging violations of the Controlled Substances Act. Specifically, the Complaint alleges that the Company negligently failed to report suspicious orders to the Drug Enforcement Administration. In the Complaint, the Department of Justice seeks civil penalties and injunctive relief. This Complaint relates to the aforementioned and previously-disclosed investigations. On March 30, 2023, the Company filed a motion to dismiss the Complaint in its entirety on behalf of itself, ABDC, and ICS. On November 6, 2023, the United States District Court for the Eastern District of Pennsylvania granted in part and denied in part the motion, dismissing with prejudice all claims for civil penalties for Defendants’ alleged violations of the suspicious order reporting requirement prior to October 24, 2018, but otherwise denying the motion. The Company denies the allegations in the Complaint and intends to defend itself vigorously in the litigation.
Shareholder Securities Litigation
On October 11, 2019, Teamsters Local 443 Health Services & Insurance Plan, St. Paul Electrical Construction Pension Plan, St. Paul Electrical Construction Workers Supplemental Pension Plan (2014 Restatement), Retirement Medical Funding Plan for the St. Paul Electrical Workers, and San Antonio Fire & Police Pension Fund filed a complaint for a purported derivative action in the Delaware Court of Chancery against the Company and certain of its current and former officers and directors (collectively, “Defendants”). The complaint alleges that the Defendants breached their fiduciary duties by failing to oversee the compliance by certain of the Company’s subsidiaries (including the Company’s former subsidiary Medical Initiatives, Inc. ("MII")) with federal regulations, allegedly resulting in the payment of fines and penalties in connection with the settlements with the USAO-EDNY in fiscal 2017 and 2018 that resolved claims arising from MII's pre-filled syringe program. In December 2019, Defendants filed a motion to dismiss the complaint. After briefing and oral argument, on August 24, 2020 the Delaware Court of Chancery denied Defendants' motion to dismiss. On September 24, 2020, the Board of Directors of the Company established a Special Litigation Committee to conduct an investigation concerning the plaintiffs’ allegations, and on November 10, 2020, the Delaware Court of Chancery granted the Special Litigation Committee’s motion to stay the litigation pending its investigation. On September 22, 2021, the Special Litigation Committee filed its report under seal and moved to dismiss the case. On November 17, 2023, the Delaware Court of Chancery granted the Special Litigation Committee's motion to dismiss.
On December 30, 2021, Lebanon County Employees' Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan filed a complaint for a purported derivative action in the Delaware Court of Chancery against the Company and certain of its current officers and directors. The complaint alleges claims for breach of fiduciary duty allegedly arising from the Board’s and certain officers' oversight of the Company’s controlled substance diversion control programs. The defendants
Note 14.
million, $ million, and $ million, respectively. These gains, which are net of attorney fees and estimated payments due to other parties, were recorded as reductions to cost of goods sold in the Company’s Consolidated Statements of Operations.
Note 15.
reportable segments: U.S. Healthcare Solutions and International Healthcare Solutions reportable segments.Effective October 1, 2022, the chief operating decision maker ("CODM") of the Company is the Executive Vice President and Chief Operating Officer of the Company, whose function is to allocate resources to, and assess the performance of, the Company's operating segments. Prior to October 1, 2022, the CODM of the Company was the Chairman, President & Chief Executive Officer of the Company.
The U.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. The U.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, the U.S. Healthcare Solutions reportable segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers. The U.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, the U.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.
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 in Europe. It is a leading global specialty transportation and logistics provider for the biopharmaceutical industry. It also is a leading provider of specialized services, including regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance, for the life sciences industry. In Canada, the business drives innovative partnerships with manufacturers, providers, and pharmacies to improve product access and efficiency throughout the healthcare supply chain.
| | $ | | | | $ | | | | Animal Health | | | | | | | | | |
| Total U.S. Healthcare Solutions | | | | | | | | | |
| International Healthcare Solutions | | | | | | |
| Alliance Healthcare | | | | | | | | | |
| Other Healthcare Solutions | | | | | | | | | |
| Total International Healthcare Solutions | | | | | | | | | |
| Intersegment eliminations | | () | | | () | | | () | |
| Revenue | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | International Healthcare Solutions | | | | | | | | | |
| Total segment operating income | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Gains from antitrust litigation settlements | | | | | | | | | |
| LIFO (expense) credit | | () | | | () | | | | |
| Turkey highly inflationary impact | | () | | | () | | | | |
| Acquisition-related intangibles amortization | | () | | | () | | | () | |
| Litigation and opioid-related credit (expenses) | | | | | () | | | () | |
| Acquisition-related deal and integration expenses | | () | | | () | | | () | |
| Restructuring and other expenses | | () | | | () | | | () | |
| Goodwill impairment | | | | | () | | | () | |
| Impairment of assets | | | | | () | | | () | |
| Operating income | | | | | | | | | |
| Other income, net | | () | | | () | | | () | |
| Interest expense, net | | | | | | | | | |
| Income before income taxes | | $ | | | | $ | | | | $ | | |
Segment operating income is evaluated by the CODM of the Company and excludes gains from antitrust litigation settlements; LIFO (expense) credit; Turkey highly inflationary impact; acquisition-related intangibles amortization; litigation and opioid-related credit (expenses); acquisition-related deal and integration expenses; restructuring and other expenses; goodwill impairment; and impairment of assets. All corporate office expenses are allocated to the operating segment level.
Litigation and opioid-related credit in the fiscal year ended September 30, 2023 includes the receipt of $ million from the H.D. Smith opioid litigation indemnity escrow.
Included in Other Income, Net, the Company recognized net gains of $ million and $ million from the divestiture of non-core businesses in the fiscal years ended September 30, 2023 and 2022, respectively. Included in Other Income, Net, the Company recorded a $ million gain on the remeasurement of an equity investment in the fiscal year ended September 30, 2021.
| | $ | | | | $ | | | | International Healthcare Solutions | | | | | | | | | |
| Acquisition-related intangibles amortization | | | | | | | | | |
| Total depreciation and amortization | | $ | | | | $ | | | | $ | | |
Depreciation and amortization related to property and equipment and intangible assets, but excludes amortization of deferred financing costs and other debt-related items, which are included in interest expense, net.
| | $ | | | | $ | | | | International Healthcare Solutions | | | | | | | | | |
| Total capital expenditures | | $ | | | | $ | | | | $ | | |
Note 16.
million and $ million of investments in money market accounts as of September 30, 2023 and 2022, respectively. The fair value of the money market accounts was determined based upon unadjusted quoted prices in active markets for identical assets, otherwise known as Level 1 inputs.The recorded amount of long-term debt (see Note 6) and the corresponding fair value as of September 30, 2023 were $ million and $ million, respectively. The recorded amount of long-term debt and the corresponding fair value as of September 30, 2022 were $ million and $ million, respectively. The fair value of long-term debt was determined based upon inputs other than quoted prices, otherwise known as Level 2 inputs.
Note 17.
% and declared a regular quarterly cash dividend of $ per share, payable on November 27, 2023 to shareholders of record on November 13, 2023.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are intended to ensure that information required to be disclosed in the Company's reports submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also are intended to ensure that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.
The Company's Chief Executive Officer and Chief Financial Officer, with the participation of other members of the Company's management, have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a — 15(e) and 15d — 15(e) under the Exchange Act) and have concluded that the Company's disclosure controls and procedures were effective for their intended purposes as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes during the fiscal quarter ended September 30, 2023 in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, those controls.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Cencora, Inc. ("Cencora" or the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Cencora's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Cencora's management assessed the effectiveness of Cencora's internal control over financial reporting as of September 30, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on management's assessment and those criteria, management has concluded that Cencora's internal control over financial reporting was effective as of September 30, 2023.
During the second quarter of fiscal 2023, the Company acquired PharmaLex Holding GmbH ("PharmaLex"). As permitted by related SEC staff interpretive guidance for newly acquired businesses, PharmaLex has been excluded from management's assessment of the effectiveness of the Company's internal control over financial reporting as of September 30, 2023. In the aggregate, PharmaLex represented 4% of the total assets and less than 1% of total revenue of the Company as of and for the fiscal year ended September 30, 2023.
Cencora's independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of Cencora's internal control over financial reporting. This report is set forth below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Cencora, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Cencora, Inc. and subsidiaries’ internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cencora, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of PharmaLex Holding GmbH ("PharmaLex"), which is included in the 2023 consolidated financial statements of the Company and constituted 4% of total assets as of September 30, 2023 and less than 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of PharmaLex.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated November 21, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Philadelphia, Pennsylvania
November 21, 2023
ITEM 9B. OTHER INFORMATION
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) , modified or any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information appearing in our Notice of Annual Meeting of Stockholders and Proxy Statement for the 2024 Annual Meeting of Stockholders (the "2024 Proxy Statement"), including information appearing under "Proxy Statement Summary," "Board and Governance Matters," and "Audit Committee Matters" is incorporated herein by reference. We will file the 2024 Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year.
Information with respect to Executive Officers of the Company appears in Part I of this report.
We adopted a Code of Ethics for Designated Senior Officers that applies to our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. A copy of this Code of Ethics is posted on our Internet website, which is investor.cencora.com. Any amendment to, or waiver from, any provision of this Code of Ethics will be posted on our Internet website.
ITEM 11. EXECUTIVE COMPENSATION
Information contained in the 2024 Proxy Statement, including information appearing under "Board and Governance Matters" and "Executive Compensation" in the 2024 Proxy Statement, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information contained in the 2024 Proxy Statement, including information appearing under "Security Ownership of Certain Beneficial Owners, Officers and Directors" and "Equity Compensation Plan Information" in the 2024 Proxy Statement, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information contained in the 2024 Proxy Statement, including information appearing under "Board and Governance Matters" and "Related Persons Transactions" in the 2024 Proxy Statement, is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information contained in the 2024 Proxy Statement, including information appearing under "Audit Committee Matters" in the 2024 Proxy Statement, is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) List of Financial Statements and Schedules.
Financial Statements: The following consolidated financial statements are submitted in response to Item 15(a)(1):
| | | | | |
| | Page |
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| |
| |
| |
| |
| |
| |
| Financial Statement Schedule: The following financial statement schedule is submitted in response to Item 15(a)(2): | |
| |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) (3) List of Exhibits.
| | | | | |
Exhibit
Number | Description |
| 2.1 | |
| 3.1 | |
| 3.2 | |
| 4.1 | |
| 4.2 | |
| 4.3 | |
| 4.4 | |
| 4.5 | |
| 4.6 | |
| 4.7 | |
| 4.8 | |
| 4.9 | |
| 4.10 | |
| 4.11 | |
| 4.12 | |
| 4.13 | |
| 4.14 | |
| | | | | |
Exhibit
Number | Description |
| 4.15 | |
| 4.16 | |
| 10.1 | |
| 10.2 | |
| 10.3 | |
| ‡10.4 | |
| ‡10.5 | |
| ‡10.6 | |
| ‡10.7 | |
| ‡10.8 | |
| ‡10.9 | |
| ‡10.10 | |
| ‡10.11 | |
| ‡10.12 | |
| ‡10.13 | |
| ‡10.14 | |
| ‡10.15 | |
| ‡10.16 | |
| ‡10.17 | |
| ‡10.18 | |
| ‡10.19 | |
| | | | | |
Exhibit
Number | Description |
‡10.20 | |
‡10.21 | |
‡10.22 | |
‡10.23 | |
| 10.24 | |
| 10.25 | Amended and Restated Receivables Purchase Agreement, dated as of April 29, 2010, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the various purchaser groups party thereto, and Bank of America, National Association, as administrator (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on May 5, 2010). |
| 10.26 | First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of April 28, 2011, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, and Bank of America, National Association, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 4, 2011). |
| 10.27 | Second Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October 28, 2011, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, servicer, the purchaser agents and purchasers party thereto, and Bank of America, National Association, as administrator (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on October 28, 2011). |
| 10.28 | Third Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 16, 2012, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, and Bank of America, National Association, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 21, 2012). |
| 10.29 | Fourth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of January 16, 2013, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on form 8-K filed on January 17, 2013). |
| 10.30 | Fifth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of June 28, 2013, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 3, 2013). |
| 10.31 | Sixth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October 7, 2013, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, Market Street Funding LLC, as assignor, PNC Bank, National Association, as assignee, and the Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 10, 2013). |
| 10.32 | Seventh Amendment to Amended and Restated Receivables Purchase Agreement, dated as of July 17, 2014, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto and the Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 22, 2014). |
| 10.33 | Eighth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of December 5, 2014, by and among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the purchaser agents and purchasers party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 8, 2014). |
| | | | | |
Exhibit
Number | Description |
| 10.34 | Omnibus Amendment, dated November 4, 2015 to the Amended and Restated Receivables Purchase Agreement, dated as of April 29, 2010, as amended, among AmeriSource Receivables Financial Corporation, as Seller, AmerisourceBergen Drug Corporation, as Servicer, the Purchaser Agents and Purchasers party thereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrator (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 4, 2015). |
| 10.35 | Tenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of June 21, 2016, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, Working Capital Management Co., LP, as assignor, Advantage Asset Securitization Corp., Mizuho Bank, Ltd., as assignee, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 23, 2016). |
| 10.36 | Eleventh Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 18, 2016, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on November 22, 2016). |
| 10.37 | Twelfth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of December 18, 2017, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017). |
| 10.38 | Thirteenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October 31, 2018, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd. (f/k/a The Bank of Tokyo-Mitsubishi UFJ, Ltd.), as administrator (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on November 6, 2018). |
| 10.39 | Fourteenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of September 18, 2019, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 23, 2019). |
| 10.40 | Fifteenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October 16, 2020, among AmeriSource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on October 19, 2020). |
| 10.41 | Omnibus Amendment, dated as of May 13, 2021, constituting (i) the First Amendment to Amended and Restated Receivables Sale Agreement, among AmerisourceBergen Drug Corporation and ASD Specialty Healthcare, LLC, as originators, and Amerisource Receivables Financial Corporation, as buyer and (ii) the Sixteenth Amendment to Amended and Restated Receivables Purchase Agreement, among Amerisource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on May 14, 2021). |
| 10.42 | Seventeenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 4, 2021, among Amerisource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on November 8, 2021). |
| 10.43 | Eighteenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of October 21, 2022, among Amerisource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 24, 2022). |
| 10.44 | Nineteenth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 3, 2023, among Amerisource Receivables Financial Corporation, as seller, AmerisourceBergen Drug Corporation, as servicer, the Purchaser Agents and Purchasers party thereto, and MUFG Bank, Ltd., as administrator (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 5, 2023). |
| 10.45 | |
| 10.46 | |
| | | | | |
Exhibit
Number | Description |
| 10.47 | Amended and Restated Credit Agreement, dated as of October 6, 2023, among Cencora, Inc., the borrowing subsidiaries party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 10, 2023). |
| 10.48 | |
| 10.49 | |
| 10.50 | |
| 10.51 | |
| 10.52 | |
| 10.53 | |
| 10.54 | |
| 21 | |
| 23 | |
| 31.1 | |
| 31.2 | |
| 32 | |
| 97 | |
| 101 | Financial statements from the Annual Report on Form 10-K of Cencora, Inc. for the fiscal year ended September 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
__________________________________________________________
‡ Each marked exhibit is a management contract or a compensatory plan, contract or arrangement in which a director or executive officer of the Registrant participates or has participated.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | CENCORA, INC. |
Date: November 21, 2023 | | By: | | /s/ STEVEN H. COLLIS Steven H. Collis Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of November 21, 2023 by the following persons on behalf of the Registrant and in the capacities indicated.
| | | | | | | | |
| Signature | | Title |
| | | |
| /s/ STEVEN H. COLLIS | | Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
| Steven H. Collis | |
| | |
| /s/ JAMES F. CLEARY | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
| James F. Cleary | |
| | |
| /s/ LAZARUS KRIKORIAN | | Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer) |
| Lazarus Krikorian | |
| | |
| /s/ ORNELLA BARRA | | Director |
| Ornella Barra | | |
| | |
| /s/ WERNER BAUMANN | | Director |
| Werner Baumann | | |
| | |
| /s/ D. MARK DURCAN | | Lead Independent Director |
| D. Mark Durcan | | |
| | |
| /s/ RICHARD W. GOCHNAUER | | Director |
| Richard W. Gochnauer | | |
| | |
| /s/ LON R. GREENBERG | | Director |
| Lon R. Greenberg | | |
| | |
| /s/ KATHLEEN W. HYLE | | Director |
| Kathleen W. Hyle | | |
| | |
| /s/ LORENCE H. KIM, M.D. | | Director |
| Lorence H. Kim, M.D. | | |
| | |
| /s/ HENRY W. MCGEE | | Director |
| Henry W. McGee | | |
| | | | | | | | |
| Signature | | Title |
| | | |
| /s/ REDONDA MILLER, M.D. | | Director |
| Redonda Miller, M.D. | | |
| | |
| /s/ DENNIS M. NALLY | | Director |
| Dennis M. Nally | | |
| | |
| /s/ LAUREN M. TYLER | | Director |
| Lauren M. Tyler | | |
CENCORA, INC. AND SUBSIDIARIES
| | $ | | | | $ | () | | | $ | | | | | | | | | | | |
| Year Ended September 30, 2022 | | | | | | | | |
| Allowances for returns and credit losses | | $ | | | | $ | | | | $ | () | | | $ | | |
| | | | | | | | |
| Year Ended September 30, 2021 | | | | | | | | |
| Allowances for returns and credit losses | | $ | | | | $ | | | | $ | () | | | $ | | |
__________________________________________________________
(1)Represents the provision for returns and credit losses.
(2)Represents reductions to the returns allowance and accounts receivable written off during year, net of recoveries.
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