AmerisourceBergen Reports Third Quarter Fiscal Year 2014 Results

“We delivered very strong performance in our June quarter, driven by the onboarding of substantial new business, and excellent operational and financial results,” said Steven H. Collis, AmerisourceBergen President and Chief Executive Officer. “In addition, we made important progress with our strategic objectives, and continued to make significant long-term investments in our business. We finalized our agreement to acquire a minority stake in Profarma Distribuidora de Produtos Farmacuticos S.A., and launched the specialty joint venture in Brazil. We generated substantial free cash flow, continued to take steps to improve our balance sheet, and positioned ourselves well to meet or exceed our financial objectives for the full fiscal year.”

The comments below compare adjusted results from continuing operations, which exclude:

In addition, we calculate our adjusted earnings per share for each period using a diluted weighted average share count, which excludes the accounting dilution resulting from the impact of the unexercised equity warrants, and the impact from the shares repurchased under our special $650 million share repurchase program. Solely in connection with the special share repurchase program, we issued $600 million of 1.15% senior notes due in May 2017. The interest expense incurred relating to this borrowing is also excluded from the non-GAAP presentation.

The Pharmaceutical Distribution segment includes both AmerisourceBergen Drug Corporation and AmerisourceBergen Specialty Group. Other includes AmerisourceBergen Consulting Services (ABCS) and World Courier.

In the third fiscal quarter of 2014, Pharmaceutical Distribution revenues were $29.8 billion, an increase of 39 percent compared to the same quarter in the prior year. ABDC revenues increased 45 percent, due primarily to the onboarding of all of the new Walgreens branded pharmaceuticals business and a substantial portion of their generic pharmaceuticals business, and increased branded pharmaceutical sales to our other large customers. ABSG revenues increased 13 percent, driven by strong performance in our blood products, vaccine and physician office distribution businesses. Intrasegment revenues between ABDC and ABSG have been eliminated in the presentation of total Pharmaceutical Distribution revenue. Total intrasegment revenues were $1.1 billion and $809.2 million in the quarters ended June 30, 2014 and 2013, respectively.

Operating income of $359.8 million in the June quarter of fiscal 2014 increased 29 percent compared to the same period in the previous year due to the new Walgreens branded and generic pharmaceuticals business in ABDC, strong contributions from generics overall, and solid performance in ABSG, as slightly lower performance in our community oncology business was offset by strong performance in our blood products and vaccine distribution businesses.

Revenues in Other were $620.3 million in the third quarter of fiscal 2014, an increase of 13 percent over the same period in the prior year. Operating income of $33.7 million was essentially flat in the third quarter of fiscal 2014, due to solid performance in World Courier being offset by a decline in our consulting businesses.

AmerisourceBergen now expects adjusted diluted earnings per share from continuing operations in fiscal year 2014 to be in the range of $3.89 to $3.94, an increase of 21 to 23 percent over fiscal 2013. We expect revenue growth in the 35 percent range, and operating income growth in the high-teens percentage range. Adjusted operating margin is expected to decline in the high-teens basis points range due to the onboarding of significant new lower margin business and growth in brand pharmaceutical business with our large customers. We expect free cash flow to be in the high end of the range of $500 to $700 million, with capital expenditures in the $275 million range, and to spend approximately $500 million in share repurchases, subject to market conditions.

The Company will host a conference call to discuss the results at 11:00 a.m. Eastern Time on July 24, 2014.

Participating in the conference call will be:

Certain of the statements contained in this news release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “continue,” “sustain,” “synergy,” “on track,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and are subject to uncertainty and change in circumstances. These statements are not guarantees of future performance and are based on assumptions that could prove incorrect or could cause actual results to vary materially from those indicated. Among the factors that could cause actual results to differ materially from those projected, anticipated, or implied are the following: changes in pharmaceutical market growth rates; the loss of one or more key customer or supplier relationships; the retention of key customer or supplier relationships under less favorable economics; changes in customer mix; customer delinquencies, defaults or insolvencies; supplier defaults or insolvencies; changes in branded and/or generic pharmaceutical manufacturers’ pricing and distribution policies or practices; adverse resolution of any contract or other dispute with customers or suppliers; federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances, federal and state prosecution of alleged violations of related laws and regulations, and any related litigation, including shareholder derivative lawsuits or other disputes relating to AmerisourceBergen’s distribution of controlled substances; qui tam litigation for alleged violations of fraud and abuse laws and regulations and/or any other laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services and any related litigation, including shareholder derivative lawsuits; changes in federal and state legislation or regulatory action affecting pharmaceutical product pricing or reimbursement policies, including under Medicaid and Medicare, and the effect of such changes on AmerisourceBergen’s customers; changes in regulatory or clinical medical guidelines and/or labeling for the pharmaceutical products we distribute; price inflation in branded and generic pharmaceuticals and price deflation in generics; greater or less than anticipated benefit from launches of the generic versions of previously patented pharmaceutical products; significant breakdown or interruption of AmerisourceBergen’s information technology systems; AmerisourceBergen’s inability to realize the anticipated benefits of the implementation of an enterprise resource planning (ERP) system; interest rate and foreign currency exchange rate fluctuations; risks associated with international business operations, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws and economic sanctions and import laws and regulations; economic, business, competitive and/or regulatory developments in countries where we do business and/or operate outside of the United States; risks associated with the strategic, long-term relationship among Walgreen Co., Alliance Boots GmbH, and AmerisourceBergen, the occurrence of any event, change or other circumstance that could give rise to the termination, cross-termination or modification of any of the transaction documents among the parties (including, among others, the distribution agreement or the generics agreement), an impact on AmerisourceBergen’s earnings per share resulting from the issuance of the warrants to subsidiaries of Walgreen Co. and Alliance Boots GmbH (the “Warrants”), an inability to realize anticipated benefits (including benefits resulting from participation in the Walgreens Boots Alliance Development GmbH joint venture), the disruption of AmerisourceBergen’s cash flow and ability to return value to its stockholders in accordance with its past practices, disruption of or changes in vendor, payer and customer relationships and terms, and the reduction of AmerisourceBergen’s operational, strategic or financial flexibility; the acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control; AmerisourceBergen’s inability to implement its hedging strategy to mitigate the potentially dilutive effect of the issuance of shares of its common stock upon exercise of the Warrants, including its inability to repurchase shares of its common stock under its new share repurchase program due to its financial performance, the current and future share price of its common stock, its expected cash flows, competing priorities for capital, and overall market conditions; AmerisourceBergen’s inability to successfully complete any other transaction that we may wish to pursue from time to time; changes in tax laws or legislative initiatives that could adversely affect AmerisourceBergen’s tax positions and/or AmerisourceBergen’s tax liabilities or adverse resolution of challenges to AmerisourceBergen’s tax positions; increased costs of maintaining, or reductions in AmerisourceBergen’s ability to maintain, adequate liquidity and financing sources; volatility and deterioration of the capital and credit markets; natural disasters or other unexpected events that affect AmerisourceBergen’s operations; and other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting AmerisourceBergen’s business generally. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth (i) in Item 1A (Risk Factors) and Item 1 (Business) in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013 and elsewhere in that report and (ii) in other reports.

Includes a $2.5 million gain from antitrust litigation settlements and a $133.2 million LIFO expense in the three months ended June 30, 2014. Includes a $6.0 million gain from antitrust litigation settlements and a $122.1 million LIFO expense in the three months ended June 30, 2013.

Stock options, restricted stock, restricted stock units and the Warrants issued to Walgreens and Alliance Boots were anti-dilutive for the three months ended June 30, 2014. The dilutive effect of these items is included in the three months ended June 30, 2013.

Includes a $24.4 million gain from antitrust litigation settlements and a $293.6 million LIFO expense in the nine months ended June 30, 2014. Includes a $21.7 million gain from antitrust litigation settlements and a $123.0 million LIFO expense in the nine months ended June 30, 2013.

Includes the dilutive effect of stock options, restricted stock, restricted stock units and the Warrants issued to Walgreens and Alliance Boots.

$1.01

29.5

%

GAAP

% Change vs.

$2.86

19.2

%

Adjustments include non-cash warrant expense of $267.0 million and $39.6 million for the nine months ended June 30, 2014 and 2013, respectively.

Merchandise inventories include LIFO expense of $293.6 million and $123.0 million for the nine months ended June 30, 2014 and 2013, respectively.

Includes purchases made under the special share repurchase program totaling $138.8 million.Additional purchases made in June 2014 under the special program totaling $2.9 million cash settled in July 2014.