COR 10-Q
Cencora, Inc. (COR)
10-Q
2024-01-31
For: 2023-12-31
View Original
Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED December 31, 2023
OR
FOR THE TRANSITION PERIOD FROM ___________ TO___________
Commission file number 1-16671
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |||||||||||||
| incorporation or organization) | Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(610 ) 727-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | |||||||||
| (NYSE) | |||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The number of shares of common stock of Cencora, Inc. outstanding as of January 29, 2024 was 199,481,993 .
CENCORA, INC.
TABLE OF CONTENTS
| Page No. | |||||
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). These forward-looking statements include, without limitation, statements regarding our financial position, business strategy and the plans and objectives of management for our future operations; anticipated trends and prospects in the industries in which our business operates; and new products, services and related strategies. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Annual Report on Form 10-K, words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “on track,” “opportunity,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “sustain,” “synergy,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements are based on management's current expectations and beliefs and are subject to uncertainty and changes in circumstances and speak only as of the date hereof. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors that could have a material adverse effect on our financial condition, liquidity, results of operations or future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:
•our ability to achieve and maintain profitability in the future;
•the disruption of our cash flow and ability to return value to our stockholders in accordance with our past practices;
•our ability to respond to general economic conditions, including financial market volatility and disruption, elevated levels of inflation, and declining economic conditions in the United States and abroad;
•our ability to manage our growth and related expectations effectively;
•the retention of key customer or supplier relationships under less favorable economics or the adverse resolution of any contract or other dispute with customers or suppliers;
•changes to customer or supplier mix and payment terms;
•risks associated with our strategic, long-term relationship with WBA, including with respect to the pharmaceutical distribution agreement and/or the global generic purchasing services arrangement, and WBA sales or pledges of, or related activity for, our common stock;
•the acquisitions of or investments in businesses, including the acquisitions of the Alliance Healthcare and PharmaLex, and the investment in OneOncology, that do not perform as expected, fail to achieve expected or targeted future financial and operating performance and results, or that are difficult to integrate, or the inability to capture all of the anticipated synergies related thereto or to capture the anticipated synergies within the expected time period;
•our ability to manage and complete divestitures;
•managing foreign expansion, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws, economic sanctions and import laws and regulations;
•risks associated with our international operations, including financial and other impacts of macroeconomic and geopolitical trends and events, including the conflicts in Ukraine and between Israel and Hamas and related regional and global ramifications;
•interest rate and foreign currency exchange rate fluctuations;
•risks and costs associated with maintaining adequate insurance coverages;
•our ability to attract, recruit and maintain qualified and experienced employees;
•the impact on our business of the regulatory environment and complexities with compliance;
•unfavorable trends in brand and generic pharmaceutical pricing, including in rate or frequency of price inflation or deflation;
•changes in the United States healthcare and regulatory environment, including changes that could impact prescription drug reimbursement under Medicare and Medicaid and declining reimbursement rates for pharmaceuticals;
•competition and industry consolidation of both customers and suppliers resulting in increasing pressure to reduce prices for our products and services;
•the loss, bankruptcy or insolvency of a major supplier, or substantial defaults in payment, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer;
•our stock price and our ability to access capital markets;
•increasing governmental regulations regarding the pharmaceutical supply chain;
•continued federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances;
•continued prosecution or suit by federal and state governmental entities and other parties (including third-party payors, hospitals, hospital groups and individuals) of alleged violations of laws and regulations regarding controlled substances, and any related disputes, including shareholder derivative lawsuits;
2
•increased federal scrutiny and litigation, including qui tam litigation, for alleged violations of laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services, and associated reserves and costs;
•the outcome of any legal or governmental proceedings that may be instituted against us, including material adverse resolution of pending legal proceedings;
•changes in tax laws or legislative initiatives that could adversely affect the Company's tax positions and/or the Company's tax liabilities or adverse resolution of challenges to the Company's tax positions;
•malfunction, failure, or breach of sophisticated information systems to operate as designed, and risks generally associated with cybersecurity;
•risks generally associated with data privacy regulation and the protection and international transfer of personal data;
•our ability to protect our reputation and intellectual property rights;
•natural disasters or other unexpected events, such as pandemics, that affect the Company’s operations;
•the impairment of goodwill or other intangible assets (including any additional impairments with respect to foreign operations), resulting in a charge to earnings; and
•other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting the Company’s business generally.
These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
3
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements (Unaudited)
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| (in thousands, except share and per share data) | December 31, 2023 | September 30, 2023 | ||||||||||||
| (Unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Accounts receivable, less allowances for returns and credit losses: $ | ||||||||||||||
| 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 10) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
Treasury stock, at cost: | ( | ( | ||||||||||||
| Total Cencora, Inc. stockholders' equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total stockholders' equity | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||||||||
See notes to consolidated financial statements.
4
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended December 31, | ||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | ||||||||||||
| 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 | ||||||||||||||
| Operating income | ||||||||||||||
| Other income, net | ( | ( | ||||||||||||
| Interest expense, net | ||||||||||||||
| Income before income taxes | ||||||||||||||
| Income tax expense | ||||||||||||||
| Net income | ||||||||||||||
| Net (income) loss attributable to noncontrolling interests | ( | |||||||||||||
| Net income attributable to Cencora, Inc. | $ | $ | ||||||||||||
| Earnings per share: | ||||||||||||||
| Basic | $ | $ | ||||||||||||
| Diluted | $ | $ | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||
| Basic | ||||||||||||||
| Diluted | ||||||||||||||
| Cash dividends declared per share of common stock | $ | $ | ||||||||||||
See notes to consolidated financial statements.
5
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Net income | $ | $ | ||||||||||||
| Other comprehensive income | ||||||||||||||
| Foreign currency translation adjustments | ||||||||||||||
| Other, net | ( | ( | ||||||||||||
| Total other comprehensive income | ||||||||||||||
| Total comprehensive income | ||||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | ( | |||||||||||||
| Comprehensive income attributable to Cencora, Inc. | $ | $ | ||||||||||||
See notes to consolidated financial statements.
6
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| (in thousands, except per share data) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Cash dividends, $ | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Exercises of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Purchases of common stock | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Employee tax withholdings related to restricted share vesting | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Other, net | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Cash dividends, $ | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Exercises of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Purchases of common stock | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Employee tax withholdings related to restricted share vesting | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Other, net | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
7
CENCORA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| 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 (benefit) for credit losses | ( | |||||||||||||
| Provision (benefit) for deferred income taxes | ( | |||||||||||||
| Share-based compensation expense | ||||||||||||||
| LIFO (credit) expense | ( | |||||||||||||
| Turkey highly inflationary impact | ||||||||||||||
| Loss on remeasurement of equity investment | ||||||||||||||
| Other, net | ( | ( | ||||||||||||
| Changes in operating assets and liabilities, excluding the effects of acquisitions: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Inventories | ( | ( | ||||||||||||
| Income taxes 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 | ( | ( | ||||||||||||
| Prefunded business acquisition | ( | |||||||||||||
| Other, net | ||||||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ( | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Loan borrowings | ||||||||||||||
| 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 FINANCING ACTIVITIES | ( | ( | ||||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ||||||||||||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | |||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||||||||
See notes to consolidated financial statements.
8
CENCORA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations, and cash flows of Cencora, Inc. and its subsidiaries, including less-than-wholly-owned subsidiaries in which Cencora, Inc. has a controlling financial interest (the "Company"), as of the dates and for the periods indicated. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals, except as otherwise disclosed herein) considered necessary to present fairly the financial position as of December 31, 2023 and the results of operations and cash flows for the interim periods ended December 31, 2023 and 2022 have been included. Certain information and disclosures normally included in financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimated amounts. Certain reclassifications have been made to prior-period amounts in order to conform to the current year presentation.
Restricted Cash
The Company is required to maintain certain cash deposits with banks mainly consisting of deposits restricted under contractual agency agreements and cash restricted by law and other obligations.
The following represents a reconciliation of cash and cash equivalents in the Consolidated Balance Sheets to cash, cash equivalents, and restricted cash used in the Consolidated Statements of Cash Flows:
| (amounts in thousands) | December 31, 2023 | September 30, 2023 | December 31, 2022 | September 30, 2022 | ||||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash (included in Prepaid Expenses and Other) | ||||||||||||||||||||||||||
| Restricted cash (included in Other Assets) | ||||||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | $ | $ | ||||||||||||||||||||||
Recently Adopted Accounting Pronouncements
As of December 31, 2023, there were no recently-adopted accounting standards that had a material impact on the Company’s financial position, results of operations, cash flows, or notes to the financial statements upon their adoption.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07")." ASU 2023-07 requires public entities to disclose significant segment expenses on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss that are currently required annually. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. The guidance should be applied retrospectively to all periods presented in the financial statements. The Company is currently evaluating the impact of adopting this new accounting guidance.
9
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09")." ASU 2023-09 requires entities to provide additional information in their tax rate reconciliation and additional disclosures about income taxes paid by jurisdiction. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied prospectively, but entities have the option to apply it retrospectively for each period presented. The Company is currently evaluating the impact of adopting this new accounting guidance.
Note 2. Acquisition
PharmaLex Acquisition
The Company acquired and assumed control of PharmaLex Holding GmbH ("PharmaLex") effective January 1, 2023 for $1.473 billion, subject to customary adjustments, including a $29.3 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 30 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 Company completed the purchase price allocations as of December 31, 2023. The purchase price was allocated to the underlying assets acquired, including $37.4 million of cash and cash equivalents, and liabilities assumed based upon their estimated fair values as of the date of the acquisition.
The purchase price exceeded the estimated fair value of the net tangible and intangible assets acquired by $1,010.2 million, which was allocated to goodwill. Goodwill resulting from this acquisition is not deductible for income tax purposes.
The estimated fair value of the intangible assets acquired of $558.9 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 $146.0 million primarily in connection with the intangible assets acquired.
10
Note 3. Variable Interest Entity
The Company has substantial governance rights over Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), which allow it to direct the activities that significantly impact Profarma’s economic performance. As such, the Company consolidates the operating results of Profarma in its consolidated financial statements. The Company is not obligated to provide future financial support to Profarma.
The following assets and liabilities of Profarma are included in the Company's Consolidated Balance Sheets:
| (in thousands) | December 31, 2023 | September 30, 2023 | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| 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. Income Taxes
The Company files income tax returns in U.S. federal, state, and various foreign jurisdictions. As of December 31, 2023, 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 $564.9 million ($491.1 million, net of federal benefit). If recognized, $475.8 million of these tax benefits would have reduced income tax expense and the effective tax rate. Included in this amount is $28.8 million of interest and penalties, which the Company records in Income Tax Expense in the Company's Consolidated Statements of Operations. In the three months ended December 31, 2023, unrecognized tax benefits increased by $13.0 million. Over the next 12 months, tax authority audit resolutions and the expiration of statutes of limitations are not expected to materially impact unrecognized tax benefits.
11
Note 5. Goodwill and Other Intangible Assets
The following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the three months ended December 31, 2023:
| (in thousands) | U. S. Healthcare Solutions | International Healthcare Solutions | Total | |||||||||||||||||
| Goodwill as of September 30, 2023 | $ | $ | $ | |||||||||||||||||
| Purchase accounting adjustments | ( | ( | ||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||
| Goodwill as of December 31, 2023 | $ | $ | $ | |||||||||||||||||
The following is a summary of other intangible assets:
| December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Weighted Average Remaining Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||
| Indefinite-lived trade names | $ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||||||||||
| Finite-lived: | ||||||||||||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Trade names and other | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Total other intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
Amortization expense for finite-lived intangible assets was $166.4 million and $72.4 million in the three months ended December 31, 2023 and 2022, respectively. Amortization expense for finite-lived intangible assets is estimated to be $675.8 million in fiscal 2024, $516.1 million in fiscal 2025, $356.4 million in fiscal 2026, $298.9 million in fiscal 2027, $288.4 million in fiscal 2028, and $2,390.2 million thereafter.
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Note 6. Debt
Debt consisted of the following:
| (in thousands) | December 31, 2023 | September 30, 2023 | ||||||||||||
| Multi-currency revolving credit facility due 2028 | $ | $ | ||||||||||||
| Receivables securitization facility due 2025 | ||||||||||||||
| Revolving credit note | ||||||||||||||
Overdraft facility due 2024 (£ | ||||||||||||||
| Money market facility | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
$ | ||||||||||||||
| 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 $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility") with a syndicate of lenders, which is scheduled to expire in October 2028. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon the Company’s debt rating. The Company also pays facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on its debt rating. 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 December 31, 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 $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 the Company’s borrowing capacity as it is fully backed by the Company’s Multi-Currency Revolving Credit Facility. There were no borrowings outstanding under the commercial paper program as of December 31, 2023.
Receivables Securitization Facility
The Company has a $1,450 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 $250 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. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which the Company was compliant as of December 31, 2023.
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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 $75 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 £10 million uncommitted U.K. overdraft facility ("Overdraft Facility"), which expires in February 2024, to fund short-term normal trading cycle fluctuations related to its MWI Animal Health business. 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 $100 million. The Money Market Facility may be decreased or terminated by the bank or the Company at any time without prior notice.
Alliance Healthcare Debt
Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates. A vast majority of the outstanding borrowings as of December 31, 2023 were held in Turkey. These facilities are used to fund its working capital needs.
Nonrecourse Debt
Nonrecourse debt is comprised of short-term and long-term debt belonging to the Brazil subsidiary and is repaid solely from the Brazil subsidiary's 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 subsidiary.
Note 7. Stockholders’ Equity and Earnings per Share
In March 2023, the Company's Board of Directors authorized a share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions. During the three months ended December 31, 2023, the Company purchased 2.0 million shares of its common stock for a total of $385.5 million, including 1.3 million shares from Walgreens Boots Alliance, Inc. ("WBA") for $250.0 million. As of December 31, 2023, the Company had $423.5 million of availability under this program.
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 restricted stock units and stock options during the periods presented.
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||
| Dilutive effect of restricted stock units and stock options | ||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||
The potentially dilutive restricted stock units and stock options that were antidilutive for the three months ended December 31, 2023 and 2022 were 320 thousand and 370 thousand, respectively.
Note 8. Related Party Transactions
WBA owns more than 10 % 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
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pursuant to which it will supply branded and generic pharmaceutical products to WBA’s Boots UK Ltd. subsidiary (through 2031).
Revenue from the various agreements and arrangements with WBA was $18.1 billion and $16.2 billion in the three months ended December 31, 2023 and 2022, respectively. The Company’s receivable from WBA, net of incentives, was $7.5 billion and $8.1 billion as of December 31, 2023 and September 30, 2023, respectively.
Note 9. Restructuring and Other Expenses
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Restructuring and employee severance costs | $ | $ | ||||||||||||
| Business transformation efforts | ||||||||||||||
| Other, net | ( | |||||||||||||
| Total restructuring and other expenses | $ | $ | ||||||||||||
Restructuring and employee severance costs in the three months ended December 31, 2023 primarily included expenses incurred related to facility closures in connection with the Company's office optimization plan and workforce reductions in both of its reportable segments.
Business transformation efforts in the three months ended December 31, 2023 and 2022 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.
Note 10. Legal Matters and Contingencies
In the ordinary course of its business, the Company becomes 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 from the Company in some matters, and some matters may require years for the Company to resolve. The Company records a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
For those matters for which the Company has not recognized a liability, the Company cannot predict the outcome of their impact on the Company as uncertainty remains with regard to whether such matters will proceed to trial, whether settlements will be reached, and the amount and terms of any such settlements. Outcomes may include settlements in significant amounts that are not currently estimable, limitations on the Company's conduct, the imposition of corporate integrity agreement obligations, consent decrees, and/or other civil and criminal penalties. From time to time, the Company is also involved in disputes with its customers, which the Company generally seeks to resolve through commercial negotiations. If negotiations are unsuccessful, the parties may litigate the dispute or otherwise attempt to settle the matter.
With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations or cash flows for that period or on the Company's financial condition.
Opioid Lawsuits and Investigations
A significant number of counties, municipalities, and other governmental entities in a majority of U.S. states and Puerto Rico, as well as numerous states and tribes, filed lawsuits in various federal, state and other courts against pharmaceutical wholesale distributors (including the Company and certain subsidiaries, such as AmerisourceBergen Drug Corporation ("ABDC") and H.D. Smith), pharmaceutical manufacturers, retail pharmacy chains, medical practices, and physicians relating to the distribution of prescription opioid pain medications.
Starting in December 2017, more than 2,000 cases were transferred to Multidistrict Litigation ("MDL") proceedings before the United States District Court for the Northern District of Ohio (the "MDL 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
15
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 recently selected four cases filed by third-party payors to serve as additional litigation bellwethers. Those four cases will now commence discovery in the MDL and later will be remanded to their original jurisdictions for trial.
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 48 of 49 eligible states (the "Settling States"), as well as 99 % by population of the eligible political subdivisions in the Settling States. Pursuant to the Distributor Settlement Agreement and related agreements with Settling States, the Company will pay up to approximately $6.4 billion over 18 years and comply with other requirements, including establishment of a clearinghouse that will consolidate data from all three 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 did not participate in the Distributor Settlement Agreement and has a case pending against the Company (and another national distributor) in Alabama state court, which was scheduled to begin trial on February 26, 2024. On November 29, 2023, the Company and another national distributor reached an agreement in principle with the State of Alabama and all its participating subdivisions to resolve opioid-related claims. Pursuant to the agreement in principle, the two distributors will pay approximately $245 million, including attorneys’ fees and costs, to the State of Alabama and its participating subdivisions. The Company’s 50 % share of the $245 million settlement amount is a component of its overall $5.4 billion total liability accrual. The agreement in principle is subject to certain contingencies, including subdivision participation. Subject to those contingencies, claims brought by Alabama and its participating subdivisions will be dismissed with prejudice as to the Company and the other distributor defendant. The Court has temporarily suspended all deadlines in the case from January 1, 2024 through February 27, 2024, including the trial.
The Company’s accrued litigation liability related to the Distributor Settlement Agreement, 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 $5.4 billion as of December 31, 2023 and $5.5 billion as of September 30, 2023. The Company currently estimates that $645.2 million will be paid prior to December 31, 2024, which is recorded in Accrued Expenses and Other on the Company’s Consolidated Balance Sheet. This short-term liability includes the Company’s commitment, which it made in December 2023, to prepay the net present value of a future obligation as permitted under its settlement agreements. This commitment, which was paid in January 2024, resulted in a $0.1 billion reduction of its accrued litigation liability. The remaining long-term liability of $4.7 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 is scheduled to begin on July 8, 2024 in a case that involves up to eight plaintiff hospitals. 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
16
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. On December 18, 2023, the Company, ABDC and ICS filed an Answer and Affirmative Defenses to the Complaint. On January 23, 2024, the Court entered a Scheduling Order setting the fact discovery deadline as January 9, 2026 and the expert discovery deadline as September 18, 2026. 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 Company's Board of Directors 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. The Delaware Court of Chancery granted the Special Litigation Committee's motion to dismiss on November 17, 2023, and entered an Order and Final Judgement on December 8, 2023. On January 5, 2024, the plaintiffs filed a notice of appeal to the Delaware Supreme Court from the Delaware Court of Chancery's November 17, 2023 decision granting the motion to dismiss and December 8, 2023 Order and Final Judgement.
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 moved to dismiss the complaint on March 29, 2022. On December 22, 2022, the Delaware Court of Chancery granted the motion to dismiss. On January 9, 2023, the Plaintiffs filed a Motion for Relief from Judgment and Order Pursuant to Rule 60(b) from the Delaware Chancery Court’s judgment. On January 20, 2023, the Plaintiffs also appealed the ruling to the Delaware Supreme Court. On March 21, 2023 the Delaware Court of Chancery denied the Plaintiffs' Motion for Relief from Judgement and Order Pursuant to Rule 60(b). On December 18, 2023, the Delaware Supreme Court reversed the dismissal and remanded the case to the Delaware Court of Chancery for further proceedings. On January 12, 2024, the Company's Board of Directors established a Special Litigation Committee ("SLC") and delegated to the SLC the Board's full authority with respect to the litigation.
Subpoenas, Ongoing Investigations, and Other Contingencies
From time to time, the Company receives subpoenas or requests for information from various government agencies relating to the Company’s business or to the business of a customer, supplier, or other industry participant. The Company’s responses often require time and effort and can result in considerable costs being incurred. Most of these matters are resolved without incident; however, such subpoenas or requests can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the healthcare industry, as well as to substantial settlements.
In January 2017, U.S. Bioservices Corporation, a former subsidiary of the Company, received a subpoena for information from the USAO-EDNY relating to its activities in connection with billing for products and making returns of potential overpayments to government payers. A filed qui tam complaint related to the investigation was unsealed in April 2019 and the relator filed an amended complaint under seal in the U.S. District Court for the Eastern District of New York. In December 2019, the government filed a notice that it was declining to intervene. The court ordered that the relator's complaint against the Company and other defendants, including AmerisourceBergen Specialty Group, LLC, be unsealed. The relator's complaint alleged violations of the federal False Claims Act and the false claims acts of various states. The relator filed a second amended complaint, removing one state false claims act count. The Company filed a motion to dismiss the second
17
amended complaint and all briefs on the motion were filed with the court on October 9, 2020. The motion to dismiss was granted on December 22, 2022. The False Claims Act claims were dismissed with prejudice, and the state claims were dismissed without prejudice. On January 24, 2023, the relator filed Motions to Reconsider Dismissal and For Leave to Amend the Complaint. Response briefs on those motions were filed by the Company and all briefing was completed on February 15, 2023.
In December 2019, Reliable Pharmacy, together with other retail pharmacies and North Sunflower Medical Center, filed a civil antitrust complaint against multiple generic drug manufacturers, and also included claims against ABDC and H.D. Smith, and other drug distributors and industry participants. The case is filed as a putative class action and plaintiffs purport to represent a class of drug purchasers including other retail pharmacies and healthcare providers. The case has been consolidated for multidistrict litigation proceedings before the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that ABDC, H.D. Smith, and others in the industry participated in a conspiracy to fix prices, allocate markets and rig bids regarding generic drugs. In March 2020, the plaintiffs filed a further amended complaint. On July 15, 2020, the defendants filed a motion to dismiss the complaint. On May 25, 2022, the Court granted the motion to dismiss without prejudice. On July 1, 2022, the plaintiffs filed an amended complaint, again including claims against ABDC, H.D. Smith, and other drug distributors and industry participants. On August 21, 2022, the Company and other industry participants filed a motion to dismiss the amended complaint. All briefs on the motion were filed with the court on November 22, 2022.
On March 3, 2022, the United States Attorney’s Office for the Western District of Virginia notified the Company of the existence of a criminal investigation into MWI Veterinary Supply Co., the Company’s animal health subsidiary, in connection with grand jury subpoenas relating to compliance with state and federal regulatory requirements governing wholesale shipments of animal health products to customers. The Company is cooperating with the investigation.
Note 11. Antitrust Settlements
Numerous lawsuits have been filed against certain brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. These lawsuits are generally brought as class actions. The Company has not been named as a plaintiff in these lawsuits, but has been a member of the direct purchasers' class (i.e., those purchasers who purchase directly from these pharmaceutical manufacturers). None of the lawsuits has gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement funds. The Company recognized gains related to these lawsuits of $48.2 million and $49.9 million in the three months ended December 31, 2023 and 2022, 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 12. Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable as of December 31, 2023 and September 30, 2023 approximate fair value based upon the relatively short-term nature of these financial instruments. Within Cash and Cash Equivalents, the Company had $1,386.0 million investments in money market accounts as of December 31, 2023 and had $1,489.0 million of investments in money market accounts as of September 30, 2023. 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 December 31, 2023 were $4,185.9 million and $3,856.5 million, respectively. The recorded amount of long-term debt and the corresponding fair value as of September 30, 2023 were $4,146.1 million and $3,572.6 million, respectively. The fair value of long-term debt was determined based upon inputs other than quoted prices, otherwise known as Level 2 inputs.
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Note 13. Business Segment Information
The Company is organized geographically based upon the products and services it provides to its customers and reports its results under two reportable segments: U.S. Healthcare Solutions and International Healthcare Solutions.
The following illustrates reportable and operating segment disaggregated revenue as required by Accounting Standards Codification 606, "Revenue from Contracts with Customer," for the periods indicated:
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| U.S. Healthcare Solutions: | ||||||||||||||
| Human Health | $ | $ | ||||||||||||
| Animal Health | ||||||||||||||
| Total U.S. Healthcare Solutions | ||||||||||||||
| International Healthcare Solutions: | ||||||||||||||
| Alliance Healthcare | ||||||||||||||
| Other Healthcare Solutions | ||||||||||||||
| Total International Healthcare Solutions | ||||||||||||||
| Intersegment eliminations | ( | ( | ||||||||||||
| Revenue | $ | $ | ||||||||||||
The following illustrates reportable segment operating income information for the periods indicated:
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| U.S. Healthcare Solutions | $ | $ | ||||||||||||
| International Healthcare Solutions | ||||||||||||||
| Total segment operating income | $ | $ | ||||||||||||
The following reconciles total segment operating income to income before income taxes for the periods indicated:
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Total segment operating income | $ | $ | ||||||||||||
| Gains from antitrust litigation settlements | ||||||||||||||
| LIFO credit (expense) | ( | |||||||||||||
| Turkey highly inflationary impact | ( | ( | ||||||||||||
| Acquisition-related intangibles amortization | ( | ( | ||||||||||||
| Litigation and opioid-related credit (expenses) | ( | |||||||||||||
| Acquisition-related deal and integration expenses | ( | ( | ||||||||||||
| Restructuring and other expenses | ( | ( | ||||||||||||
| Operating income | ||||||||||||||
| Other income, net | ( | ( | ||||||||||||
| Interest expense, net | ||||||||||||||
| Income before income taxes | $ | $ | ||||||||||||
Segment operating income is evaluated by the Chief Operating Decision Maker of the Company before gains from antitrust litigation settlements; LIFO credit (expense); Turkey highly inflationary impact; acquisition-related intangibles amortization; litigation and opioid-related credit (expenses); acquisition-related deal and integration expenses; and restructuring and other expenses. All corporate office expenses are allocated to the operating segment level.
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Litigation and opioid-related credit in the three months ended December 31, 2023 includes a net $92.2 million opioid litigation settlement accrual reduction primarily as a result of the Company's commitment, which it made in December 2023, to prepay the net present value of a future obligation as permitted under its opioid settlement agreements.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
This executive summary provides highlights from the results of operations that follow:
•Revenue increased by $9.4 billion, or 15.0%, from the prior year quarter primarily due to growth in our U.S. Healthcare Solutions segment. The U.S. Healthcare Solutions segment grew its revenue by $8.9 billion, or 15.9%, from the prior year quarter due to overall market growth primarily driven by unit volume growth, including increased sales of products labeled for diabetes and/or weight loss in the glucagon-like peptide-1, or "GLP-1," class, increased sales of specialty products to physician practices and health systems, and increased sales of COVID-19 vaccines. Revenue in International Healthcare Solutions increased by $458.9 million, or 6.9%, from the prior quarter primarily due to increased sales in our European distribution business, increased sales in our Canadian business, incremental revenue from our January 2023 acquisition of PharmaLex, and increased sales at our less-than-wholly-owned Brazil full-line distribution business. Our European distribution business' revenue in the current year quarter was negatively impacted by unfavorable foreign currency rates in comparison to the prior year quarter;
•Gross profit increased by $322.9 million, or 15.0%, from the prior year quarter primarily due to increases in gross profit in both reportable segments and a last-in, first-out ("LIFO") credit in the current year quarter in comparison to LIFO expense in the prior year quarter. U.S. Healthcare Solutions gross profit increased by $185.8 million, or 13.4%, from the prior year quarter due to increased sales. Gross profit in International Healthcare Solutions increased by $78.9 million, or 10.7%, from the prior year quarter due to the January 2023 acquisition of PharmaLex and increases in our global specialty logistics business, our less-than-wholly-owned Brazil full-line distribution business, our European distribution business, and our Canadian business;
•Total operating expenses increased by $133.1 million, or 8.8%, from the prior year quarter primarily as a result of increases in distribution, selling, and administrative expenses and amortization expense, offset in part by a litigation and opioid-related credit in the current year quarter in comparison to an expense in the prior year quarter;
•Total segment operating income increased by $152.0 million, or 20.7%, from the prior year quarter. Operating income increased by $125.7 million in the U.S. Healthcare Solutions segment and by $26.3 million in the International Healthcare Solutions segment; and
•Our effective tax rates were 23.0% and 19.8% for the three months ended December 31, 2023 and 2022, respectively. The effective tax rate for the three months ended December 31, 2023 was higher than the U.S. statutory rate primarily due to U.S. state income taxes and a discrete tax expense, offset in part by the benefit of non-U.S. income taxed at rates lower than the U.S. statutory rate, as well as tax benefits associated with the vesting of restricted stock units and stock option exercises. The effective tax rate for the three months ended December 31, 2022 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, as well as tax benefits associated with the vesting of restricted stock units and stock option exercises, offset in part by U.S. state income taxes.
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Results of Operations
Revenue
| Three months ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | Change | |||||||||||||||||
| U.S. Healthcare Solutions: | ||||||||||||||||||||
| Human Health | $ | 63,898,165 | $ | 55,076,613 | 16.0% | |||||||||||||||
| Animal Health | 1,285,637 | 1,159,966 | 10.8% | |||||||||||||||||
| Total U.S. Healthcare Solutions | 65,183,802 | 56,236,579 | 15.9% | |||||||||||||||||
| International Healthcare Solutions: | ||||||||||||||||||||
| Alliance Healthcare | 5,725,564 | 5,460,691 | 4.9% | |||||||||||||||||
| Other Healthcare Solutions | 1,344,663 | 1,150,587 | 16.9% | |||||||||||||||||
| Total International Healthcare Solutions | 7,070,227 | 6,611,278 | 6.9% | |||||||||||||||||
| Intersegment eliminations | (1,196) | (1,025) | ||||||||||||||||||
| Revenue | $ | 72,252,833 | $ | 62,846,832 | 15.0% | |||||||||||||||
Our future revenue growth will continue to be affected by various factors, such as industry growth trends, including drug utilization (e.g., products labeled for diabetes and/or weight loss in the GLP-1 class), the introduction of new, innovative brand therapies and vaccines, the likely increase in the number of generic drugs and biosimilars that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs and biosimilars, price inflation and price deflation, general economic conditions in the United States and Europe, currency exchange rates, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third-party reimbursement rates to our customers, and changes in government rules and regulations.
Revenue increased by $9.4 billion, or 15.0%, from the prior year quarter primarily due to growth in the U.S. Healthcare Solutions segment.
The U.S. Healthcare Solutions segment grew its revenue by $8.9 billion, or 15.9%, from the prior year quarter due to overall market growth primarily driven by unit volume growth, including increased sales of $2.1 billion of products labeled for diabetes and/or weight loss in the GLP-1 class, increased sales of specialty products to physician practices and health systems, and increased sales of COVID-19 vaccines. Sales, including GLP-1 products and COVID-19 vaccines, to our two largest customers increased by $3.2 billion in comparison to the prior year period.
International Healthcare Solutions' revenue increased by $458.9 million, or 6.9%, from the prior year quarter primarily due to increased sales in our European distribution business, increased sales in our Canadian business, incremental revenue from our January 2023 acquisition of PharmaLex, and increased sales at our less-than-wholly-owned Brazil full-line distribution business. Our European distribution business' revenue in the current year quarter was negatively impacted by unfavorable foreign currency rates in comparison to the prior year quarter.
A number of our contracts with customers, including group purchasing organizations, are typically subject to expiration each year. We may lose a significant customer if an existing contract with such customer expires without being extended, renewed, or replaced. During the three months ended December 31, 2023, no significant contracts expired. Over the next twelve months, there are no significant contracts scheduled to expire. Additionally, from time to time, significant contracts may be terminated in accordance with their terms or extended, renewed, or replaced prior to their expiration dates. If those contracts are extended, renewed, or replaced at less favorable terms, they may also negatively impact our revenue, results of operations, and cash flows.
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Gross Profit
| Three months ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | Change | |||||||||||||||||
| U.S. Healthcare Solutions | $ | 1,571,950 | $ | 1,386,148 | 13.4% | |||||||||||||||
| International Healthcare Solutions | 817,395 | 738,540 | 10.7% | |||||||||||||||||
| Gains from antitrust litigation settlements | 48,248 | 49,899 | ||||||||||||||||||
| LIFO credit (expense) | 48,445 | (25,050) | ||||||||||||||||||
| Turkey highly inflationary impact | (17,226) | (3,584) | ||||||||||||||||||
| Gross profit | $ | 2,468,812 | $ | 2,145,953 | 15.0% | |||||||||||||||
Gross profit increased by $322.9 million, or 15.0%, from the prior year quarter primarily due to increases in gross profit in both reportable segments and a LIFO credit in the current year quarter in comparison to LIFO expense in the prior year quarter.
U.S. Healthcare Solutions gross profit increased by $185.8 million, or 13.4%, from the prior year quarter primarily due to increased sales. As a percentage of revenue, U.S. Healthcare Solutions' gross profit margin was 2.41% in the current year quarter and represented a 5-basis point decline from the prior year quarter primarily due to higher sales of GLP-1 products, which have lower gross profit margins, offset in part by higher sales of COVID-19 vaccines, which have higher gross profit margins.
Gross profit in International Healthcare Solutions increased by $78.9 million, or 10.7%, from the prior year quarter due to the January 2023 acquisition of PharmaLex and increases in our global specialty logistics business, our less-than-wholly-owned Brazil full-line distribution business, our European distribution business, and our Canadian business.
We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $48.2 million and $49.9 million in the three months ended December 31, 2023 and 2022, respectively. The gains were recorded as reductions to Cost of Goods Sold (see Note 11 of the Notes to Consolidated Financial Statements).
Our cost of goods sold for interim periods includes a LIFO provision that is recorded ratably on a quarterly basis and is based on our estimated annual LIFO provision. The annual LIFO provision, which we estimate on a quarterly basis, is affected by manufacturer pricing practices, which may be impacted by market and other external influences, expected 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. Based on estimates in our current fiscal year LIFO provision, the LIFO credit in the current year quarter in comparison to the LIFO expense in the prior year quarter was primarily driven by lower brand pharmaceutical inflation.
We recognized an expense in Cost of Goods Sold of $17.2 million and $3.6 million in the three months ended December 31, 2023 and 2022, respectively, related to the impact of Turkey highly inflationary accounting. These expenses were driven by the weakening of the Turkish Lira.
Operating Expenses
| Three months ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | Change | |||||||||||||||||
| Distribution, selling, and administrative | $ | 1,398,747 | $ | 1,290,928 | 8.4% | |||||||||||||||
| Depreciation and amortization | 270,603 | 171,940 | 57.4% | |||||||||||||||||
| Litigation and opioid-related (credit) expenses | (78,917) | 12,706 | ||||||||||||||||||
| Acquisition-related deal and integration expenses | 21,063 | 20,996 | ||||||||||||||||||
| Restructuring and other expenses | 34,441 | 16,240 | ||||||||||||||||||
| Total operating expenses | $ | 1,645,937 | $ | 1,512,810 | 8.8% | |||||||||||||||
Distribution, selling, and administrative expenses increased by $107.8 million, or 8.4%, compared to prior year quarter primarily to support revenue growth and due to an increase in bad debt expense of $17.3 million. As a percentage of revenue, distribution, selling, and administrative expenses was 1.94% in the current year quarter, which represented an 11-basis point decline compared to the prior year quarter as initiatives taken in fiscal 2023 improved operating efficiency across many of our
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businesses and administrative functions and the 15.0% revenue growth in the current fiscal quarter improved our operating leverage.
Depreciation expense increased 4.7% from the prior year quarter. Amortization expense increased 129.9% from the prior year quarter 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 gradual transition away from other tradenames used, which were acquired through prior acquisitions.
Litigation and opioid-related credit in the three months ended December 31, 2023 included a net $92.2 million opioid litigation settlement accrual reduction primarily as a result of our commitment, which we made in December 2023, to prepay the net present value of a future obligation as permitted under our opioid settlement agreements and $13.3 million of legal fees in connection with opioid lawsuits and investigations. Litigation and opioid-related expenses in the three months ended December 31, 2022 included legal fees in connection with opioid lawsuits and investigations.
Acquisition-related deal and integration expenses in the three months ended December 31, 2023 primarily related to the continued integration of Alliance Healthcare and PharmaLex. Acquisition-related deal and integration expenses in the three months ended December 31, 2022 primarily related to the integration of Alliance Healthcare.
Restructuring and other expenses are comprised of the following for the periods indicated:
| Three months ended December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Restructuring and employee severance costs | $ | 11,294 | $ | 3,320 | ||||||||||
| Business transformation efforts | 24,722 | 12,920 | ||||||||||||
| Other, net | (1,575) | — | ||||||||||||
| Total restructuring and other expenses | $ | 34,441 | $ | 16,240 | ||||||||||
Restructuring and employee severance costs in the three months ended December 31, 2023 primarily included expenses incurred related to facility closures in connection with our office optimization plan and workforce reductions in both of our reportable segments.
Business transformation efforts in the three months ended December 31, 2023 and 2022 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.
Operating Income
| Three months ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | Change | |||||||||||||||||
| U.S. Healthcare Solutions | $ | 698,124 | $ | 572,416 | 22.0% | |||||||||||||||
| International Healthcare Solutions | 187,595 | 161,282 | 16.3% | |||||||||||||||||
| Total segment operating income | 885,719 | 733,698 | 20.7% | |||||||||||||||||
| Gains from antitrust litigation settlements | 48,248 | 49,899 | ||||||||||||||||||
| LIFO credit (expense) | 48,445 | (25,050) | ||||||||||||||||||
| Turkey highly inflationary impact | (17,226) | (3,584) | ||||||||||||||||||
| Acquisition-related intangibles amortization | (165,724) | (71,878) | ||||||||||||||||||
| Litigation and opioid-related credit (expenses) | 78,917 | (12,706) | ||||||||||||||||||
| Acquisition-related deal and integration expenses | (21,063) | (20,996) | ||||||||||||||||||
| Restructuring and other expenses | (34,441) | (16,240) | ||||||||||||||||||
| Operating income | $ | 822,875 | $ | 633,143 | 30.0% | |||||||||||||||
U.S. Healthcare Solutions' operating income increased by $125.7 million, or 22.0%, from prior year quarter primarily due to the increase in gross profit, as noted above, and was offset in part by the increase in operating expenses. As a percentage of revenue, U.S. Healthcare Solutions' operating income margin was 1.07% in the current year quarter and represented a 5-basis
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point increase compared to the prior year quarter primarily due a decline in operating expense margin, as described above in the Operating Expenses section, offset in part by a decline in gross profit margin, as described above in the Gross Profit section.
International Healthcare Solutions' operating income increased by $26.3 million, or 16.3%, from the prior year quarter primarily due to our global specialty logistics business, the January 2023 acquisition of PharmaLex, and our Canadian business, offset in part by foreign currency pressure and higher information technology operating expenses in our European distribution business and the September 2023 divestiture of its less-than-wholly-owned subsidiary in Egypt, which was profitable in the prior year quarter.
Interest Expense, Net
Interest expense, net and the respective weighted average interest rates for the three months ended December 31, 2023 and 2022 are as follows:
| 2023 | 2022 | |||||||||||||||||||||||||
| (dollars in thousands) | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Interest expense | $ | 58,616 | 3.73% | $ | 60,806 | 3.21% | ||||||||||||||||||||
| Interest income | (18,052) | 5.15% | (14,790) | 2.86% | ||||||||||||||||||||||
| Interest expense, net | $ | 40,564 | $ | 46,016 | ||||||||||||||||||||||
Interest expense, net decreased by $5.5 million, or 11.8%, from prior year quarter due to the increase in interest income and a decrease in interest expense. The increase in interest income was primarily driven by higher investment interest rates in the current year quarter in comparison to the prior year quarter. The higher investment interest rates were offset in part by lower average investment cash balance in the current year quarter in comparison to the prior year quarter. Interest expense decreased primarily due to the September 2023 divestiture of our less-than-wholly-owned subsidiary in Egypt.
Income Tax Expense
Our effective tax rates were 23.0% and 19.8% for the three months ended December 31, 2023 and 2022, respectively. The effective tax rate for the three months ended December 31, 2023 was higher than the U.S. statutory rate primarily due to U.S. state income taxes and a discrete tax expense, offset in part by the benefit of non-U.S. income taxed at rates lower than the U.S. statutory rate, as well as tax benefits associated with the vesting of restricted stock units and stock option exercises. The effective tax rate for the three months ended December 31, 2022 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, as well as tax benefits associated with the vesting of restricted stock units and stock option exercises, offset in part by U.S. state income taxes.
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 December 31, 2023 and September 30, 2023, our cash and cash equivalents held by foreign subsidiaries were $907.9 million and $640.5 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 three months ended December 31, 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 three months ended December 31, 2023 and 2022 was $575.0 million and $1,315.0 million, respectively. We had $11,120.6 million and $1,558.1 million of cumulative intra-period borrowings that were repaid under our credit facilities during the three months ended December 31, 2023 and 2022, respectively.
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During the three months ended December 31, 2023, our operating activities provided cash of $885.2 million and was principally the result of the following:
•An increase in accounts payable of $1,765.1 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;
•Net income of $603.0 million; and
•Positive non-cash items of $336.5 million, which is primarily comprised of amortization expense of $168.3 million and depreciation expense of $110.1 million.
The cash provided by the above items was offset in part by the following:
•An increase in inventories of $1,095.5 million to support the increase in business volume and due to seasonal needs;
•An increase in accounts receivable of $504.1 million primarily due to an increase in sales and the timing of scheduled payments from our customers; and
•A decrease in accrued expenses of $239.0 million primarily due to the payment of accrual liabilities that were on our Consolidated Balance Sheet as of September 30, 2023.
During the three months ended December 31, 2022, our operating activities provided cash of $710.1 million and was principally the result of the following:
•An increase in accounts payable of $1,381.1 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;
•Net income of $476.2 million; and
•Positive non-cash items of $242.9 million, which is primarily comprised of depreciation expense of $100.3 million and amortization expense of $75.1 million.
The cash provided by the above items was offset in part by the following:
•An increase in inventories of $1,178.0 million to support the increase in business volume and due to seasonal needs; and
•A decrease in accrued expenses of $233.6 million primarily due to the payment of accrual liabilities that were on our Consolidated Balance Sheet as of September 30, 2022.
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 on which the month ends.
| Three months ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Days sales outstanding | 28.0 | 27.5 | ||||||||||||
| Days inventory on hand | 26.5 | 27.4 | ||||||||||||
| Days payable outstanding | 59.5 | 59.4 | ||||||||||||
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 three months ended December 31, 2023 included $65.6 million of interest payments and $62.4 million of income tax payments, net of refunds. Operating cash flows during the three months ended December 31, 2022 included $63.1 million of interest payments and $30.3 million of income tax payments, net of refunds.
Capital expenditures in the three months ended December 31, 2023 and 2022 were $74.2 million and $75.7 million, respectively. Significant capital expenditures in the three months ended December 31, 2023 and 2022 included investments in various technology initiatives, including technology investments at Alliance Healthcare.
We currently expect to invest 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 activity in the three months ended December 31, 2022 included $1,438.1 million for the prefunding of our acquisition of PharmaLex.
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Net cash used in financing activities in the three months ended December 31, 2023 principally resulted from $385.5 million purchases of our common stock and $105.7 million in cash dividends paid on our common stock. Net cash used in financing activities in the three months ended December 31, 2022 principally resulted from $807.2 million in purchases of common stock and $99.7 million in cash dividends paid on our common stock.
Debt and Credit Facility Availability
The following table illustrates our debt structure as of December 31, 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 | $ | 499,797 | $ | — | ||||||||||
| $500,000, 3.250% senior notes due 2025 | 499,197 | — | ||||||||||||
| $750,000, 3.450% senior notes due 2027 | 746,674 | — | ||||||||||||
| $500,000, 2.800% senior notes due 2030 | 496,111 | — | ||||||||||||
| $1,000,000, 2.700% senior notes due 2031 | 991,880 | — | ||||||||||||
| $500,000, 4.250% senior notes due 2045 | 495,432 | — | ||||||||||||
| $500,000, 4.300% senior notes due 2047 | 493,621 | — | ||||||||||||
| Nonrecourse debt | 55,854 | — | ||||||||||||
| Total fixed-rate debt | 4,278,566 | — | ||||||||||||
| 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) | — | 12,731 | ||||||||||||
| Money market facility | — | 100,000 | ||||||||||||
| Alliance Healthcare debt | 47,522 | 583,109 | ||||||||||||
| Nonrecourse debt | 102,635 | — | ||||||||||||
| Total variable-rate debt | 500,157 | 4,270,840 | ||||||||||||
| Total debt | $ | 4,778,723 | $ | 4,270,840 | ||||||||||
We have a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility") with a syndicate of lenders, which is scheduled to expire in October 2028. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on our debt rating. We also pay facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on our debt rating. 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 December 31, 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 December 31, 2023.
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 on 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. The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which we were compliant as of December 31, 2023.
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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.
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 December 31, 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 subsidiary and is repaid solely from the Brazil subsidiary' 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 subsidiary.
Share Purchase Programs and Dividends
In March 2023, 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 three months ended December 31, 2023, we purchased $385.5 million of our common stock, including $250.0 million from Walgreens Boots Alliance, Inc. As of December 31, 2023, we had $423.5 million of availability under this program.
In November 2023, our Board of Directors increased the quarterly dividend paid on common stock by 5% from $0.485 per share to $0.51 per share. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remains within the discretion of our Board of Directors and will depend upon future earnings, financial condition, capital requirements, and other factors.
Commitments and Obligations
As discussed and defined in Note 10 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 December 31, 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 (pursuant to an agreement in principle) and other opioid-related litigation for which we have reached settlement agreements is approximately $5.4 billion on our Consolidated Balance Sheet as of December 31, 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 December 31, 2023:
| Payments Due by Period (in thousands) | Debt, Including Interest Payments | Operating Leases | Other Commitments | Total | ||||||||||||||||||||||
| Within 1 year | $ | 771,956 | $ | 228,482 | $ | 117,247 | $ | 1,117,685 | ||||||||||||||||||
| 1-3 years | 1,210,457 | 393,867 | 144,094 | 1,748,418 | ||||||||||||||||||||||
| 4-5 years | 981,654 | 302,117 | — | 1,283,771 | ||||||||||||||||||||||
| After 5 years | 3,378,602 | 473,983 | — | 3,852,585 | ||||||||||||||||||||||
| Total | $ | 6,342,669 | $ | 1,398,449 | $ | 261,341 | $ | 8,002,459 | ||||||||||||||||||
The 2017 Tax Act requires 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 the transition tax as of December 31, 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 $564.9 million (including interest and penalties) as of December 31, 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 December 31, 2023 primarily includes an uncertain tax benefit related to the legal accrual for
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litigation related to the distribution of prescription opioid pain medications, as disclosed in Note 10 of the Notes to Consolidated Financial Statements.
Market Risks
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 three months ended December 31, 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 $500.2 million of variable-rate debt outstanding as of December 31, 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 December 31, 2023.
We also have market risk exposure to interest rate fluctuations relating to our cash and cash equivalents. We had $2,872.4 million in cash and cash equivalents as of December 31, 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 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.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s most significant market risks are the effects of foreign currency risk, changing interest rates, and changes in the price and volatility of the Company’s common stock. See the discussion under the heading "Market Risks," which is incorporated by reference herein.
ITEM 4. 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 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
During the first quarter of fiscal 2024, there was no change in Cencora, Inc.'s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note 10 (Legal Matters and Contingencies) of the Notes to Consolidated Financial Statements set forth under Item 1 of Part I of this report for the Company’s current description of legal proceedings.
ITEM 1A. Risk Factors
Our significant business risks are described in Item 1A to our Form 10-K for the fiscal year ended September 30, 2023 to which reference is made herein.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
The following table sets forth the number of shares purchased, the average price paid per share, the total number of shares purchased as part of publicly announced programs, and the approximate dollar value of shares that may yet be purchased under the programs during each month in the first fiscal quarter ended December 31, 2023. See Note 7, "Stockholders' Equity and Earnings per Share," contained in "Notes to Condensed Consolidated Financial Statements" in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs | ||||||||||||||||||||||
| October 1 to October 31 | 146,567 | $ | 179.05 | 145,711 | $ | 782,925,463 | ||||||||||||||||||||
| November 1 to November 30 | 1,822,145 | $ | 194.42 | 1,533,862 | $ | 483,755,922 | ||||||||||||||||||||
| December 1 to December 31 | 308,157 | $ | 198.82 | 303,216 | $ | 423,491,280 | ||||||||||||||||||||
| Total | 2,276,869 | 1,982,789 | ||||||||||||||||||||||||
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Our directors and officers (as defined in Exchange Act Rule 16a-1(f)) may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are intended to satisfy the affirmative defense conditions of Rule 10b5–1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter ended December 31, 2023, the following plans or arrangements were adopted
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These stock trading plans were entered into during an open insider trading window and are intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, and the Company’s policies regarding transactions in our securities.
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ITEM 6. Exhibits
(a) Exhibits:
| Exhibit Number | Description | |||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| ‡10.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101 | Financial statements from the Quarterly Report on Form 10-Q of Cencora, Inc. for the quarter ended December 31, 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. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CENCORA, INC. | |||||
| January 31, 2024 | /s/ Steven H. Collis | ||||
| Steven H. Collis | |||||
| Chairman, President & Chief Executive Officer | |||||
| January 31, 2024 | /s/ James F. Cleary | ||||
| James F. Cleary | |||||
| Executive Vice President & Chief Financial Officer | |||||
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