Filed by: Bergen Brunswig Corporation. This
Communication is filed pursuant to Rule 425
under The Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12 of
the Securities Exchange Act of 1934.
Subject Company: AmerisourceBergen Corporation
Commission File Number: 333-61440
FORWARD-LOOKING STATEMENTS
The following communications contain certain "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. These statements are based on management's
current expectations and are subject to uncertainty and changes in
circumstances. Actual results may vary materially from the expectations
contained in the forward-looking statements. The forward-looking statements
herein include statements addressing future financial and operating results of
AmeriSource and Bergen Brunswig and the timing, benefits and other aspects of
the proposed merger.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: inability to
obtain, or meet conditions imposed for, governmental approvals for the
transaction; failure of the stockholders of AmeriSource and Bergen Brunswig to
approve the merger; the risk that the businesses of AmeriSource and Bergen
Brunswig will not be integrated successfully; failure to obtain and retain
expected synergies; and other economic, business, competitive and/or regulatory
factors affecting the businesses of AmeriSource and Bergen Brunswig generally.
More detailed information about these factors is set forth in AmeriSource's and
Bergen Brunswig's filings with the Securities and Exchange Commission, including
each of their Annual Reports on Form 10-K for fiscal 2000 and their most recent
quarterly reports on Form 10-Q. AmeriSource and Bergen Brunswig are under no
obligation to (and expressly disclaim any such obligation to) update or alter
their forward-looking statements whether as a result of new information, future
events or otherwise.
ADDITIONAL INFORMATION
In connection with their proposed merger, AmerisourceBergen, together with
AmeriSource and Bergen Brunswig, filed a preliminary joint proxy
statement/prospectus with the Securities and Exchange Commission. INVESTORS AND
SECURITY HOLDERS ARE ADVISED TO READ THE DEFINITIVE JOINT PROXY
STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of
the definitive joint proxy statement/prospectus (when available) and other
documents filed by AmerisourceBergen (as well as by AmeriSource and Bergen
Brunswig) at the Securities and Exchange Commission's web site at www.sec.gov.
The definitive joint proxy statement/prospectus and such other documents may
also be obtained for free from AmeriSource or from Bergen Brunswig by directing
such request to AmeriSource Health Corporation, General Counsel, 1300 Morris
Drive, Suite 100, Chesterbrook, Pennsylvania 19087-5594, Telephone: (610)
727-7000; or to Bergen Brunswig Corporation, Attention: Corporate Secretary,
4000 Metropolitan Drive, Orange, California 92868-3510, Telephone: (714)
385-4000.
PARTICIPANTS IN SOLICITATION
AmeriSource and Bergen Brunswig and their respective directors, executive
officers and other members of their management and employees may be deemed to be
participants in the solicitation of proxies from their respective stockholders
in connection with the proposed merger. Information concerning AmeriSource's
participants in the solicitation is set forth in AmeriSource's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 19, 2001,
and information concerning Bergen Brunswig's participants in the solicitation is
set forth in Bergen Brunswig's Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 19, 2001.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 1
BERGEN BRUNSWIG
Moderator: Donna Dolan
July 26, 2001
1:00 p.m. CT
Operator: Good day, everyone and welcome to the Bergen Brunswig Corporation
Third Quarter Earnings Results Conference Call. For opening remarks and
introductions, I would like to turn the call over to Donna Dolan.
Please go ahead.
Donna Dolan: Good morning and good afternoon. Welcome to Bergen Brunswig's third
quarter conference call for fiscal 2001. I am joined today by Robert
Martini, our Chairman and CEO, and Neil Dimmick, our Chief Financial
Officer.
The format of our call today will be similar to our recent calls. Both
Bob and Neil will speak from prepared remarks. At the end of their
comments, we will open up the call for questions. At that time you will
be able to address Bob or Neil or any of the presidents of our
operating divisions - Brent Martini, Steve Collis, or Chuck Carpenter.
You should have received a copy of our news release this morning
announcing earnings for our quarter ended June 30, 2001. If you have
not received a copy of the press release, please call (714) 385-4434,
and we will fax one to you. A copy is also available on our Web site,
www.BergenBrunswick.com.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
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Before we get started, I would like to read to you some statements
regarding any forward looking statements made during this call, and the
merger with AmeriSource.
Except for historical information, all other information set forth in
this press release, such as earnings forecasts and earnings
projections, consist of forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to risks, uncertainties,
and other factors which could cause actual results to differ materially
from those projected or implied. Such statements may be identified by
the use of the forward looking language, such as may, will, should,
expect, anticipate, etc., or the negatives or other variations thereof,
or other similar terminology.
Such risks and uncertainties include the risks described in Exhibit 99A
to the company's annual report for the year ended September 30, 2000,
and in other reports and exhibits filed with the Securities and
Exchange Commission.
These risks and uncertainties include, but are not limited to, the
costs and difficulties related to the integration of acquired
businesses, the loss or disruption of one or more key customer or
supplier relationships, changes in the distribution outsourcing pattern
for pharmaceutical products and/or services, the ability to obtain
general financing or financing rates that would be compatible with the
company's business operations, and the costs and other effects of
governmental regulations and legal and administrative proceedings.
The company assumes no obligation to update the information presented
during this call.
In connection with the proposed merger, AmeriSource and Bergen Brunswig
Corporation filed a preliminary joint proxy statement prospectus with
the Securities and Exchange Commission.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 3
Investors and security holders are advised to read the definitive joint
proxy statement prospectus when it becomes available, because it will
contain important information.
Investors and security holders may obtain a free copy of the definitive
joint proxy statement when available, and other documents filed by
AmeriSource, as well as by AmeriSource and Bergen Brunswig, at the
Securities and Exchange Commission's Web site at www.SEC.gov.
The definitive joint proxy statement and prospectus and such other
documents may also be obtained for free from AmeriSource or Bergen
Brunswig directly. AmeriSource and Bergen Brunswig and their respective
directors, executive officers and other members of their management and
employees may be deemed to be participants in the solicitation of
proxies from their respective stockholders in connection with the
proposed merger.
Information concerning AmeriSource's participants in the solicitation
is set forth in AmeriSource's current report on Form 8K filed with the
Securities and Exchange Commission on March 19, 2001. And information
concerning Bergen Brunswig's participants in the solicitation is set
forth in Bergen Brunswig's current report on Form 8K filed with the
Securities and Exchange Commission on March 19, 2001.
If you would like to listen to a replay of this call, it will begin at
approximately 3:00 p.m. Eastern daylight time. The number is (888)
203-1112. The reservation code for that call would be the same as for
this call, 537789.
Now I will turn the call over to Bob, who will make a few comments. And
then Neil will talk about the financials.
Robert Martini: Thanks, Donna. Well, we are very pleased to report today that we
continue to achieve our fiscal 01 stated revenue and earnings goals of
10% revenue increase and 30% earnings
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 4
increase. The momentum this quarter gives us confidence to expect more
of the same through the fiscal year.
We met or exceeded our plan in each business segment, while continuing
to show progress in expense control and maintaining substantial
liquidity. We have stuck to our core business, continued to expel
non-performing assets, and are investing in short-term high returns and
predictable results.
These results are a testimony to earned customer loyalty, support of
supplier partnerships, and a group of competent, highly motivated
associates, committed to breakthrough results, all of which have
contributed to over a 230% improvement in shareowner value from this
time a year ago.
With the cost of capital down, we have a unique opportunity to lower
our finance cost when the climate for refinancing is advantageous.
Healthcare industry trends have been favorable for growth and profit
opportunities.
Prescription drug sales are growing, both because of new drug therapies
coming on the market and because of the increased use of drugs as a
preferred method of treatment for many of the health conditions of a
maturing population.
Additionally, many brand named drugs will lose patent protection in the
next two years, creating an opportunity for additional profits in
generic product lines.
We have had several new contracts signed by the drug company this
quarter. And this is the first quarter in which the positive impact of
advanced PCS can be seen in our sales growth. Earnings improvements are
likely, as we leverage the efficiencies and buying opportunities
associated with these new and expanded customer agreements.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
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Our joint venture with Long's to create a central fill offering has
come to fruition. This new pharmacy is shipping prescriptions daily to
Long's stores in Northern California and Nevada. We see this concept as
one solution to the severe shortage of pharmacists that are facing
today's retail drug stores.
By routing their refill prescriptions to a central location, in-store
pharmacists will have more time to counsel with their patients and grow
and manage their business in other ways.
The specialty group continues to gather momentum, and are setting their
sights to further acceleration. With revenue growth exceeding 40% in
the quarter, and with an annualized run rate in excess of $1.5 billion,
they continue to excel in the growing oncology market.
The vaccine business continues to expand. And we are expanding our
service offering to include other office space specialties, such as
rhuematology.
PharMerica continues to perform on its goals and financial plan with
strong disciplines and great stability, as health returns to the long
term care business. We recently announced an extended agreement with
Beverly Enterprises, its largest customer.
PMSI is celebrating its 25th anniversary, and doing it with
accelerating performance and gratifying results. The financial climate
is very favorable to satisfy our liquidity requirements and
opportunities, and at rates that are very attractive.
We intend to maximize this unique market timing with a new proven
record of identifying issues, construction solutions, making tough
decisions, and implementing corrective actions. Said another way, we
simply did what we said we would do, and will continue to deliver.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 6
We are focused on job one, which is delivering on our goals. Meanwhile,
you are all aware of our announced and pending merger agreement with
AmeriSource. We are pretty much on schedule, with an anticipated
closing by the end of August. We continue to be optimistic for that
outcome.
The integration process has been in progress. And the operating
efficiencies have been easily validated. We expect to begin
implementation concurrent with the closing.
And now I would like for Neil to comment on the financials.
Neil Dimmick: Thank you, Bob. It is a pleasure to talk about the continued
progress at Bergen Brunswig during this past year. For the third
quarter ended June 30, revenues form continuing operations were a
record $5.5 billion, and $15.2 billion for the nine months. This
compares to $4.8 billion and $13.9 billion last year, an increase of
14% for this current quarter.
Netted against these revenues, we are in our company eliminations,
primarily related to PharMerica of $177 million for the quarter, and
$566 million for the nine months. The inter-company eliminations in
fiscal 2000 were $174 million for the third quarter, and $514 million
for the nine months.
In the pharmaceutical distribution segment, which includes the drug
company and the specialty group, sales increased by 14% in the third
quarter, and 10% for the nine months. The drug company sales in the
third quarter were $4.9 billion, a year over year increase of 12%.
While the nine months sales were up 8%.
The year to date increases were limited by the loss of a majority of
the Novation revenues. The addition of Advanced PCS revenues, which
came in April, has compensated for some of that loss.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 7
The drug company's revenue mix for the quarter was 52% retail, 48%
health systems. This compares to a mix of 50/50 respectively for the
third quarter last year. The change in these percentages reflects the
strong gain in our retail chain business this quarter, as well as the
loss of the health system business, which occurred with Novation at the
beginning of this fiscal year.
The specialty group's revenues were $441 million for the quarter, and
$1.2 billion for the nine months. That is an increase of 41%, and 34%
respectively. The specialty group's revenue mix for the third quarter
was 63% oncology, 22% nephrology, 6% plasma, 5% vaccine, and 4% other.
The specialty group's revenue growth is primarily driven again this
quarter by the excellent performance in oncology, which grew sales by
60%, compared to last year's third quarter. Other specialty businesses
have also shown significant growth.
For instance, at Besse Medical, one of the country's leading suppliers
of vaccines and other products directly to doctor's offices and
clinics, increased sales by 35%. And the specialty group's
manufacturing services, including (lash) and (ICS), also showed
substantial improvement.
Our PharMerica segment reported revenues of $337 million for the third
quarter. That is an increase of 5% compared to last year. For the nine
months, their revenues are up 6%.
During the quarter, PharMerica renewed its contract with one of its
major customers, Beverly Enterprises, extending that relationship to
2006. PMSI, PharMerica's workers' compensation group, again performed
exceptionally, increasing sales 37% in the quarter, and 36% for the
nine months.
Gross profit on a (FIPO) basis declined by 54 basis points for the
third quarter from last year's margin of 6.67%. This decrease was
primarily due to sales mix, not only in the pharmaceutical distribution
segment, but also at PharMerica.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 8
The changing sales mix also has a lower cost of service. And as a
result, the company improved operating margins on a (FIPO) basis,
compared to last year. And they were essentially even on a (LIPO)
basis.
At PharMerica, gross margin was 35% for the third quarter, compared to
36% for the third quarter in fiscal 2000. The decline, again, is a
result of sales mix from PMSI unit, which was growing faster than the
long-term care unit, and has lower gross margins. On the other hand,
PMSI's operating expenses are lower. And it has a much higher operating
profit margin than long-term care units.
Total distribution selling, general and administrative expenses as a
percentage of sales for continuing operations were 4.24% and 4.6% for
the nine months. This compares to 5.11 for the quarter and 5.16 for the
nine months. This is a decrease of 87 basis points for the quarter, and
56 basis points for the nine months.
In fact, all subsidiaries, the drug company, the specialty group, and
PharMerica, with the distribution segment realizing double digit basis
point reductions improvements, and PharMerica realizing a triple digit
improvement in operating expense as compared to sales.
Operating expenses as a percentage of sales are lower than last year's
third quarter by 30 basis points in the pharmaceutical distribution
segment, which is an excellent result, particularly given the loss of
Novation and our ability to absorb the fixed and variable cost related
with that business.
PharMerica's 690 basis point reduction in expenses as a percentage of
sales was due to cost reduction efforts in its operations, bad debt
expense improvement, and of course the elimination of 3.3 million in
good will amortization, which contributed 107 of the 690 basis point
improvement.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 9
To underscore the attention to operating costs here at Bergen, total
distribution selling and general and administrative expenses decreased
by five million on a consecutive quarter basis. For the third quarter,
Bergen's operating earnings from continuing operations were 98.6
million. That is an increase of 34%.
As a percentage of sales, operating earnings were 1.8% for the third
quarter, versus 1.53% last year's third quarter. That is an improvement
in margin of 27 basis points.
For the nine months, operating earnings were 264.3 million. That is an
increase of 22%. And as a percentage of sales, operating margins for
the nine months went to 1.73% compared to 1.57 last year.
Operating earnings in the various segments in the third quarter were as
follows. In the pharmaceutical distribution segment, they were 102.5
million versus 91.5 million. That is an increase of 12%. This is
primarily the result of the reduced operating expenses that we have
talked about.
On a (FIPO) basis, earnings increased 16%, and operating margins
increased to 2.02% in the pharmaceutical distribution segment.
PharMerica's operating earnings were 16 million for the quarter, a
substantial improvement over an operating loss last year of 1.7.
As a percentage of sales, PharMerica's operating earnings were 4.75%,
compared of course to a negative .52 last year. This reflects operating
expense improvements, including bad debt reduction, and good will
amortization elimination.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 10
An important measure of progress at PharMerica's cash collection and
DSO, during the third quarter PharMerica collected cash amounting to
103% of revenues, and reduced receivable day sales outstanding by 21
days, DSO going from 71 to 50 days.
Net interest expense, including distributions on the toppers, was 38.4
million for the third quarter, compared to 37.8 million. That is an
increase of 1.5%. For the nine months, interest increased 21% to 119.2
million.
This higher year to date interest expense reflects the rates being
charged on our new credit facility, which were higher than previously
reported. And of course as we get into the current quarter, the
comparables have the same interest spread on our borrowing. So we see a
reduction or a more comparable interest year over year.
These increases of course have been mitigated by the favorable interest
rate environment, which now exists, since the Fed has reduced interest
rates six times already this calendar year. Earnings from continuing
operations were 35.2 million for the quarter, reflecting an increase of
78%. And they were up 32% for the nine months.
On a per share basis, 26 cents for the third quarter compares to 15
cents last year. That is a 73% improvement. And for the nine months, 62
cents compared to 48 cents, an increase of 29%.
Net earnings, which include the discontinued operations in the prior
year, were 35.2 million for this quarter, where there were no
discontinued operations, and last year, of course, the loss because of
the sale of Stadtlander of $239 million.
Weighted average diluted shares outstanding were 137.3 million for the
third quarter, versus 134.5 million for the same quarter. There were
actually a very similar number of shares outstanding. The increase
really is the result of the computation of the earnings per share
dilution,
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 11
because of the increase in the share value as a result of the stock
options and higher market price of Bergen's stock.
Commenting on the balance sheet, at the end of the quarter we had $25
million that were borrowed against the $800 million revolving credit
line in our bank facility, continuing a substantial amount of
liquidity. Also at the end of the quarter, we had $340 million of
outstanding proceeds on our $350 million receivable securitization
program.
Capital expenditures for the quarter were $10 million. Accounts
receivable were $1.3 billion, compared to $1.2 billion at fiscal 2000's
year-end. These amounts are net of the proceeds from the receivables
program.
Inventories increased to $2.6 billion at June 30. That compares to $2.1
billion at year end. That is an increase of $500 million. Similarly, we
saw a $400 million increase in accounts payable. And this growth of
course is not only to support new business growth, but also
opportunities to buy investment inventory.
Just a few other key items. Depreciation in the third quarter was $11.2
million. And total amortization was 8.3. Of this amortization expense,
4.7 related to good will, which we anticipate will not be amortized in
the next fiscal year. One point two million was related to other
intangibles. And approximately 2.4 million amortized as interest
expense as it was related to the financing costs of our credit
facility.
The income tax rate was 41.6% for the quarter and nine months. We
expect the continuance of that rate. Return on committed capital was
21% for the quarter. And I may say it was over 20% in every one of our
operating units.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 12
In the third quarter, Bergen was a net user of cash from operating
activities of $41 million. Again, this was a result of the
extraordinary opportunities we had with inventory. We would expect, of
course, during the fourth quarter to see some sell-off of that
inventory and some benefit from a cash flow standpoint.
In the third quarter, we made significant progress toward improving our
revenue and earnings growth. Our financial guidance for this fiscal
year remains unchanged, with expected revenue growth for the year at
around 10%, earnings growth at 30%.
We are currently in the middle of our planning process for 02. We look
forward to giving guidance regarding next year during our year-end
earnings release, if we have one. We would hope that we would be a
merged company at that time.
I want to turn the time back to Bob Martini.
Robert Martini: Okay. I would like to - that completes our prepared remarks. We
would like to open it up for questions and answers. And in addition to
myself and Neil, also on the line is Brent, Steve and Chuck, who are
also available to directly address any of your questions.
Dana, would you please open it for questions?
Operator: Thank you. The question and answer session will be conducted
electronically. If you would like to ask a question, please press the
star key followed by the digit 1 on your touch-tone telephone. We will
come to you in the order that you signal us. Once again, if you do have
a question, star 1 on your touch-tone telephone.
And we will go first to Chris McFadden at Goldman Sachs.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
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Chris McFadden: Thank you and good morning to everyone there. A couple of
questions, if I might. First of all, could you talk a little bit about
the revenue trends within PharMerica, both on a sequential basis, and
really thinking about year to date.
And I guess I would be interested in your thoughts on how you expect
combinations of census and acuity to influence revenue trends there out
over the next couple of quarters.
Also, it would be interesting to understand within the strong oncology
growth, what type of contribution general Taxol may have made to the
comparison here. Let me stop there. Then a follow-up. Thanks.
Neil Dimmick: Thank you, Chris. The revenue trends at PharMerica, I mentioned
that they were approximately five and six percent for the quarter
growth over prior year. Of course there are a few segments there. And
we have been experiencing different growth rates really for different
reasons.
And Chuck, if you could comment on the long-term growth and maybe a
little bit at PMSI. And then Steve, comment on the oncology,
particularly the Taxol.
Chuck Carpenter: Thanks, Neil. Chris, this is Chuck. Our growth rate at DMSI has
been just fantastic. We have grown our revenue in that business segment
in the mid thirty range.
The area that you are seeing our revenue being impacted or slowed down
is in long-term care. And our strategy in long-term care has been to
get our operations running as efficiently as they can, and really get a
handle around the credit and collection side of our business.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 14
And in doing that, we have restricted some growth. And we have had to
walk away from some business. I am not disappointed in our results by
any stretch of the imagination. We have done the right things for our
business in focusing on improving the operations and profitability.
What we see going forward is a healthier marketplace. We are beginning
to see our customers become more healthy. And there is a lot of
prospects that we have in the pipeline right now.
So I think this is just a blip that we have gone through. We have
cleaned up our internal operations. And I think growth in the future in
the long-term care segment will come back. And we are projecting
increased growth for that business in the upcoming year.
Chris McFadden: Chuck, if you had to wager or suggest what you think an organic
rate of growth for the industry will be, putting sort of market share,
and putting sort of credit at a constant, to the extent you can do
that, what do you think the market rate of growth will be for the
long-term care market, looking out to calendar 02?
Chuck Carpenter: Looking at inflation, utilization and new drugs that come on
the market, probably in the neighborhood of a 5% growth. And we are
going to gain market share. Our plan is to gain market share in
long-term care over the next year.
Chris McFadden: Thank you.
Neil Dimmick: And of course Chris, for PharMerica, the opportunity is also
really expansion of the operating earnings margin, which we have proven
the ability to do that significantly over the last year. And we think
there is still a lot to do.
So while a 5% industry growth rate, accompanied by an opportunity we
believe to outgrow that, but also an opportunity for continued margin
expansion. Steve, the Taxol question, oncology?
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 15
SteveCollis: Yeah, hi Chris. We - the Taxol sales are somewhere less than 10%
of revenue. We don't really contribute on earnings on individual
products. But it is one of our most profitable lines. And I believe it
is over one of our top three products that we are selling in oncology
division now.
Chris McFadden: Great. Thank you.
Neil Dimmick: Thank you, Chris.
Operator: We will take our next question from David Risinger, Merrill Lynch.
David Risinger: Thanks very much, and congratulations on the strong quarter.
Neil Dimmick: Thank you, David.
David Risinger: I had a couple of questions. I guess to start, if you would,
would you break out the distribution revenue growth, excluding
Novation?
Neil Dimmick: Well, I don't - I can give you some numbers to help you compute
that. Novation represented about 1.4 - excuse me, 1.5 billion. We said
we had lost about a billion, maybe a little more than that. So the
growth rate, I don't have it computed. But it is easily computable. We
would effectively add a billion dollars or so, plus the inflation that
would occur in that. And that would be nearly 5%.
So on top of the 14% that we grew, just calculating it here in my head,
it would be about 19%.
David Risinger: Okay.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
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Neil Dimmick: And Brent, does that sound right to you?
Brent Martini: Well, I think you pointed to the important numbers. Obviously we
had Advanced PCS come on, and Novatin go away. And those are the
largest movements in the portfolio. And I think you would find our
growth rate to be amongst our peers. So we can leave it at that.
Neil Dimmick: I think again the growth rate is around 19% would probably pretty
well be among the peer group.
David Risinger: Okay, that is great. And Chuck, with respect to the PharMerica
margin trends over the short term, how should or what should we expect,
given the new Beverly contract? I am sure that is probably a little bit
lower margins. Does that mean that we should expect the PharMerica
margin to be flat sequentially in the near term?
Chuck Carpenter: We have renegotiated the Beverly contract. The impact on our
margin, there will be an impact on the margin. But we believe there is
other things that we can do to mitigate that with our formulary and
some of the contract activity that we have.
So there will be some erosion. I think it will be very minor. So it
will look somewhat flat.
David Risinger: Okay. That is great. And one final question is Neil, would you
just review the (LIPO) charge in the quarter and what type of credit
you might expect in the fourth quarter, and then year over year
figures?
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 17
Neil Dimmick: Sure. The (LIPO) provision for the quarter was $5 million. I think
last year it was around a million, a million two last year. So there
is, on a comparative basis, there is about 3.8 to $4 million additional
(LIPO) charge this quarter.
Why? We thought that was prudent, given the price increase environment
that we found ourselves in, and also, generally the increase in our
inventory investment. Our plan for the fourth quarter is that we won't
see that seasonally. We will see the prices be more normalized in that
quarter. We will see a reduction in our inventories. And it may very
well be that we won't need the full (LIPO) provision going into the
fourth quarter.
It will really be a function of appreciation of inventory product
during that time. Of course if we enjoy more appreciation and more
(LIPO) reserve, but also more earnings produced by the effect of
increasing prices.
So the guidance going forward, it is really the (LIPO) will flow as it
is computed. We are satisfied that we are adequately set now to take
that. And it was prudent this quarter for that $5 million to be
applied.
David Risinger: That is great. And do you have the nine-month figure?
Neil Dimmick: Yeah, it is about 7.5 million for the nine months. So most of that
was provided in this last quarter.
David Risinger: Okay. Thanks very much.
Neil Dimmick: Thank you.
Operator: We will go next to Robert Willoughby, Credit Suisse First Boston.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 18
Robert Willoughby: Thank you. Neil, can you speak to any costs you may have
incurred in association with the merger with AmeriSource, and then just
comment on the central fill capability? Can you speak to the
scalability of that venture here, what kind of leverage earnings we
might see from that?
Neil Dimmick: Okay. I am going to have - I will comment on merger costs, and I
will have Brent comment on the central fill facility, which is really
an exciting and new opportunity not only for us, but for the whole
wholesaler community.
With respect to merger cost, we obviously have incurred costs. We have
spent the last six months working on this merger. The significant
costs, however, are yet to be incurred, as they relate in part to
financing the contingent payout to bankers, assuming the merger is
completed.
Any costs that we have felt that were really separately identifiable
and were not material for this quarter. It is hard to measure how much
expense was spent in terms of travel and associated just with the
process of the merger, which we have captured. But those amounts we
have not felt have been material, at least to Bergen Brunswig.
Now we expect on the close, and we have outlined in the proxy what the
estimated costs of the merger are. But of course they will be large,
because of the investment bankers, the financing costs and all of the
associated costs. But for this period, no charge.
Brent, could you comment on central fill?
Brent Martini: Sure, I would be happy to. The central fill location is a
separate location right next to our Sacramento facility. It has got
some robust auto med opti-fill technology in it, which will more than
accommodate Long's needs in Northern California and in Nevada, as we
talked about, as well as
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 19
any other regional chains that are on the PDX system, and any
independents that are on the PDX system.
In fact, they could be linked up really in a very short period of time,
which speaks to the scalability not only from a software point of view,
but from a capacity point of view. And so this facility will allow us
to grow and really accommodate what we think at a pharmacy level could
be up to 20% of the prescriptions at any location that they would like
to have filled out of this filling center.
I want to point out that it is a fulfillment center. It is not a
central processing center. It is a fulfillment center. And I believe it
is the first one of its type in the nation.
Robert Willoughby: Will we see any impact from a margin perspective?
Brent Martini: I think you will see a positive impact for both Long's and
Bergen, not the least of which is the ability to support Long's growth
in an important marketplace for them. Obviously, all the regional
chains, all the chains are facing a pharmacist shortage. So we hope to
accommodate that.
And there is a very satisfactory return on investment built into the
deal that we have both for Long's and Bergen that more than meets our
return on investment hurdles. So yes, I do think you will see a
positive earnings contribution.
Robert Willoughby: And just where do you stand with other regional chains and
independents? Still too early?
Brent Martini: Still too early. At the point, right now this is the only fully
operational location. And we are scaling up as we bring on Long's
stores. We have not completed that process yet. It will take
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 20
another couple months, I believe, to get all the Long's stores where we
want them, and then be in a position to take on additional business.
I think the other thing is we built a model here that when it works to
our expectation, and it becomes very fluid, that we will be able to go
to other metropolitan locations where we have chains that want this
service, and either do joint ventures or even better, provide the
service for them on our own, having had a success under our belt. So we
are looking forward to that as well.
Neil Dimmick: Bob, this is Neil. I would comment that even though Bergen
Brunswig Corporation, the margin improvement in the next quarter
because of this - obviously, because of its size, won't be noticeable.
This is a positive event for us in terms of earnings.
This is not an investment to see if it works. We have done this in a
way that we expect returns of 20% on the investment. And we are serious
about making money at this process, and at the same time saving
substantial money for our customers.
So it is additive to what we are doing. And as the size and
significance flows, we will keep you aware of it.
Robert Willoughby: Excellent. Thank you.
Brent Martini: Yeah, I would make one last comment. And that is I think it is
important to note that these are prescriptions that are being filled
and delivered with the current deliveries that go to Long's. And that
is our intent, is to fulfill prescriptions on behalf of our customers,
so that the consumer still has the important pharmacist relationship,
but that we help with the pharmacist capacity issue. So I think it is
important to understand that philosophy.
Robert Willoughby: Thank you.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 21
Neil Dimmick: Thank you, Bob.
Operator: And we will take our next question from Larry Marsh, Lehman Brothers.
Larry Marsh: Yes, thanks. Good morning, everyone. And just wanted to comment
first of all, nice continuation, very good momentum. Way to go. My
question first of all has to do with I guess a comment that was made by
your merger partner yesterday about an election to delay certification
a little bit, but still anticipating a closing into the end of August.
I wonder if you could comment at all about why that is the case, and
whey we might expect to see a certification. And then I have a follow
up for you.
Robert Martini: Well, I think as you pointed out Larry, a number of these things
are coming together at one time here. We are still on our schedule, our
pre-announced schedule of trying to get this completed and closed by
the end of August. And we continue to believe that schedule will occur.
Obviously the things that have to come together is the mailing of the
proxy to our shareowners to get our shareowners' approval. We need the
SEC to close this case, so that we can move forward. And we need the
shareowner approval. And all of those things are coming together at the
same time.
I would say that we still stand by what we said to begin with. And that
is that we have and continue to get good customer support. We feel that
the synergies that can be generated will create efficiencies that will
be very instrumental, make us a much more formidable competitor going
forward.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 22
And we are getting adequate opportunity to tell our story. And I
believe it is falling on listening ears. And therefore, we are going
about this in a very professional and cautious way. But we are doing
everything possible to make sure that we get the right results.
Larry Marsh: Okay. So is there any comment on when you might expect to see a
certification?
Robert Martini: Well, I think if we are going to meet the end of August date,
you can expect that certification will be forthcoming shortly, as will
a shareowners' meeting announcement.
Larry Marsh: Okay, great. A follow-up question. Thanks, Bob. We have heard - the
market has heard some commentary from some of the chains about some
slow down in their business trends. I think even Long's had some
comment about some of their trends.
I was wondering if you could elaborate a little bit about what impact
does that commentary have on you as a distributor of pharmaceuticals,
if any? And then maybe along with that maybe get Brent to comment about
the announced relationship with Omnicell that was put out yesterday.
Neil Dimmick: Okay, Brent, do you want to handle that?
Brent Martini: Okay, sure. Well, Larry, I think there is no question that there
is a number of things impacting the growth rate for some of our chains.
And that will ultimately have an impact on us, although I think we are
back to the kind of growth level that we had predicted. And we expect
to see more of that going forward. So we haven't built in any major
reduction out of concern for that.
I do think it is important though when we are calculating growth rates
for the upcoming years though that we are all on the same page with
regard to the impact that generics will have on the potential reduction
in revenue growth, but improvement in generic growth, and of course
generic contributions.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 23
So I think there is a number of moving parts here, not the least of
which is a lot of products coming off of patent that will impact
everybody's growth rate, although that should be a very good thing.
So we are sticking with our plans for the kind of growth rate we have
predicted. And we are also working closely with our customers, to make
sure if there is anything we can do to make sure they don't have
issues, like pharmacist shortage, that we can contribute to that
((inaudible)). You know, that is something that they are working on as
well.
As far as Omnicell, I think it is important to also report that we are
still very focused on the health systems market, a very strong partner
for Premier and Consorta, and the Novation accounts that we still
enjoy, as well as Tenet and others.
And that relationship with a number two automation company certainly in
pharmacy and even stronger in medical supply, that that is important
for us, and that many of our customers want a holistic approach to RFPs
that includes what we can do with in this case Omnicell. And we are
building bridges between the company, and building software so that we
can bring solutions to the customers together, versus independently.
So we are excited about that. And we think Omnicell brings value to
Bergen and vice versa.
Larry Marsh: Great. Thanks.
Neil Dimmick: Thank you, Larry.
Operator: We will go next to David Woodyatt of Harris Bank.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 24
David Woodyatt: Yes, a quick couple of related questions for Neil in regard to
the new accounting rules on good will. Could you give us the after-tax
figure for good will? You said it was 4.7. I assume that was pre-tax.
And secondly, I know in the new rules there is a lot of technicalities
for reorganizing good will and other intangibles. There is some
opportunity for reorganizing. And things that were one way could be
switched to the other way. And things that used to be amortized, might
not be amortized even outside of good will.
Do you - have you had a chance yet to study all those details? And
might there be any material effect from those other details, other than
just the sheer dropping off of good will amortization?
Neil Dimmick: David, thanks. Good question. The after-tax is 3.7 million. So
there is some tax deductibility through our good will - 3.7 after-tax.
And with respect to the rules themselves, I think we have had an
extraordinary chance to look at those rules, because actually we
fashioned our merger back in March 19, when we announced it, we
announced it predicated on these new rules.
I think we were the first merger of any substance that was announced
with that type of contingency. So we have been watching these very
carefully. We have had outside advisors - accounting advisors look at
the rules with us. And in summary, while we are going to spend a lot
more time looking at them, because as you can imagine, we can't get
into the detail of customers and so forth, because of Federal Trade
Commission rules.
So we are more familiar with the rules. But we are unable to evaluate
some of the individual effects, pending FTC clearance on the merger.
With respect to Bergen, however, we don't see a substantive change,
other than good will we don't think qualifies as a separate intangible
asset. We don't think the other intangibles will be affected
significantly.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 25
So the comment that I made earlier about good will essentially being
part of our earnings in the next quarter will not be amortizable. I
think that is generally where we are at. But something again David that
we are looking at closely, and we will adopt the new principle
statement early of course. We will adopt it the first quarter, which
for us will end December 31.
David Woodyatt: Okay. Thank you.
Neil Dimmick: Thank you.
Operator: We will take our next question from Kathleen Lamb, Credit Suisse First
Boston.
Neil Dimmick: Kathleen?
Operator: Ms. Lamb, your line is open. Please go ahead. We will go next to Seth
Peach of First Union Securities.
Seth Peach: Hi. Good morning, guys.
Neil Dimmick: Hi, Seth.
Seth Peach: I was curious to know, your BBSG Group has particular strong
results. And I was just curious to know if you can maybe comment a
little bit more on the long-term growth rates, ((inaudible)) that
growth rate is. And then I think you had initiated a small mail order
pharmacy operation a while ago. I was curious to know maybe if you can
give us an update as to how that was coming along.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 26
Neil Dimmick: Sure. Let me comment on the mail order pharmacy. We actually have
a substantial mail order in PMSI, which is mail order. And Steve, I am
going to have you comment on all the mail order activity that goes on
with your business.
The business that you may be referring to Seth was in Las Vegas, and
was even more retail oriented. We have really melded that into our
other businesses, where our focus is on mail order to clinics, doctors'
offices, or individuals as it relates to PMSI.
And so the separate entity itself is no longer in existence, although
we have substantial mail order strength in many of these other areas.
And Steve, if you could comment on that Steve, and also on the growth -
the extraordinary growth, which I would be interested to see if you
would say it would continue at that rate. But certainly we expect
strong growth in the future from these businesses.
Steve Collis: Thank you, Neill. You know, we were in the mail order specialty
pharmacy business for a little while. And it was an unhappy foray. And
we don't need to talk any more about that. But you know, I think what
is important is the fundamental strength of our businesses really
across the board.
The oncology business is growing at probably twice the general rate of
the pharmaceutical segment. And we I think are maybe the
best-positioned distributor in that marketplace. And maybe some of our
competitors wouldn't agree. But I think we are very well positioned
there, and have shown extraordinary growth this year.
In all of our market segments, including the fastest growing smallest
one right now, which is the manufacture services segment, we are
getting to be in a top position. And we just completed the plan reviews
for next year.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 27
We are looking at close to 30% growth rates. And so we are very
confident in the future, and still benefiting from a long-term trend of
shifting from in-patient to out-patient services, and from also really
more complicated therapies being undertaken in our side, even of
oncologist setting, but in rhuematology, gastroenterology. (Synergis)
has been a big drug for us in pediatrician's offices, etc.
So we really are benefiting from all those long-term trends.
Seth Peach: Great. And then, in the plasma area, did you see any or have any
impact from the shortages of blood products that have been going on?
Steve Collis: Well, most of the shortages have been in the hemophiliac co-ag
factor area. And we - that is not a big portion of our business. The
majority of our sales are to hospital pharmacies, working with the drug
company on GPO customers and large health system independent customers.
And they are really buyers of (Albumin) and (IV/IT), which has not been
as affected by the shortage. That would be more a specialty pharmacy
concern.
Seth Peach: Great. And then just to make sure I understood, do you think that
the growth rate we have seen is sustainable for the next couple of
quarters?
Steve Collis: Well, that is a tough question. Again, I think I shared with you a
quite substantial forecast for the next fiscal year. And we stand
behind that. But I think I have said enough.
Seth Peach: Great. Thank you.
Neil Dimmick: Thank you, Seth.
Operator: And we will go back to Kathleen Lamb, Credit Suisse First Boston.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 28
Kathleen Lamb: Congratulations, on a great quarter.
Neil Dimmick: Thank you, Kathleen.
Kathleen Lamb: Just wanted to follow up and talk a little bit about margins. You
came in pretty strong this quarter, at about 6%. That is a little bit
lower than where you have been. Can you give us a sense of with the
opportunity to do some more buying programs, and to have focus a little
bit more, where do you kind of see the opportunity on the margin side,
just for you as a standalone company, as you look out over the next
year?
Neil Dimmick: Okay. Excellent question, because margins in wholesale drug
distribution are so important. And we have seen a continued decrease in
those margins. So I will comment on that, and also at PharMerica, and
invite Brent and Chuck to comment as well, and just make a brief
comment.
With respect to wholesale drug distribution business, there continues
to be strong competition, but also some real significant mixes in
sales. For example, Advanced PCS, substantially all the deliveries go
to a few locations. Margins are lower - yes. Operating - related
operating costs much lower.
So our focus is not so much on maintaining gross margins as it is on
operating earnings margins and return on committed capital. Having said
that, I would expect that we won't see the kinds of declines in gross
margin absolutely that we have seen in the past.
I would expect that those margin declines will continue, however, to be
in the ten to maybe fifteen basis point year over year. They have been
much more substantial than that, as I mentioned, this year, one because
of mix, but also because of competition.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 29
But our focus really with the advent of generics, as Brent mentioned,
the opportunity to increase profitability from the sales of those
generics with the services such as central fill and other services that
we are providing. We would hope to see that those margin declines would
be more in the 10-15 basis point, and made up with operating
efficiency, allowing us to maintain and slightly improve our operating
earnings margin, which I mentioned this quarter was .02 on a (FIPO)
basis for the drug company, which is up from last year. And PharMerica
is up substantially.
Chuck, you may want to add comments with respect to operating margins
at PharMerica. And Brent, if there is something that you would like to
add, why don't you go ahead on the drug company.
Chuck Carpenter: Neil, let me comment on the margins here at PharMerica. The
margins on the long-term care side of our business, we have had just
very, very slight erosion of that margin. For the most part, it has
been stable over the last year.
We have had some large customer contracts that we have renegotiated
that have had some impact on that margin. But we have been able to
mitigate that for the most part.
The area that has impacted our margin the most has been more in the
area of mix of business. And our PMSI segment, which is our fastest
growing segment, they have a lower gross margin. So when we throw them
into the mix, it has an impact on the overall gross margin of the
company.
But as we look at each business segment, we are seeing good stability,
slight erosion in the margin, but for the most part, a pretty stable
margin. The impact is really the impact or the effect of the mix of
business, which is the real strong growth that we are seeing at PMSI.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 30
Brent Martini: Neil, I think you really covered it. The only thing I would say
in addition to the drug company comments you made is it still is a very
competitive market, and has been. I thin everyone has re-priced a fair
amount of business over the last couple of years.
But I am very encouraged by some of the trends, including our operating
expense reduction of 32 basis points this quarter, versus where we have
been - about 20, 22 basis points. I think that speaks to some of the
decisions we have made recently, and also the changing mix, as you
talked about.
But I also think this generic opportunity is outstanding for Bergen in
particular. I think we are recognized as the leader with our generic
purchasing program.
Our most recent health care congress, where we had all the generic
manufacturers, indicated a strong willingness to participate in our GPP
program, and a high level of satisfaction of what we have delivered
over the last couple years under the contract we have had, which we
will be rebidding shortly.
And with the advent of all the new products that will be available, I
think that speaks very strongly to our improving margins. So we are
looking forward to the next couple of years and some of the work we
will be able to do on behalf of our customers, and for the generic
manufacturers.
And I think the other pieces, there is still a fair amount of
opportunity to improve utilization and do that with our customers, and
have that benefit. So I think those are some of the key trends.
And I think we also have a strong underlying generic growth rate for
pharmaceutical. So I think there are a lot of things working on our
behalf.
Robert Martini: Dana, I think we have time for maybe one more question.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 31
Operator: And we will take our last question from Leo Murphy, Pioneer Investment
Management.
Leo Murphy: Well, thank you. Good timing, Robert. I appreciate that. Only, I
have five questions.
Robert Martini: Well, we have time for one more, Leo.
Leo Murphy: Okay, here it is. The - actually I did have two, Neil, if I could.
Have you - are you breaking out now, Neil, the gross margins or the
operating margins for the drug business away from the specialty?
Neil Dimmick: No. Actually we call that the pharmaceutical segment. We are
giving discreet revenue margins, and a lot of detail about that. But we
are not separating those businesses.
Leo Murphy: Okay. The other question I had Neil, the corporate line item, I
think it was roughly $19 million in the quarter - can you give me some
flavor on that? I think it was up like 24%. Was that unusually high
versus budget? Or were there some things in there because of the
ongoing AmeriSource deal?
Neil Dimmick: A few things. One, I would point out yes it was high compared to
prior year. Compared to a consecutive quarter though, I think it was
about right on the last quarter.
With respect to the prior year, actually it was a little bit lower than
on a consecutive basis, about $750,000, but still high. And we wouldn't
expect on a go forward basis to be that high.
And there are some unusual legal settlements. You are aware of the
class action settlement that we have made. While that was not a big
thing for us, it was largely insured, there were some costs related
there.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 32
We have had, as I mentioned earlier, although haven't set out
separately, a lot of activity with respect to the merger. And I think
we also find ourselves conservatively reserved and accounted for. But
those expenses, again, similar to the prior quarter, up significantly
from the prior year. And probably in the future we would expect them to
trend down.
Leo Murphy: Thank you.
Neil Dimmick: Thank you. Thanks, Leo.
Leo Murphy: Good quarter.
Neil Dimmick: Thank you, Leo.
Robert Martini: Okay. Dana, it is back in my hands here?
Operator: Yes, sir.
Robert Martini: Okay. All right. You know, I would like to thank you all for
your participation. This really was a good quarter. And the momentum
has been building. Most of our troubles are has-beens. We are in a good
business. And we think we do a good job at what we do. The financing
opportunities are optimal. And we are confident with our future.
I am also confident that the merger with AmeriSource will go forward,
because as some of which I said before, the customers are aligned. The
efficiencies will enhance competition. And together, we will present a
more viable and formidable player in the marketplace.
BERGEN BRUNSWIG
Moderator: Donna Dolan
07-26-01/1:00 p.m. CT
Confirmation # 537789
Page 33
And while I would look forward to reporting to you on our year end
results at that time, I expect that this will be my last broadcast. And
I can assure that I will continue to have a major investment in the new
company, and will do my all to support the transition and support the
CEO, and support the management team to the benefit of our customers,
our suppliers, our associates and our shareowners, and together with
the AmeriSource Bergen Board, provide strategic support and shareowner
governance.
This concludes our call. I thank you again for your participation. Have
a good day.
Operator: This concludes today's teleconference. You may now disconnect.
END