AmerisourceBergen Reports Strong Cash Flow from Operations and Solid Earnings Performance for the June Quarter

Business Wire, July 22, 2004

VALLEY FORGE, Pa. -- Focused Performance Generates $634 Million In Cash from Operations in the June Quarter

AmerisourceBergen Corporation (NYSE:ABC) today reported results for its fiscal third quarter ended June 30, 2004. The following results are presented in accordance with generally accepted accounting principles (GAAP).

Fiscal Third Quarter Highlights

--Diluted earnings per share of $1.09, including special items of $0.07, up 10 percent.

--Cash flow from operations of $634 million.

--Record low interest expense of $26.8 million.

--Record total debt to total capital ratio of 25 percent.

Fiscal First Nine Months Highlights

--Diluted earnings per share of $3.25, including special items of $0.04, up 14 percent.

--Net income of $376.4 million, up 17 percent.

--Cash flow from operations of $656 million.

"Our solid performance this quarter again demonstrates our disciplined, long-term approach to our business," said R. David Yost, AmerisourceBergen's Chief Executive Officer. "Our operational focus, disciplined working capital management and an effective transition to inventory management agreements with manufacturers mitigated the impact of the loss of a major customer in May. The result was solid earnings per share performance, excellent cash generation, and the strongest balance sheet in our history."

Discussion of Results

Diluted earnings per share for the third quarter of fiscal 2004 were $1.09, a 10 percent increase over the $0.99 in the prior year's third quarter. Included in the fiscal 2004 third quarter results are a $23.4 million gain, net of tax, from an antitrust litigation settlement; a $14.5 million charge, net of tax, related to debt redemption; and a $1.0 million charge, net of tax, related to facility consolidation and employee severance costs. The previous fiscal year's third quarter included a $2.6 million charge, net of tax, due to debt redemption and a $2.4 million charge, net of tax, related to facility consolidation and employee severance costs. The earnings per share impact of these items was an increase of $0.07 in the third quarter of fiscal 2004 and a decrease of $0.04 in the last fiscal year's third quarter.

AmerisourceBergen's operating revenue was $12.1 billion in the third quarter of fiscal 2004 compared to $11.5 billion for the same period last year, a 6 percent increase. Bulk deliveries in the quarter increased 2 percent to $1.0 billion.

During the quarter, the Company changed its accounting for customer returns resulting in a one-time reduction of $320 million in both operating revenue and cost of goods sold. This change also resulted in a $320 million increase to inventory with a corresponding decrease in accounts receivable. The change had no impact on net income or diluted earnings per share.

Interest expense in the third quarter of fiscal 2004 was a record low $26.8 million compared to $37.2 million in the prior year's third quarter, a 28 percent decrease driven by significantly lower average inventory levels in the quarter.

Cash generated from operations in the fiscal 2004 third quarter was $634 million compared to cash usage of $177 million in last fiscal year's third quarter. Using its strong cash position, the Company paid down $323 million in debt during the quarter, including $300 million associated with the early redemption of the 7.80 percent Trust Originated Preferred Securities (TOPrS(SM)) which were due effectively in June 2039. The Company's total debt to total capital ratio was a record low 25 percent.

For the first nine months of fiscal 2004, diluted earnings per share were $3.25, a 14 percent increase over the $2.85 in the same nine-month period last year. The net impact of the gain from the antitrust litigation settlement and charges related to the early retirement of debt and facility consolidations and employee severance costs in the first nine months of fiscal 2004 increased earnings per share by $0.04. Charges related to early retirement of debt and facility consolidations and employee severance costs in the first nine months of fiscal 2003 decreased earnings per share by $0.06.

Operating revenue in the first nine months of fiscal 2004 increased 9 percent to $36.7 billion from $33.8 billion in the same period of the previous fiscal year. Bulk deliveries to customer warehouses were down 5 percent, reflecting the impact of the conversion of bulk business to operating revenue in fiscal 2003. In the first nine months of fiscal 2004, operating revenue and cost-of-goods-sold were both reduced by $320 million due to the change in accounting for customer returns.

"With annualized operating revenue of approximately $5 billion, our Specialty Group again led our business units with especially strong performance in the quarter," said Kurt J. Hilzinger, AmerisourceBergen's President and Chief Operating Officer. "Our Drug Corporation, Technology Group and Packaging Group also continued to build their businesses during the period as we expanded our offerings in pharmaceutical services. In the quarter, we again benefited from our merger integration cost savings and achieved our milestone goal of $150 million in annual synergy cost savings ahead of our September 30, 2004 target date that we set in 2001.