UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2019

OR

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO___________

Commission file number 1-16671

AMERISOURCEBERGEN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware			23-3079390
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)
1300 Morris Drive	Chesterbrook,	PA	19087-5594
(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
Common stock	ABC	New York Stock Exchange	(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).

Large accelerated filer ý  Accelerated filer o  Non-accelerated filer o  Smaller reporting company ☐

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 AmerisourceBergen Corporation outstanding as of July 30, 2019 was 208,325,501.

AMERISOURCEBERGEN CORPORATION

TABLE OF CONTENTS

	Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2019 and September 30, 2018	2
Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018	3
Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2019 and 2018	4
Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended June 30, 2019 and 2018	5
Consolidated Statements of Cash Flows for the nine months ended June 30, 2019 and 2018	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures	34
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults Upon Senior Securities	35
Item 4. Mine Safety Disclosures	35
Item 5. Other Information	35
Item 6. Exhibits	36
SIGNATURES	37

1

PART I. FINANCIAL INFORMATION 

ITEM I. Financial Statements (Unaudited)

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)	June 30, 2019			September 30, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,999,559		$	2,492,516
Accounts receivable, less allowances for returns and doubtful accounts: $1,070,182 as of June 30, 2019 and $1,036,333 as of September 30, 2018	11,989,030			11,314,226
Inventories (Note 1)	11,247,776			11,918,508
Right to recover asset (Note 1)	1,001,632			—
Prepaid expenses and other	163,781			169,122
Total current assets	27,401,778			25,894,372
Property and equipment, at cost:
Land	44,249			39,875
Buildings and improvements	936,006			1,086,909
Machinery, equipment, and other	2,344,702			2,281,124
Total property and equipment	3,324,957			3,407,908
Less accumulated depreciation	(1,557,531		)	(1,515,484		)
Property and equipment, net	1,767,426			1,892,424
Goodwill	6,706,506			6,664,272
Other intangible assets	2,330,457			2,947,828
Other assets	272,371			270,942
TOTAL ASSETS	$	38,478,538		$	37,669,838
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,807,403		$	26,836,873
Accrued expenses and other	815,331			881,157
Short-term debt	166,137			151,657
Total current liabilities	28,788,871			27,869,687
Long-term debt	4,018,565			4,158,532
Long-term financing obligation	321,364			352,296
Accrued income taxes	276,708			299,600
Deferred income taxes	1,871,549			1,829,410
Other liabilities	94,284			110,352
Stockholders’ equity:
Common stock, $0.01 par value - authorized, issued, and outstanding: 600,000,000 shares, 284,921,792 shares, and 208,379,917 shares as of June 30, 2019, respectively, and 600,000,000 shares, 283,588,463 shares, and 213,217,882 shares as of September 30, 2018, respectively	2,849			2,836
Additional paid-in capital	4,818,333			4,715,473
Retained earnings	4,186,782			3,720,582
Accumulated other comprehensive loss	(86,883		)	(79,253		)
Treasury stock, at cost: 76,541,875 shares as of June 30, 2019 and 70,370,581 shares as of September 30, 2018	(5,931,659		)	(5,426,814		)
Total AmerisourceBergen Corporation stockholders' equity	2,989,422			2,932,824
Noncontrolling interest	117,775			117,137
Total equity	3,107,197			3,049,961
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	38,478,538		$	37,669,838

See notes to consolidated financial statements.

2

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended June 30,						Nine months ended June 30,
(in thousands, except per share data)	2019			2018			2019			2018
Revenue	$	45,239,265		$	43,142,309		$	133,951,319		$	124,642,499
Cost of goods sold	44,008,026			41,930,968			129,997,744			121,062,823
Gross profit	1,231,239			1,211,341			3,953,575			3,579,676
Operating expenses:
Distribution, selling, and administrative	656,943			626,548			1,941,564			1,802,496
Depreciation	71,716			72,447			222,297			210,072
Amortization	35,880			47,598			131,565			134,497
Employee severance, litigation, and other	60,006			75,553			156,067			143,023
Impairment of long-lived assets (Note 5)	—			—			570,000			—
Operating income	406,694			389,195			932,082			1,289,588
Other (income) loss	(342		)	(3,158		)	(11,739		)	26,289
Interest expense, net	35,921			47,151			121,366			131,652
Loss on consolidation of equity investments	—			—			—			42,328
Loss on early retirement of debt	—			—			—			23,766
Income before income taxes	371,115			345,202			822,455			1,065,553
Income tax expense (benefit)	69,113			67,327			100,627			(356,335		)
Net income	302,002			277,875			721,828			1,421,888
Net (income) loss attributable to noncontrolling interest	(43		)	(2,066		)	918			3,229
Net income attributable to AmerisourceBergen    Corporation	$	301,959		$	275,809		$	722,746		$	1,425,117
Earnings per share:
Basic	$	1.44		$	1.26		$	3.45		$	6.52
Diluted	$	1.43		$	1.25		$	3.42		$	6.44
Weighted average common shares outstanding:
Basic	209,705			218,569			209,484			218,698
Diluted	211,161			220,760			211,151			221,297
Cash dividends declared per share of common stock	$	0.40		$	0.38		$	1.20		$	1.14

 See notes to consolidated financial statements.

3

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) 

	Three months ended June 30,						Nine months ended June 30,
(in thousands)	2019			2018			2019			2018
Net income	$	302,002		$	277,875		$	721,828		$	1,421,888
Other comprehensive (loss) income
Foreign currency translation adjustments	(1,158		)	(38,620		)	(5,118		)	(32,195		)
Loss on consolidation of equity investments	—			—			—			45,941
Other	33			106			146			84
Total other comprehensive (loss) income	(1,125		)	(38,514		)	(4,972		)	13,830
Total comprehensive income	300,877			239,361			716,856			1,435,718
Comprehensive (income) loss attributable to     noncontrolling interest	(659		)	(2,066		)	(1,740		)	3,229
Comprehensive income attributable to AmerisourceBergen Corporation	$	300,218		$	237,295		$	715,116		$	1,438,947

See notes to consolidated financial statements.

4

AMERISOURCEBERGEN CORPORATION 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 Interest		Total
March 31, 2019	$	2,846	$	4,790,507		$	3,969,459		$	(85,142	)	$	(5,756,455	)	$	117,116	$	3,038,331
Net income	—		—			301,959			—			—			43		302,002
Other comprehensive (loss) income	—		—			—			(1,741		)	—			616		(1,125		)
Cash dividends, $0.40 per share	—		—			(84,636		)	—			—			—		(84,636		)
Exercises of stock options	3		17,267			—			—			—			—		17,270
Share-based compensation expense	—		10,562			—			—			—			—		10,562
Purchases of common stock	—		—			—			—			(174,912		)	—		(174,912		)
Employee tax withholdings related to    restricted share vesting	—		—			—			—			(292		)	—		(292		)
Other	—		(3		)	—			—			—			—		(3		)
June 30, 2019	$	2,849	$	4,818,333		$	4,186,782		$	(86,883	)	$	(5,931,659	)	$	117,775	$	3,107,197

(in thousands, except per share data)	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interest			Total
March 31, 2018	$	2,831		$	4,674,295	$	3,376,993		$	(43,506	)	$	(4,823,063	)	$	176,046		$	3,363,596
Net income	—			—		275,809			—			—			2,066			277,875
Other comprehensive loss	—			—		—			(38,514		)	—			—			(38,514		)
Cash dividends, $0.38 per share	—			—		(83,431		)	—			—			—			(83,431		)
Exercises of stock options	3			12,270		—			—			—			—			12,273
Share-based compensation expense	—			9,396		—			—			—			—			9,396
Purchases of common stock	—			—		—			—			(265,236		)	—			(265,236		)
Employee tax withholdings related to    restricted share vesting	—			—		—			—			(26		)	—			(26		)
Other	(1		)	1		—			—			—			(1		)	(1		)
June 30, 2018	$	2,833		$	4,695,962	$	3,569,371		$	(82,020	)	$	(5,088,325	)	$	178,111		$	3,275,932

See notes to consolidated financial statements.

5

AMERISOURCEBERGEN CORPORATION 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 Interest			Total
September 30, 2018	$	2,836	$	4,715,473		$	3,720,582		$	(79,253	)	$	(5,426,814	)	$	117,137		$	3,049,961
Adoption of ASC 606 (Note 1)	—		—			(1,482		)	—			—			(1,102		)	(2,584		)
Net income (loss)	—		—			722,746			—			—			(918		)	721,828
Other comprehensive (loss) income	—		—			—			(7,630		)	—			2,658			(4,972		)
Cash dividends, $1.20 per share	—		—			(255,064		)	—			—			—			(255,064		)
Exercises of stock options	11		54,849			—			—			—			—			54,860
Share-based compensation expense	—		48,431			—			—			—			—			48,431
Purchases of common stock	—		—			—			—			(498,886		)	—			(498,886		)
Employee tax withholdings related to    restricted share vesting	—		—			—			—			(5,959		)	—			(5,959		)
Other	2		(420		)	—			—			—			—			(418		)
June 30, 2019	$	2,849	$	4,818,333		$	4,186,782		$	(86,883	)	$	(5,931,659	)	$	117,775		$	3,107,197

(in thousands, except per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interest			Total
September 30, 2017	$	2,806	$	4,517,635		$	2,395,218		$	(95,850	)	$	(4,755,348	)	$	—		$	2,064,461
Consolidation of variable interest entity	—		—			—			—			—			181,341			181,341
Net income (loss)	—		—			1,425,117			—			—			(3,229		)	1,421,888
Other comprehensive income	—		—			—			13,830			—			—			13,830
Cash dividends, $1.14 per share	—		—			(250,964		)	—			—			—			(250,964		)
Exercises of stock options	25		127,484			—			—			—			—			127,509
Share-based compensation expense	—		53,604			—			—			—			—			53,604
Common stock purchases for    employee stock purchase plan	—		(202		)	—			—			—			—			(202		)
Purchases of common stock	—		—			—			—			(325,444		)	—			(325,444		)
Employee tax withholdings related to    restricted share vesting	—		—			—			—			(7,533		)	—			(7,533		)
Other	2		(2,559		)	—			—			—			(1		)	(2,558		)
June 30, 2018	$	2,833	$	4,695,962		$	3,569,371		$	(82,020	)	$	(5,088,325	)	$	178,111		$	3,275,932

See notes to consolidated financial statements.

6

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended June 30,
(in thousands)	2019			2018
OPERATING ACTIVITIES
Net income	$	721,828		$	1,421,888
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, including amounts charged to cost of goods sold	246,290			233,508
Amortization, including amounts charged to interest expense	137,835			149,144
Provision for doubtful accounts	15,045			5,492
Provision (benefit) for deferred income taxes	44,681			(747,367		)
Share-based compensation	48,431			53,604
LIFO credit	(79,747		)	(16,142		)
Impairment of long-lived assets	570,000			—
Gain on sale of an equity investment	(13,692		)	—
Impairment of non-customer note receivable	—			30,000
Loss on consolidation of equity investments	—			42,328
Loss on early retirement of debt	—			23,766
Other	(11,603		)	(15,559		)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable	(672,742		)	(1,107,631		)
Inventories	(280,148		)	(51,724		)
Prepaid expenses and other assets	(5,265		)	(79,115		)
Accounts payable	964,667			463,939
Income taxes payable	(32,589		)	269,464
Accrued expenses and other liabilities	18,210			70,448
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,671,201			746,043
INVESTING ACTIVITIES
Capital expenditures	(230,767		)	(248,359		)
Cost of acquired companies, net of cash acquired	(64,044		)	(783,262		)
Other	(2,222		)	5,749
NET CASH USED IN INVESTING ACTIVITIES	(297,033		)	(1,025,872		)
FINANCING ACTIVITIES
Senior notes and other loan borrowings	479,365			1,243,242
Senior notes and other loan repayments	(480,718		)	(561,419		)
Borrowings under revolving and securitization credit facilities	607,815			24,523,375
Repayments under revolving and securitization credit facilities	(736,955		)	(24,506,039		)
Payment of premium on early retirement of debt	—			(22,348		)
Purchases of common stock	(522,778		)	(300,444		)
Exercises of stock options	54,860			127,509
Cash dividends on common stock	(255,064		)	(250,964		)
Tax withholdings related to restricted share vesting	(5,959		)	(7,533		)
Other	(7,691		)	(11,737		)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(867,125		)	233,642
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	507,043			(46,187		)
Cash and cash equivalents at beginning of period	2,492,516			2,435,115
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,999,559		$	2,388,928

 See notes to consolidated financial statements.

7

AMERISOURCEBERGEN CORPORATION 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 AmerisourceBergen Corporation and its subsidiaries, including less than wholly-owned subsidiaries in which AmerisourceBergen Corporation has a controlling financial interest (the "Company"), as of the dates and for the periods indicated.  All 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, 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 June 30, 2019 and the results of operations and cash flows for the interim periods ended June 30, 2019 and 2018 have been included. Certain information and footnote 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, 2018.

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.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605 - "Revenue Recognition" and most industry-specific guidance throughout the Codification. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard's core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 was originally scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the FASB deferred the effective date of ASU 2014-09 by one year.

In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations" ("ASU 2016-08"), which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing" ("ASU 2016-10"), which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. The Company was required to adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09, collectively ASC 606.

The Company adopted ASC 606 as of October 1, 2018 on a modified retrospective basis for all open contracts as of October 1, 2018. The adoption had an immaterial impact on the Company’s October 1, 2018 retained earnings and will not have a material impact on the Company's revenues, results of operations, or cash flows. The Company did not record any material contract assets, contract liabilities, or deferred contract costs in its Consolidated Balance Sheet upon adoption.

The Company's revenues are primarily generated from the distribution of pharmaceutical products. The Company also generates revenues from global commercialization services, which include clinical trial support, post-approval and commercialization support, and global specialty transportation and logistics for the biopharmaceutical industry. See Note 13 for the Company's disaggregated revenue.

The Company recognizes revenue related to the distribution of products at a point in time when title and control transfers to customers and there is no further obligation to provide services related to such products. Service revenue is recognized over the period that services are provided to the customer. The Company is generally the principal in a transaction; therefore, revenue is

8

primarily recorded on a gross basis. When the Company is the principal in a transaction, it has determined that it controls the ability to direct the use of the product or service prior to the transfer to a customer, it is primarily responsible for fulfilling the promise to provide the product or service to its customer, it has discretion in establishing pricing, and it controls the relationship with the customer. Revenue is recognized at the amount of consideration expected to be received, which is generally based on a purchase order, and is net of estimated sales returns and allowances, other customer incentives, and sales tax.

The Company’s customer sales return policy generally allows customers to return products only if the products can be resold at full value or returned to suppliers for full credit. The Company records an accrual for estimated customer sales returns at the time of sale to the customer based upon historical return trends. As of June 30, 2019 and September 30, 2018, the Company’s accrual for estimated customer sales returns was $1,001.6 million and $988.8 million, respectively. In fiscal 2019, due to the adoption of ASC 606, the Company records an asset for the right to recover products from its customers in Right to Recover Asset on its Consolidated Balance Sheet. The Company's asset for the right to recover products from its customers was included in Inventories on its Consolidated Balance Sheet as of September 30, 2018 and for all prior periods.

The Company elected the practical expedient to expense costs to obtain a contract when incurred when the amortization period would have been one year or less. Additionally, the Company elected the practical expedients to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed, and (iii) for contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

Recently Issued Accounting Pronouncements Not Yet Adopted

 In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 aims to increase transparency and comparability across organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet as well as key information to be disclosed regarding lease arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Entities are permitted to adopt the standard early, and a modified retrospective application is required. The Company anticipates that the adoption of this new accounting standard will have a material impact on the Company's Consolidated Balance Sheets. The Company continues to evaluate the impact of adopting this new accounting standard, and, therefore, cannot reasonably estimate the impact on the results of operations or cash flows at this time. The Company continues the process of implementing the adoption of this standard, including the implementation of new lease accounting software, policies, processes, and controls. The Company will adopt this standard in the first quarter of fiscal 2020.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Entities are permitted to adopt the standard early in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this new accounting guidance.

As of June 30, 2019, there were no other recently-issued accounting standards that may have a material impact on the Company’s financial position, results of operations, or cash flows upon their adoption.

Note 2.  Acquisitions and Investments

NEVSCO

In December 2017, the Company acquired Northeast Veterinary Supply Company ("NEVSCO") for $70.0 million. NEVSCO was an independent, regional distributor of veterinary pharmaceuticals and medical supplies serving primarily the northeast region of the United States and strengthens MWI Animal Health's ("MWI") support of independent veterinary practices and provides even greater value and care to current and future animal health customers. NEVSCO is included within the MWI operating segment.

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The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by $30.4 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable and accrued expenses acquired was $8.5 million, $6.7 million, and $2.9 million, respectively. The fair value of the intangible assets acquired of $29.8 million primarily consisted of customer relationships, which the Company is amortizing over its estimated useful life of 15 years. Goodwill and intangible assets resulting from the acquisition are deductible for income tax purposes.

H.D. Smith

In January 2018, the Company acquired H.D. Smith Holding Company ("H.D. Smith") for $815.0 million. The Company funded the acquisition through the issuance of new long-term debt. H.D. Smith was the largest independent pharmaceutical wholesaler in the United States and provides full-line distribution of brand, generic, and specialty drugs, as well as high-value services and solutions for manufacturers and healthcare providers. H.D. Smith's customers include retail pharmacies, specialty pharmacies, long-term care facilities, institutional/hospital systems, and independent physicians and clinics. The acquisition strengthens the Company's core business, expands and enhances its strategic scale in pharmaceutical distribution, and expands the Company's support for independent community pharmacies. H.D. Smith is included within the Pharmaceutical Distribution Services reportable segment.

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values on the date of the acquisition. The purchase price exceeded the fair value of the net tangible and intangible assets acquired by $499.9 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, and accounts payable and accrued expenses acquired was $163.1 million, $350.7 million, and $366.1 million, respectively. The fair value of the intangible assets acquired of $167.8 million consisted of customer relationships of $156.6 million and a tradename of $11.2 million. The Company is amortizing the fair value of the customer relationships and the tradename over their estimated useful lives of 12 years and 2 years, respectively. The Company established a deferred tax liability of $60.6 million primarily in connection with the intangible assets acquired. Goodwill and intangible assets resulting from the acquisition are not deductible for income tax purposes.

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Profarma and Specialty Joint Venture

As of September 30, 2017, the Company held a noncontrolling ownership interest in Profarma Distribuidora de Produtos Farmacêuticos S.A. ("Profarma"), a leading pharmaceutical wholesaler in Brazil, and an ownership interest in a joint venture with Profarma to provide specialty distribution and services to the Brazilian marketplace (the "specialty joint venture"). The Company had accounted for these interests as equity method investments, which were reported in Other Assets on the Company's Consolidated Balance Sheets. In January 2018, the Company invested an additional $62.5 million in Profarma and an additional $15.6 million in the specialty joint venture to increase its ownership interests to 38.2% and 64.5%, respectively. In connection with the additional investment in Profarma, the Company received substantial governance rights, thereby requiring it to begin consolidating the operating results of Profarma as of March 31, 2018 (see Note 3). The Company also began to consolidate the operating results of the specialty joint venture as of March 31, 2018 due to its majority ownership interest. In September 2018, the Company made an additional investment of $23.6 million in the specialty joint venture to increase its ownership interest to 89.9%. Profarma and the specialty joint venture are included within the Pharmaceutical Distribution Services reportable segment and Other, respectively.

The fair value of Profarma, including the noncontrolling interest, was determined based upon an agreed-upon stock price and was allocated to the underlying assets and liabilities consolidated based upon their fair values at the time of the January 2018 investment. The fair value of Profarma upon obtaining control exceeded the fair value of the net tangible and intangible assets consolidated by $142.0 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, accounts payable and accrued expenses was $160.1 million, $190.5 million, and $167.7 million, respectively. The Company consolidated short-term debt and long-term debt of $209.9 million and $12.4 million, respectively, cash of $150.8 million, and recorded a noncontrolling interest of $168.0 million. The estimated fair value of the intangible assets consolidated of $84.6 million consisted of customer relationships of $25.9 million and a tradename of $58.7 million. The Company is amortizing the customer relationships over its estimated useful life of 15 years and the tradenames over their estimated useful lives of between 15 years and 25 years. The Company established a deferred tax liability of $50.1 million primarily in connection with the intangible assets that were recognized. Goodwill and intangible assets resulting from the consolidation are not deductible for income tax purposes.

The fair value of the specialty joint venture was determined based upon the cost of the incremental ownership percentage acquired from the January 2018 investment and was allocated to the underlying assets and liabilities consolidated based upon their fair values at the time of the January 2018 investment. The fair value of the specialty joint venture exceeded the fair value of the net tangible and intangible assets consolidated by $3.5 million, which was allocated to goodwill. The fair value of accounts receivable, inventory, accounts payable and accrued expenses was $65.0 million, $29.1 million, and $54.3 million, respectively. The Company consolidated short-term debt and cash of $32.7 million and $28.9 million, respectively. The estimated fair value of the intangible assets consolidated of $4.6 million is being amortized over its estimated useful life of 15 years. Goodwill and intangible assets resulting from the consolidation are not deductible for income tax purposes.

In connection with the incremental January 2018 Brazil investments, the Company adjusted the carrying values of its previously held equity interests in Profarma and the specialty joint venture to equal their fair values, which were determined to be $103.1 million and $31.2 million, respectively. These represent Level 2 nonrecurring fair value measurements. The adjustments resulted in a pretax loss of $42.3 million in the nine months ended June 30, 2018 and were comprised of foreign currency translation adjustments from Accumulated Other Comprehensive Loss of $45.9 million, a $12.4 million gain on the remeasurement of Profarma's previously held equity interest, and an $8.8 million loss on the remeasurement of the specialty joint venture's previously held equity interest.

Note 3. Variable Interest Entity

As discussed in Note 2, the Company made an additional investment in Profarma in January 2018. In connection with this investment, the Company obtained substantial governance rights, allowing it to direct the activities that significantly impact Profarma’s economic performance. As such, the Company consolidated the operating results of Profarma in its consolidated financial statements as of and for the periods ended June 30, 2019 and September 30, 2018. The Company is not obligated to provide future financial support to Profarma.

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The following assets and liabilities of Profarma are included in the Company's Consolidated Balance Sheets:

(in thousands)	June 30, 2019		September 30, 2018
Cash and cash equivalents	$	26,676	$	26,801
Accounts receivables, net	152,696		144,646
Inventories	185,342		168,931
Prepaid expenses and other	64,339		61,924
Property and equipment, net	33,444		32,667
Goodwill	82,309		82,309
Other intangible assets	76,389		80,974
Other long-term assets	8,952		8,912
Total assets	$	630,147	$	607,164
Accounts payable	$	163,224	$	150,102
Accrued expenses and other	52,260		37,195
Short-term debt	132,459		115,461
Long-term debt	46,453		39,704
Deferred income taxes	42,847		46,137
Other long-term liabilities	6,291		31,988
Total liabilities	$	443,534	$	420,587

Profarma's assets can only be used to settle its obligations, and its creditors do not have recourse to the general credit of the Company.

Note 4.  Income Taxes

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act (the "2017 Tax Act") was signed into law. The 2017 Tax Act includes a broad range of tax reform provisions affecting businesses, including lower corporate tax rates, changes in business deductions, and international tax provisions. In response to the 2017 Tax Act, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides that the measurement period is complete when a company's accounting is complete, and that measurement period shall not extend beyond one year from the enactment date.

The Company completed the accounting for the effects of the 2017 Tax Act in the fiscal quarter ended December 31, 2018 and recognized an income tax benefit of $37.0 million related to a decrease in its tax on historical foreign earnings and profits through December 31, 2017 (the "transition tax"). This measurement period adjustment favorably impacted the Company's effective tax rate by 4.5% for the nine months ended June 30, 2019. The Company expects to pay $182.6 million related to the transition tax, which is net of overpayments and tax credits, over a six-year period commencing in January 2021. There were no adjustments recorded to deferred income taxes related to the 2017 Tax Act during the three months ended December 31, 2018.

Other Information    

The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. As of June 30, 2019, 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 $112.5 million ($85.0 million, net of federal benefit). If recognized, $66.8 million of these tax benefits would have reduced income tax expense and the effective tax rate. Included in this amount is $17.4 million of interest and penalties, which the Company records in Income Tax Expense (Benefit) in the Company's Consolidated Statements of Operations. In the nine months ended June 30, 2019, unrecognized tax benefits decreased by $0.4 million. Over the next 12 months, it is reasonably possible that state tax audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $4.6 million.

The Company's effective tax rates were 18.6% and 12.2% for the three and nine months ended June 30, 2019, respectively. The Company's effective tax rates were 19.5% and (33.4)% for the three and nine months ended June 30, 2018, respectively. The effective tax rate in the nine months ended June 30, 2019 was primarily impacted by the $570.0 million impairment of long-lived

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assets (see Note 5), which changed the mix of domestic and international income. The effective tax rate in the nine months ended June 30, 2019 was also impacted by the $37.0 million decrease to the Company's transition tax related to the 2017 Tax Act. The effective tax rate in the nine months ended June 30, 2018 was primarily impacted by the effect of the 2017 Tax Act. The Company's effective tax rates for all periods reported herein were favorably impacted by the Company's international businesses in Switzerland and Ireland, which have lower income tax rates, and the benefit from stock option exercises and restricted stock vesting.

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 nine months ended June 30, 2019:

(in thousands)	Pharmaceutical Distribution Services		Other			Total
Goodwill as of September 30, 2018	$	4,852,775	$	1,811,497		$	6,664,272
Goodwill recognized in connection with acquisitions	—		43,245			43,245
Foreign currency translation	—		(1,011		)	(1,011		)
Goodwill as of June 30, 2019	$	4,852,775	$	1,853,731		$	6,706,506

The following is a summary of other intangible assets:

	June 30, 2019								September 30, 2018
(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		$	685,348	$	—		$	685,348	$	685,380	$	—		$	685,380
Finite-lived:
Customer relationships	14 years	1,931,686		(460,626		)	1,471,060		2,549,245		(555,440		)	1,993,805
Trade names and other	13 years	271,033		(96,984		)	174,049		397,946		(129,303		)	268,643
Total other intangible assets		$	2,888,067	$	(557,610	)	$	2,330,457	$	3,632,571	$	(684,743	)	$	2,947,828

Amortization expense for finite-lived intangible assets was $35.9 million and $47.6 million in the three months ended June 30, 2019 and 2018, respectively. Amortization expense for finite-lived intangible assets was $131.6 million and $134.5 million in the nine months ended June 30, 2019 and 2018, respectively. Amortization expense for finite-lived intangible assets is estimated to be $164.6 million in fiscal 2019, $133.9 million in fiscal 2020, $130.0 million in fiscal 2021, $128.4 million in fiscal 2022, $127.2 million in fiscal 2023, and $1,092.6 million thereafter.

After U.S. Food and Drug Administration ("FDA") inspections of PharMEDium Healthcare Holdings, Inc.'s ("PharMEDium") compounding facilities, the Company voluntarily suspended production activities in December 2017 at its largest compounding facility located in Memphis, Tennessee pending execution of certain remedial measures. On May 17, 2019, PharMEDium reached an agreement on the terms of a consent decree (the "Consent Decree") with the FDA and the Consumer Protection Branch of the Civil Division of the Department of Justice ("DOJ") that was entered by the United States District Court for the Northern District of Illinois on May 22, 2019. The Consent Decree permits commercial operations to continue at PharMEDium’s Dayton, New Jersey and Sugar Land, Texas compounding facilities and administrative operations to continue at its Lake Forest, Illinois headquarters subject to compliance with requirements set forth therein. As required by the Consent Decree, the Company has commenced audit inspections by an independent current Good Manufacturing Practice ("cGMP") expert of the Dayton and Sugar Land facilities to determine that the facilities are being operated in conformity with cGMP. Additional audit inspections by the independent cGMP expert of the Sugar Land and Dayton facilities are also required at least annually for a period of four years.

The Consent Decree also establishes requirements that must be satisfied prior to the resumption of commercial operations at the Memphis, Tennessee facility. The requirements include a work plan approved by the FDA and an audit inspection and certification by an independent cGMP expert that the facilities, methods and controls at the Memphis facility and PharMEDium’s Lake Forest, Illinois headquarters comply with the Consent Decree. If PharMEDium receives written notification from the FDA of compliance with the requirements to resume operations at the Memphis facility, additional audit inspections are required for five years, during which time PharMEDium must correct any deviations from the Consent Decree observed by the independent cGMP expert.

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After five years, PharMEDium may petition the district court for full relief from the Consent Decree, or for specific relief with regard to one or more facilities. If, at the time of such petition, all obligations under the Consent Decree with respect to the specific facilities for which PharMEDium is seeking relief have been satisfied, and there has been continuous compliance with the Consent Decree for at least five years, the United States will not oppose the petition, and PharMEDium may request that the district court grant such relief.

As a result of the suspension of production activities at PharMEDium's compounding facility located in Memphis, Tennessee and the aforementioned regulatory matters, the Company performed a recoverability assessment of PharMEDium's long-lived assets and recorded a $570.0 million impairment loss in the quarter ended March 31, 2019 for the amount that the carrying value of the PharMEDium asset group exceeded its fair value. Prior to the impairment, the carrying value of the asset group was $792 million. The fair value of the asset group was $222 million as of March 31, 2019. The PharMEDium asset group is included in the Pharmaceutical Distribution Services reportable segment. Significant assumptions used in estimating the fair value of PharMEDium's asset group included (i) a 15% discount rate, which contemplated a higher risk at PharMEDium; (ii) the estimated costs and length of time necessary to address the FDA compliance matters; (iii) the period in which PharMEDium will resume production at or near capacity; and (iv) the estimated operating margins when considering the likelihood of higher operating and compliance costs. The Company believes that its fair value assumptions were representative of market participant assumptions; however, the forecasted cash flows used to estimate fair value and measure the related impairment are inherently uncertain and include assumptions that could differ from actual results in future periods. This represents a Level 3 nonrecurring fair value measurement. The Company allocated $522.1 million of the impairment to finite-lived intangibles and $47.9 million of the impairment to property and equipment.

The Company updated its recoverability assessment of PharMEDium’s long-lived assets as of June 30, 2019. The carrying value of the asset group was $182 million as of June 30, 2019. The Company concluded that PharMEDium’s long-lived assets were recoverable as of June 30, 2019.

Note 6.  Debt

Debt consisted of the following:

(in thousands)	June 30, 2019		September 30, 2018
Revolving credit note	$	—	$	—
Term loans due in 2020	399,710		398,665
Overdraft facility due 2021 (£30,000)	33,657		13,269
Receivables securitization facility due 2021	350,000		500,000
Multi-currency revolving credit facility due 2023	—		—