What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-21 compared with 2022-11-22 · 162 added, 300 removed, 330 unchanged (58% of the section changed)

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We deliver innovative programs and services designed to increase the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health.

We are organized geographically based upon the products and services we provide to our customers.

At the beginning of fiscal 2022, we re-aligned our reporting structure under two reportable segments:

We are organized geographically based upon the products and services we provide to our customers, and we report our results under two reportable segments:

Healthcare Solutions and International Healthcare Solutions.

Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma Distribuidora de Produtos Farmacêuticos S.A.("Profarma")), MWI Animal Health ("MWI"), Xcenda, Lash Group, and ICS 3PL.

International Healthcare Solutions consists of Alliance Healthcare, World Courier, Innomar, Profarma, and Profarma Specialty (until it was divested in June 2022).

Profarma had previously been included in the Pharmaceutical Distribution Services reportable segment.

Our previously reported segment results have been revised to conform to our re-aligned reporting structure.

On August 30, 2023, we changed our name to Cencora, Inc.

Our new name better reflects our bold vision and purpose-driven approach to creating healthier futures.

The new name represents a unified presence that will continue to fuel our ongoing growth strategy and advance our impact across healthcare.

Healthcare Solutions Segment

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The International Healthcare Solutions reportable segment distributes pharmaceuticals, other healthcare products, and related services to healthcare providers, including pharmacies, doctors, health centers and hospitals primarily in Europe.

It also is a leading global specialty transportation and logistics provider for the biopharmaceutical industry.

It is a leading global specialty transportation and logistics provider for the biopharmaceutical industry.

It is also a leading provider of specialized services, including regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance, for the life sciences industry.

In Canada, the business drives innovative partnerships with manufacturers, providers, and pharmacies to improve product access and efficiency throughout the healthcare supply chain.

Recent Development

PharmaLex Acquisition

In September 2022, we entered into a definitive agreement to acquire PharmaLex Holding GmbH ("PharmaLex"), a leading provider of specialized services for the life sciences industry, for €1.28 billion in cash, subject to customary adjustments.

PharmaLex's services include regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance.

The acquisition will advance our role as a partner of choice for biopharmaceutical manufacturers by enhancing our global portfolio of solutions to support manufacturer partners across the pharmaceutical development and commercialization journey.

PharmaLex will be a component of our International Healthcare Solutions reportable segment.

The acquisition is expected to close by March 2023 and is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals.

Executive Summary

This executive summary provides highlights from the results of operations that follow:

• Revenue increased by $24.6 billion, or 11.5%, from the prior fiscal year, primarily due to our June 2021 acquisition of Alliance Healthcare and revenue growth in our U.S.

Healthcare Solutions segment.

Revenue in International Healthcare Solutions increased by $15.0 billion, or 129.8%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions segment grew its revenue $9.6 billion, or 4.8%, from the prior fiscal year primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments);

• Total gross profit increased by $1,353.1 million, or 19.5%, from the prior fiscal year.

Gross profit was favorably impacted by increases in gross profit in International Healthcare Solutions of $1,404.7 million, or 91.1%, and U.S.

Healthcare Solutions of $425.8 million, or 8.5%, from the prior fiscal year.

Gross profit in International Healthcare Solutions increased from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions' gross profit increased from the prior fiscal year primarily due to overall revenue growth and fees earned relating to the distribution of government-owned COVID-19 treatments.

These increases were offset in part by last-in, first-out ("LIFO") expense in comparison to a LIFO credit in the prior year, decreases in gains from antitrust litigation settlements, and the Turkey highly inflationary economy's unfavorable impact on the current fiscal year;

• Total operating expenses increased by $1,341.0 million, or 29.2%, from the prior fiscal year primarily as a result of increases in distribution, selling, and administrative expenses and depreciation and amortization expense primarily due to the June 2021 acquisition of Alliance Healthcare, as well as a $75.9 million goodwill impairment of our Profarma reporting unit, offset in part by lower expense accruals related to opioid litigation settlements in the current fiscal year;

• Total segment operating income increased by $515.2 million, or 19.5%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and 8.8% operating income growth in the U.S.

• Revenue increased by $23.6 billion, or 9.9%, from the prior fiscal year primarily due to revenue growth in our U.S.

Healthcare Solutions segment.

Healthcare Solutions segment grew its revenue by $22.7 billion, or 10.7%, from the prior fiscal year due to overall market growth primarily driven by unit volume growth, including increased sales of products labeled for diabetes and/or weight loss in the glucagon-like peptide-1, or "GLP-1," class and increased sales of specialty products to physician practices and health systems, offset in part by a decrease in sales of COVID-19 treatments (primarily commercial treatments).

Revenue in International Healthcare Solutions increased by $0.9 billion, or 3.5%, from the prior fiscal year due to increased sales at Alliance Healthcare, our European distribution business, increased revenue from our less-than-wholly-owned Brazil full-line distribution business, incremental revenue from our January 2023 acquisition of PharmaLex, increased sales at our Canadian business, and was offset in part due to the June 2022 divestiture of our Brazil specialty business.

Our European distribution business' revenue in the current fiscal year was negatively impacted by unfavorable foreign currency exchange rates in comparison to the prior fiscal year;

• Gross profit increased by $663.1 million, or 8.0%, from the prior fiscal year.

Gross profit in the current fiscal year was favorably impacted by increases in gross profit in both reportable segments and an increase in gains from antitrust litigation settlements, offset in part by an increase in last-in, first-out ("LIFO") expense in the current fiscal year.

Healthcare Solutions' gross profit increased by $366.4 million, or 6.7%, from the prior fiscal year primarily due to increased sales.

Gross profit in International Healthcare Solutions increased $243.7 million, or 8.3%, from the prior fiscal year due to the January 2023 acquisition of PharmaLex and increases in our global specialty logistics business, our European distribution business, and our less-than-wholly-owned Brazil full-line distribution business, offset in part by the June 2022 divestiture of our Brazil specialty business.

Our European distribution business' gross profit in the current fiscal year was negatively impacted by unfavorable foreign currency exchange rates in comparison to the prior fiscal year;

• Total operating expenses increased by $688.8 million, or 11.6%, from the prior fiscal year primarily as a result of increases in distribution, selling, and administrative expenses, amortization expense, and restructuring and other expenses, offset in part by a litigation and opioid-related credit in the current fiscal year in comparison to an expense in the prior fiscal year and a $75.9 million goodwill impairment recorded in the prior fiscal year;

• Total segment operating income increased by $125.7 million, or 4.0%, from the prior fiscal year due to operating income growth in the U.S.

Healthcare Solutions segment, offset in part by a decrease in operating income in the International Healthcare Solutions segment resulting from unfavorable foreign currency exchange rates in comparison to the prior fiscal year;

• Our effective tax rates were 19.8% and 23.7% for the fiscal years ended September 30, 2023 and 2022, respectively.

The effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S.

Our effective tax rate in the fiscal year ended September 30, 2023 was lower than the U.S.

statutory rate primarily due to the benefit of non-U.S.

income taxed at rates lower than the U.S.

statutory rate, benefits from tax authority audit resolutions, and tax benefits associated with the vesting of restricted stock units and stock option exercises, offset in part by U.S.

state income taxes.

Our effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S.

statutory rate primarily due to U.S.

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statutory rate.

Our effective tax rate in the fiscal year ended September 30, 2021 was higher than the current year tax rate primarily due to UK and Swiss tax reforms (see Note 4 of the Notes to Consolidated Financial Statements).

Results of Operations

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Revenue $ 262,173,411 $ 238,587,006 9.9%

Our future revenue growth will continue to be affected by various factors, such as industry growth trends, including drug utilization, the introduction of new, innovative brand therapies, the likely increase in the number of generic drugs and biosimilars that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs and biosimilars, price inflation and price deflation, general economic conditions in the United States and Europe, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third-party reimbursement rates to our customers, changes in government rules and regulations, foreign currency conversion rates, and the impact of the COVID-19 pandemic.

Revenue increased by 11.5% from the prior fiscal year primarily due to our June 2021 acquisition of Alliance Healthcare and the revenue growth of our U.S.

Our future revenue growth will continue to be affected by various factors, such as industry growth trends, including drug utilization (e.g.

products labeled for diabetes and/or weight loss in the GLP-1 class), the introduction of new, innovative brand therapies, the likely increase in the number of generic drugs and biosimilars that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs and biosimilars, price inflation and price deflation, general economic conditions in the United States and Europe, currency exchange rates, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third-party reimbursement rates to our customers, changes in government rules and regulations, and the impact of COVID-19.

Revenue increased by 9.9% from the prior fiscal year primarily due to growth in the U.S.

Healthcare Solutions segment.

Healthcare Solutions segment grew its revenue by $9.6 billion, or 4.8%, from the prior fiscal year, primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments).

More specifically, the increase in the U.S.

Healthcare Solutions segment revenue was largely attributable to the following (in billions):

Increased sales to specialty physician practices $2.9

Decreased sales of COVID-19 treatments ($2.0)

Increased sales to other customers $8.7

The continued decline of sales relating to COVID-19 treatments and fees earned from the distribution of government-owned COVID-19 treatments could adversely impact our results of operations.

Revenue in International Healthcare Solutions increased by $15.0 billion, or 129.8%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions segment grew its revenue by $22.7 billion, or 10.7%, from the prior fiscal year due to overall market growth primarily driven by unit volume growth, including increased sales of products labeled for diabetes and/or weight loss in the GLP-1 class and increased sales of specialty products to physician practices and health systems, offset in part by a decrease in sales of COVID-19 treatments (primarily commercial treatments).

The total increase in U.S.

Healthcare Solutions revenues included increases in sales of products labeled for diabetes and/or weight loss of $7.7 billion from the prior fiscal year.

COVID-19 treatment revenue declined by $1.0 billion in the fiscal year ended September 30, 2023 in comparison to the prior fiscal year.

Sales, including GLP-1 products and COVID-19 treatments, to our two largest customers increased by $7.7 billion from the prior fiscal year.

These increases were offset in part due to the June 2022 divestiture of our Brazil specialty business.

Our European distribution business' revenue in the current fiscal year was negatively impacted by unfavorable foreign currency exchange rates in comparison to the prior fiscal year.

A number of our contracts with customers, including group purchasing organizations, are typically subject to expiration each year.

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During the fiscal year ended September 30, 2023, no significant contracts expired.

In January 2022, we extended our agreement with Express Scripts through September 2026.

Over the next twelve months, there are no significant contracts scheduled to expire.

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Gains from antitrust litigation settlements 239,092 1,835

LIFO (expense) credit (67,171) 203,028

LIFO expense (204,595) (67,171)

Turkey highly inflationary impact (86,967) (40,033)

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Gross profit increased by $663.1 million, or 8.0%, from the prior fiscal year.

Gross profit in the current fiscal year was favorably impacted by increases in gross profit in International Healthcare Solutions and U.S.

Healthcare Solutions.

These increases were offset in part by LIFO expense in comparison to a LIFO credit in the prior year, decreases in gains from antitrust litigation settlements, and the Turkey highly inflationary economy's unfavorable impact on the current fiscal year.

Healthcare Solutions gross profit increased by $425.8 million, or 8.5%, from the prior fiscal year due to overall revenue growth and fees earned from the distribution of government-owned COVID-19 treatments.

Healthcare Solutions gross profit increased by $366.4 million, or 6.7%, from the prior fiscal year due to increased sales.

As a percentage of revenue, U.S.

Healthcare Solutions gross profit margin of 2.57% in the current fiscal year increased 9 basis points compared to the prior fiscal year primarily due to fees earned from the distribution of government-owned COVID-19 treatments.

Gross profit in International Healthcare Solutions increased $1,404.7 million, or 91.1%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions' gross profit margin of 2.48% in the current fiscal year decreased 9 basis points compared to the prior fiscal year primarily due to higher sales of GLP-1 products, which have lower gross profit margins, and lower sales of COVID-19 treatments, which have higher gross profit margins.

Our European distribution business' gross profit in the current fiscal year was negatively impacted by unfavorable foreign currency exchange rates in comparison to the prior fiscal year.

We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $239.1 million and $1.8 million in the fiscal years ended September 30, 2023 and 2022, respectively.

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Our cost of goods sold includes a LIFO provision that is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory quantities, and product mix, many of which are difficult to predict.

Changes to any of the above factors may have a material impact to our annual LIFO provision.

The LIFO expense in the current fiscal year was primarily due to lower generic pharmaceutical deflation and inventory product mix.

We recognized an expense of $40.0 million in the fiscal year ended September 30, 2022 in Cost of Goods Sold related to the impact of Turkey highly inflationary accounting (see Note 1 of the Notes to Consolidated Financial Statements).

Changes to any of the above factors may have a material impact on our annual LIFO provision.

The increase in LIFO expense in the current fiscal year was primarily driven by lower generic pharmaceutical deflation and higher brand inventory product mix, offset in part by lower brand pharmaceutical inflation.

We recognized an expense in Cost of Goods Sold of $87.0 million and $40.0 million in the fiscal years ended September 30, 2023 and 2022, respectively, related to the impact of Turkey highly inflationary accounting.

The expense recognized in each period was driven by the continued weakening of the Turkish Lira.

Operating Expenses

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Depreciation and amortization 963,904 693,895 38.9%

Litigation and opioid-related expenses 123,191 272,623

Acquisition, integration, and restructuring expenses 183,059 199,288

Litigation and opioid-related (credit) expenses (24,693) 123,191

Acquisition-related deal and integration expenses 139,683 119,561

Restructuring and other expenses 229,884 63,498

Goodwill impairment — 75,936

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Distribution, selling, and administrative expenses increased by $461.0 million, or 9.5%, from the prior fiscal year.

The increase from the prior fiscal year was primarily due to the June 2021 acquisition of Alliance Healthcare.

As a percentage of revenue, distribution, selling, and administrative expenses were 2.03% in the current fiscal year and represents a 35-basis point increase compared to the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Depreciation expense increased 18.3% from the prior fiscal year primarily due to depreciation of property and equipment originating from the June 2021 acquisition of Alliance Healthcare.

Amortization expense increased 72.3% from the prior fiscal year primarily due to amortization of intangible assets originating from the June 2021 acquisition of Alliance Healthcare.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2022 included a $36.6 million accrual related to opioid litigation settlements and $86.6 million of legal fees in connection with opioid lawsuits and investigations.

The increase from the prior fiscal year was primarily to support revenue growth and included inflationary impacts on certain operating expenses.

As a percentage of revenue, distribution, selling, and administrative expenses were 2.03% in the current fiscal year and was flat compared to the prior fiscal year as inflationary impacts on certain operating expenses were offset in

part by recent initiatives undertaken to improve operating efficiency across many of our businesses and administrative functions.

Depreciation expense increased 6.1% from the prior fiscal year.

Amortization expense increased 80.1% from the prior fiscal year primarily due to accelerated amortization expense recorded in connection with the shortened useful lives of certain trade names resulting from our company name change and the gradual transition away from other tradenames used, which were acquired through prior acquisitions.

Litigation and opioid-related credit in the fiscal year ended September 30, 2023 included the receipt of $83.4 million from the H.D.

Smith opioid litigation indemnity escrow.

Litigation and opioid-related credit was offset in part by $58.7 million of legal fees in connection with opioid lawsuits and investigations in the fiscal year ended September 30, 2023.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2022 included $119.6 million of acquisition-related deal and integration costs primarily related to the integration of Alliance Healthcare, $35.5 million of severance and other restructuring initiatives primarily related to the write down of assets in connection with our office optimization plan, and $28.0 million related to our business transformation efforts.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2021 included $117.0 million of acquisition-related deal and integration costs primarily related to the June 2021 acquisition of Alliance Healthcare, $46.1 million of severance and other restructuring initiatives primarily related to the disposal of assets in connection with our office optimization plan, and $36.3 million related to our business transformation efforts.

We recorded goodwill impairments of $75.9 million and $6.4 million in our Profarma reporting unit in the fiscal years ended September 30, 2022 and 2021, respectively (see Note 5 of the Notes to Consolidated Financial Statements).

Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2023 primarily related to the continued integration of Alliance Healthcare and the acquisition of PharmaLex.

Acquisition-related deal and integration expenses in the fiscal year ended September 30, 2022 primarily related to the integration of Alliance Healthcare.

Restructuring and other expenses are comprised of the following:

Fiscal year ended September 30,

(in thousands) 2023 2022

Restructuring and employee severance costs $ 105,220 $ 35,316

Business transformation efforts 82,117 27,990

Other expenses 42,547 192

Total restructuring and other expenses $ 229,884 $ 63,498

Restructuring and employee severance costs in the fiscal year ended September 30, 2023 primarily included expenses incurred in connection with workforce reductions in both of our reportable segments.

Restructuring and employee severance costs in the fiscal year ended September 30, 2022 included costs primarily related to the write down of assets related to our office optimization plan and restructuring activities within certain businesses in the U.S.

Healthcare Solutions reportable segment.

Business transformation efforts in the fiscal year ended September 30, 2023 included rebranding costs associated with our name change to Cencora and non-recurring expenses related to significant strategic initiatives to improve operational efficiency, including certain technology initiatives.

The majority of these costs related to services provided by third-party consultants.

Business transformation efforts in the fiscal year ended September 30, 2022 primarily related to costs associated with reorganizing to further align the organization to its customers' needs, including certain technology initiatives.

The majority of these costs related to services provided by third-party consultants.

In March 2023, one of our foreign business units experienced a cybersecurity event that impacted a standalone legacy information technology platform in one country and the foreign business unit's ability to operate in that country for approximately two weeks.

In connection with this isolated event, we incurred costs to restore the foreign business unit's operations in that country, which was recorded in Other expenses in the above table.

The majority of Other expenses in the fiscal year ended September 30, 2023 related to this cybersecurity event.

We recorded a goodwill impairment of $75.9 million in our Profarma reporting unit in the fiscal year ended September 30, 2022.

Operating Income

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Gains from antitrust litigation settlements 239,092 1,835

LIFO (expense) credit (67,171) 203,028

LIFO expense (204,595) (67,171)

Turkey highly inflationary impact (86,967) (40,033)

Acquisition-related intangibles amortization (551,046) (304,551)

Litigation and opioid-related expenses (123,191) (272,623)

Acquisition, integration, and restructuring expenses (183,059) (199,288)

Litigation and opioid-related credit (expenses) 24,693 (123,191)

Acquisition-related deal and integration expenses (139,683) (119,561)

Restructuring and other expenses (229,884) (63,498)

Goodwill impairment — (75,936)

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Operating income $ 2,340,731 $ 2,366,378 (1.1)%

Segment operating income is evaluated before gains from antitrust litigation settlements;

LIFO (expense) credit;

Turkey highly inflationary impact;

acquisition-related intangibles amortization;

litigation and opioid-related expenses;

acquisition, integration, and restructuring expenses;

goodwill impairment;

and impairment of assets.

Healthcare Solutions operating income increased $139.6 million, or 5.7%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses.

As a percentage of revenue, U.S.

Healthcare Solutions operating income margin was 1.16% and represented an increase of 4 basis points compared to the prior fiscal year.

The increase from the prior year fiscal year was primarily due to fees earned from the distribution of government-owned COVID-19 treatments.

Operating income in International Healthcare Solutions increased by $316.2 million, or 81.0%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions operating income margin was 1.11% and represented a decrease of 5 basis points compared to the prior fiscal year.

The decrease from the prior year fiscal year was primarily due to the declines in gross profit margins, as described above in the Gross Profit section.

Operating income in International Healthcare Solutions decreased by $13.9 million, or 2.0%, from the prior fiscal year due to a decrease in operating income in our European distribution business primarily due to unfavorable foreign currency exchange rates in comparison to the prior fiscal year and a significant decline in operating income at its less-than-wholly-owned subsidiary in Egypt (that was divested on September 30, 2023), and the June 2022 divestiture of our Brazil specialty business.

The above-mentioned declines were offset in part by the strong performance of our global specialty logistics business.

Other Income, Net

We recognized a gain of $56.2 million from the sale of non-core businesses, a $14.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform, an $11.9 million expense related to the impact of Turkey highly inflationary accounting, and a $4.8 million gain on the remeasurement of an equity investment in the fiscal year ended September 30, 2022.

We recorded a $64.7 million gain on the remeasurement of an equity investment, a $14.0 million impairment of a non-customer note receivable related to a start-up venture, and a $3.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform in the fiscal year ended September 30, 2021.

Included in Other Income, Net, we recognized $40.7 million and $56.2 million from the divestiture of non-core businesses in the fiscal years ended September 30, 2023 and 2022, respectively.

Interest Expense, Net

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Interest expense, net $ 228,931 $ 210,673

Interest expense, net increased $36.6 million, or 21.0%, from the prior fiscal year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000 million of 2.700% senior notes in March 2021, and the $500 million variable-rate term loan that was issued in June 2021, all of which were used to finance a portion of the June 2021 acquisition of Alliance Healthcare, and the incremental interest expense associated with Alliance Healthcare's debt in certain countries, offset in part by the increase in interest income.

The increase in interest income was primarily due to higher investment interest rates, offset in part by lower average invested cash balances.

The increase in interest expense as a result of the above-mentioned debt issuances was offset in part by repayments of $250 million in September 2021 and again in March 2022 on the above-mentioned $500 million variable-rate term loan, and payments of $500 million in June 2022 and $350 million in September 2022 on the above-mentioned $1,525 million of 0.737% senior notes.

Our interest expense in future periods may vary significantly depending upon changes in net borrowings, interest rates, amendments to our current borrowing facilities, and strategic decisions to deploy our invested cash.

Interest expense, net increased $18.3 million, or 8.7%, from the prior fiscal year primarily due to the increase in interest expense.

The increase in interest expense was primarily driven by an increase in our variable-rate borrowings and associated interest rates.

The increase in interest expense was offset in part by an increase in interest income, which was primarily driven by higher investment interest rates in the current fiscal year in comparison to the prior fiscal year.

The higher investment interest rates were offset in part by a lower average investment cash balance in the current fiscal year in comparison to the prior fiscal year.

Income Tax Expense

Our effective tax rates were 19.8% and 23.7% in the fiscal years ended September 30, 2023 and 2022, respectively.

Our effective tax rate in the fiscal year ended September 30, 2023 was lower than the U.S.

statutory rate primarily due to the benefit of non-U.S.

income taxed at rates lower than the U.S.

statutory rate, benefits from tax authority audit resolutions, and tax benefits associated with the vesting of restricted stock units and stock option exercises, offset in part by U.S.

state income taxes.

Our effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S.

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statutory rate.

Fiscal Year Ended September 30, 2022 compared to the Fiscal Year Ended September 30, 2021

Fiscal Year Ended

September 30,

(dollars in thousands) 2021 2020 Change

Healthcare Solutions:

Human Health $ 197,777,128 $ 182,171,487 8.6%

Animal Health 4,684,417 4,216,462 11.1%

Healthcare Solutions 202,461,545 186,387,949 8.6%

International Healthcare Solutions:

Alliance Healthcare 7,373,365 —

Other Healthcare Solutions 4,156,264 3,508,106 18.5%

Total International Healthcare Solutions 11,529,629 3,508,106 228.7%

Intersegment eliminations (2,331) (2,129)

Revenue $ 213,988,843 $ 189,893,926 12.7%

Revenue increased by 12.7% from the prior fiscal year primarily due to the revenue growth of our U.S.

Healthcare Solutions segment and our June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions segment grew its revenue by $16.1 billion, or 8.6%, from the prior fiscal year, primarily due to increased sales of specialty products (which generally have higher selling prices) including COVID-19 treatments, overall market growth principally driven by unit volume growth, and growth in our animal health business.

More specifically, the increase in the U.S.

Healthcare Solutions segment revenue was largely attributable to the following (in billions):

Increased sales to Walgreens, our largest customer $1.8

Increased sales to specialty physician practices $2.3

Increased sales of COVID-19 treatments $3.2

Increased sales to other customers $8.8

Revenue in International Healthcare Solutions increased by $8.0 billion, or 228.7%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and due to growth in our Canadian business and our specialty transportation and logistics business.

Fiscal Year Ended

(dollars in thousands) 2021 2020 Change

Healthcare Solutions $ 5,028,950 $ 4,504,040 11.7%

International Healthcare Solutions 1,542,456 713,546 116.2%

Gains from antitrust litigation settlements 168,794 9,076

LIFO credit (expense) 203,028 (7,422)

PharMEDium remediation costs — (7,135)

PharMEDium shutdown costs — (5,421)

New York State Opioid Stewardship Act — (14,800)

Gross profit $ 6,943,228 $ 5,191,884 33.7%

Gross profit increased by $1,751.3 million, or 33.7%, from the prior fiscal year.

Gross profit in fiscal 2021 was favorably impacted by increases in gross profit in U.S.

Healthcare Solutions and International Healthcare Solutions, a LIFO credit in the current year period in comparison to a LIFO expense in the prior year period, and an increase in gains from antitrust litigation settlements.

Healthcare Solutions gross profit increased by $524.9 million, or 11.7%, from the prior fiscal year due to revenue growth, including an increase in specialty product sales.

As a percentage of revenue, U.S.

Healthcare Solutions' gross profit margin of 2.48% in fiscal 2021 increased 6 basis points compared to the prior fiscal year primarily due to an increase in specialty product sales, including COVID-19 treatments.

Gross profit in International Healthcare Solutions increased by $828.9 million, or 116.2%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and revenue growth in our specialty transportation and logistics business.

As a percentage of revenue, gross profit margin in International Healthcare Solutions of 13.38% in fiscal 2021 decreased from 20.34% in the prior fiscal year.

The decline in gross profit margin in fiscal 2021 was primarily due to the June 2021 acquisition of Alliance Healthcare, which has a lower gross profit margin than the other operating segments within International Healthcare Solutions.

We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $168.8 million and $9.1 million in the fiscal years ended September 30, 2021 and 2020, respectively.

The gains were recorded as reductions to Cost of Goods Sold (see Note 14 of the Notes to Consolidated Financial Statements).

In the prior fiscal year, we incurred remediation costs in connection with the suspended production activities at PharMEDium.

We also incurred shutdown costs in connection with permanently exiting the PharMEDium compounding business.

New York State ("NYS") enacted the Opioid Stewardship Act ("OSA"), which went into effect on July 1, 2018.

The OSA established an annual $100 million Opioid Stewardship Fund (the "Fund") and required manufacturers, distributors, and importers licensed in NYS to ratably source the Fund.

The ratable share of the assessment for each licensee was to be based upon opioids sold or distributed to or within NYS.

In December 2018, the OSA was ruled unconstitutional by the U.S.

District Court for the Southern District of New York.

In September 2020, the United States Court of Appeals for the Second Circuit reversed the District Court’s decision, and, as a result, we accrued $14.8 million in the fiscal year ended September 30, 2020 related to our ratable share of the assessment.

Operating Expenses

Fiscal Year Ended

September 30,

(dollars in thousands) 2021 2020 Change

Distribution, selling, and administrative $ 3,594,251 $ 2,767,217 29.9%

Depreciation and amortization 505,172 391,062 29.2%

Litigation and opioid-related expenses 272,623 6,722,346

Acquisition, integration, and restructuring expenses 199,288 84,961

Goodwill impairment 6,373 —

Impairment of assets 11,324 361,652

Total operating expenses $ 4,589,031 $ 10,327,238 (55.6)%

Distribution, selling, and administrative expenses increased by $827.0 million, or 29.9%, from the prior fiscal year.

The increase from the prior fiscal year was primarily due to the June 2021 acquisition of Alliance Healthcare and an increase in payroll-related operating costs to support current and future revenue growth.

As a percentage of revenue, distribution, selling, and administrative expenses were 1.68% in the current fiscal year and represents a 22-basis point increase compared to the prior fiscal year.

The increase in distribution, selling, and administrative expenses as a percentage of revenue was primarily due to the June 2021 acquisition of Alliance Healthcare.

Depreciation expense increased 16.6% from the prior fiscal year primarily due to depreciation of property and equipment originating from the June 2021 acquisition of Alliance Healthcare.

Amortization expense increased 60.9% from the prior fiscal year primarily due to amortization of intangible assets originating from the June 2021 acquisition of Alliance Healthcare.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2021 included a $147.7 million accrual related to opioid litigation settlements and $124.9 million of legal fees in connection with opioid lawsuits and investigations.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2020 included a $6.6 billion legal accrual and $115.4 million of legal fees in connection with opioid lawsuits and investigations.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2020 included $38.0 million related to our business transformation efforts, $34.4 million of severance costs primarily related to position eliminations resulting from our decision to permanently exit the PharMEDium compounding business, and $12.6 million of acquisition-related deal and integration costs and other restructuring initiatives.

We recorded a goodwill impairment of $6.4 million in our Profarma reporting unit in the fiscal year ended September 30, 2021 in connection with our fiscal 2021 annual impairment test (see Note 5 of the Notes to Consolidated Financial Statements).

We recorded a $361.7 million impairment of PharMEDium's assets in Impairment of Assets in the fiscal year ended September 30, 2020 (see Note 1 of the Notes to Consolidated Financial Statements).

Operating Income (Loss)

Fiscal Year Ended

September 30,

(dollars in thousands) 2021 2020 Change

Healthcare Solutions $ 2,257,918 $ 2,020,067 11.8%

International Healthcare Solutions 390,286 184,380 111.7%

Total segment operating income 2,648,204 2,204,447 20.1%

Gains from antitrust litigation settlements 168,794 9,076

LIFO credit (expense) 203,028 (7,422)

Acquisition-related intangibles amortization (176,221) (110,478)

Litigation and opioid-related expenses (272,623) (6,722,346)

Acquisition, integration, and restructuring expenses

(199,288) (84,961)

Goodwill impairment (6,373) —

Impairment of assets (11,324) (361,652)

PharMEDium remediation costs — (16,165)

PharMEDium shutdown costs — (43,206)

New York State Opioid Stewardship Act — (14,800)

Contingent consideration adjustment — 12,153

Operating income (loss) $ 2,354,197 $ (5,135,354) 145.8%

Segment operating income is evaluated before gains from antitrust litigation settlements;

LIFO credit (expense);

acquisition-related intangibles amortization;

litigation and opioid-related expenses;

acquisition, integration, and restructuring expenses;

goodwill impairment;

impairment of assets;

PharMEDium remediation costs;

PharMEDium shutdown costs;

New York State Opioid Stewardship Act;

and contingent consideration adjustment.

Healthcare Solutions operating income increased by $237.9 million, or 11.8%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses.

As a percentage of revenue, U.S.

Healthcare Solutions operating income margin was 1.12% and represented an increase of 4 basis points compared to the prior fiscal year.

The increase from the prior year fiscal year was primarily due to the increase in specialty product sales, including COVID-19 treatments.

Operating income in International Healthcare Solutions increased by $205.9 million, or 111.7%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and an increase in operating income at World Courier.

One of our non-wholly-owned subsidiaries, Profarma, which we consolidate based on certain governance rights (see Note 3 of the Notes to Consolidated Financial Statements), adjusted its previous estimate of contingent consideration in the prior fiscal year related to the purchase price of one of its prior business acquisitions.

Other Income, Net

Interest Expense, Net

Interest expense, net and the respective weighted average interest rates were as follows:

Fiscal Year Ended September 30,

(dollars in thousands) Amount Weighted Average

Interest Rate Amount Weighted Average

Interest Rate

Interest expense $ 182,544 2.62% $ 158,522 3.42%

Interest income (8,470) 0.28% (20,639) 0.69%

Interest expense, net $ 174,074 $ 137,883

Interest expense, net increased by $36.2 million, or 26.2%, from the prior fiscal year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000 million of 2.700% senior notes in March 2021, and the $500 million variable-rate term loan that was issued in June 2021, all of which were used to finance a portion of the June 2021 acquisition of Alliance Healthcare, the incremental interest expense associated with Alliance Healthcare's debt in certain countries, and the decrease in interest income resulting from a decrease in investment interest rates.

The increase in interest expense as a result of the above-mentioned debt issuances was offset in part by a lower weighted-average borrowing interest rate and the repayment of our $400 million October 2018 term loan upon its maturity in October 2020.

Income Tax Expense (Benefit)

Our effective tax rates were 30.5% and 35.8% in the fiscal years ended September 30, 2021 and 2020, respectively.

Our effective tax rate in the fiscal year ended September 30, 2021 was higher than the U.S.

statutory rate due to U.K.

Tax Reform (see Note 4 of the Notes to Consolidated Financial Statements).

Our effective tax rate in the fiscal year ended September 30, 2020 was higher than the U.S.

statutory rate due to our operating loss, the tax benefits associated with our decision to permanently exit the PharMEDium compounding business, Swiss Tax Reform, the CARES Act, and other discrete items and offset in part by the tax impact of the portion of the opioid legal accrual that is not expected to be tax deductible.

Net Income (Loss) Attributable to AmerisourceBergen Corporation and Diluted Earnings Per Share

Net income attributable to AmerisourceBergen and diluted earnings per share were significantly lower in fiscal 2020 due to the legal accrual recognized in connection with opioid lawsuits.

For a discussion of the comparison of our results of operations for the fiscal years ended September 30, 2022 and 2021, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our previously filed Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Critical Accounting Policies and Estimates

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The calculation of the required allowance requires judgment by management as to the impact of those and other factors on the ultimate realization of our trade receivables.

Each of our business units performs ongoing credit evaluations of its customers' financial condition and maintains reserves for expected credit losses and specific credit problems when they arise.

We perform ongoing credit evaluations of our customers' financial condition and maintain reserves for expected credit losses and specific credit problems when they arise.

We write off balances against the reserves when collectability is deemed remote.

Each business unit performs formal, documented reviews of the allowance at least quarterly, and our largest business units perform such reviews monthly.

We perform formal, documented reviews of the allowance at least quarterly and perform monthly credit loss reviews in connection with our largest businesses and our higher risk customer accounts.

There were no significant changes to this process during the fiscal years ended September 30, 2023, 2022, and 2021, and bad debt expense was computed in a consistent manner during these periods.

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Business Combinations

The assets acquired and liabilities assumed upon the acquisition or consolidation of a business are recorded at fair value, with the residual of the purchase price allocated to goodwill.

The assets acquired and liabilities assumed upon the acquisition or consolidation of a business are recorded at estimated fair value, with the residual of the purchase price allocated to goodwill.

We engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed.

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We evaluate whether the components within our operating segments have similar economic characteristics, which include the similarity of long-term gross margins, the nature of the components' products, services, and production processes, the types of customers and the methods by which products or services are delivered to customers, and the components' regulatory environment.

We announced a strategic reorganization of our business and began reporting externally under the new structure as of October 1, 2021.

As of September 30, 2022, our reporting units include Pharmaceutical Distribution Services, U.S.

Consulting Services, MWI, Alliance Healthcare, Innomar, World Courier, and Profarma.

As of September 30, 2023, our reporting units include U.S.

Pharmaceutical Distribution Services, U.S.

Consulting Services, MWI Animal Health, Alliance Healthcare, Innomar, World Courier, PharmaLex, and Profarma.

Goodwill and other intangible assets with indefinite lives, such as certain trademarks and trade names, are not amortized;

rather, they are tested for impairment at least annually.

For the purpose of these impairment tests, we can elect to perform a qualitative assessment to determine if it is more likely than not that the fair values of its reporting units and indefinite-lived intangible assets are less than the respective carrying values of those reporting units and indefinite-lived intangible assets, respectively.

For the purpose of these impairment tests, we can elect to perform a qualitative assessment to determine if it is more likely than not that the fair values of our reporting units and indefinite-lived intangible assets are less than the respective carrying values of those reporting units and indefinite-lived intangible assets, respectively.

Such qualitative factors can include, among others, industry and market conditions, overall financial performance, and relevant entity-specific events.

If we conclude based on its qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, it performs a quantitative analysis.

We elected to perform a quantitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2022.

If we conclude based on our qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis.

We elected to perform a quantitative impairment assessment of goodwill for our reporting units in fiscal 2023 and 2022 with the exception of our PharmaLex reporting unit, which was recently acquired.

We elected to perform a qualitative impairment assessment of indefinite-lived intangible assets in fiscal 2023 and a quantitative impairment assessment of indefinite-lived intangible assets in fiscal 2022.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2021, with the exception of our testing of goodwill in the AmerisourceBergen Consulting Services (the sum of U.S.

Consulting Services and Innomar reporting units, under our prior reporting structure) and Profarma reporting units.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2020, with the exception of our testing of goodwill and indefinite-lived intangibles in the MWI and Profarma reporting units.

Consulting Service and Innomar reporting units, under our prior reporting structure) and Profarma reporting units.

The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit.

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If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill allocated to the reporting unit.

When performing a quantitative impairment assessment, we utilize an income-based approach to value our reporting units, with the exception of the Profarma reporting unit, the fair value of which is based upon its publicly-traded stock price, plus an estimated control premium.

The income-based approach relies on a discounted cash flow analysis, which considers forecasted cash flows discounted at an appropriate discount rate, to determine the fair value of each reporting unit.

When performing a quantitative impairment assessment, we utilize an income approach or a weighted-average of an income and market approach to value our reporting units.

The income approach relies on a discounted cash flow analysis, which considers forecasted cash flows discounted at an appropriate discount rate, to determine the fair value of each reporting unit.

We generally believe that market participants would use a discounted cash flow analysis to determine the fair value of our reporting units in a sale transaction.

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While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology and the population of assumptions used have remained unchanged.

The quantitative impairment test for indefinite-lived intangibles other than goodwill (certain trademarks and trade names) consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of

the impairment testing date.

We estimate the fair value of its indefinite-lived intangibles using the relief from royalty method.

We believe the relief from royalty method is a widely used valuation technique for such assets.

We estimate the fair value of its indefinite-lived intangibles using the relief from royalty method, which is a widely used valuation technique for such assets.

The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from owning such indefinite-lived trademarks and trade names and not having to pay a royalty for their use.

We completed our required annual impairment tests relating to goodwill and indefinite-lived intangible assets in the fiscal years ended September 30, 2023, 2022, and 2021.

We recorded goodwill impairments of $75.9 million and $6.4 million in our Profarma reporting unit in connection with our fiscal 2022 and 2021 impairment tests, respectively (see Note 5 of the Notes to Consolidated Financial Statements).

No goodwill impairments were recorded in the fiscal years ended September 30, 2020, and no indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2022, 2021, or 2020.

We recorded goodwill impairments of $75.9 million and $6.4 million in our Profarma reporting unit in connection with our fiscal 2022 and 2021 impairment tests (see Note 5), respectively.

No goodwill impairments were recorded in the fiscal year ended September 30, 2023, and no indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2023, 2022, or 2021.

Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets.

We perform a recoverability assessment of our long-lived assets when impairment indicators are present.

We recorded impairments of intangible and tangible assets totaling $361.7 million in the fiscal year ended September 30, 2020 in connection with the permanent shutdown of our compounding business.

Our income tax expense, deferred tax assets and liabilities, and uncertain tax positions reflect management's assessment of estimated future taxes to be paid on items in the financial statements.

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If any of our assumptions or estimates were to change, an increase or decrease in our effective tax rate by 1% on income before income taxes would have caused income tax expense to change by $21.6 million in the fiscal year ended September 30, 2023.

For a complete discussion of the tax impact of UK Tax Reform, Swiss Tax Reform, the legal accrual related to opioid litigation, the CARES Act, and the PharMEDium worthless stock deduction, refer to Note 4 of the Notes to Consolidated Financial Statements.

For a complete discussion of the tax impact of UK Tax Reform and Swiss Tax Reform, refer to Note 4 of the Notes to Consolidated Financial Statements.

Inventories are stated at the lower of cost or market.

Cost for approximately 66% of our inventories as of September 30, 2022 and 2021 has been determined using the LIFO method.

Cost for approximately 66% of our inventories as of September 30, 2023 and 2022 has been determined using the last-in, first-out ("LIFO") method.

If we had used the first-in, first-out method of inventory valuation, which approximates current replacement cost, inventories would have been approximately $1,588.0 million and $1,383.4 million higher than the amounts reported as of September 30, 2023 and 2022, respectively.

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We recorded a LIFO credit of $203.0 million in the fiscal year ended September 30, 2021.

The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory

quantities, and product mix, many of which are difficult to predict.

The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory quantities, and product mix, many of which are difficult to predict.

Changes to any of the above factors can have a material impact to our annual LIFO provision.

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Our primary ongoing cash requirements will be to finance working capital, fund the repayment of debt, fund the payment of interest on debt, fund the payment of dividends, fund purchases of our common stock, finance acquisitions, and fund capital expenditures and routine growth and expansion through new business opportunities.

Future cash flows from operations and borrowings are expected to be sufficient to fund our ongoing cash requirements, including the opioid litigation payments that will be made over 18 years (see below).

As of September 30, 2023 and 2022, our cash and cash equivalents held by foreign subsidiaries were $640.5 million and $688.4 million, respectively.

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We had $77,851.0 million, $4,435.9 million, and $4,730.5 million of cumulative intra-period borrowings that were repaid under our credit facilities during the fiscal years ended September 30, 2023, 2022, and 2021, respectively.

During the fiscal years ended September 30, 2022 and 2021, our operating activities provided cash of $2,703.1 million and $2,666.6 million, respectively.

Cash provided by operations in the fiscal year ended September 30, 2022 was principally the result of the following:

During the fiscal year ended September 30, 2023, our operating activities provided cash of $3,911.3 million and was principally the result of the following:

• An increase in accounts payable of $6,103.5 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;

• Net income of $1,732.6 million;

• Positive non-cash items of $1,304.2 million, which is primarily comprised of amortization expense of $562.0 million, depreciation expense of $418.8 million, and LIFO expense of $204.6 million, offset in part by:

◦ An increase in accounts receivable of $2,711.8 million primarily due to an increase in sales and the timing of scheduled payments from our customers;

◦ An increase in inventories of $2,183.4 million to support the increase in business volume;

◦ A decrease in long-term accrued litigation liability of $400.0 million due to opioid litigation settlement payments.

During the fiscal years ended September 30, 2022, our operating activities provided cash of $2,703.1 million and was principally the result of the following:

• An increase in accounts payable of $3,320.7 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;

• Net income of $1,666.5 million;

• Positive non-cash items of $1,176.2 million, which is primarily comprised of depreciation expense of $390.6 million, amortization expense of $319.2 million, and the provision for deferred income taxes of $196.2 million, offset in part by:

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◦ A decrease in income taxes payable and other liabilities of $330.1 million.

During the fiscal years ended September 30, 2021 and 2020, our operating activities provided cash of $2,666.6 million and $2,207.0 million, respectively.

Cash provided by operations in the fiscal year ended September 30, 2021 was principally the result of the following:

• An increase in accounts payable of $2,049.2 million primarily driven by the increase in inventories and the timing of scheduled payments to our suppliers;

• Net income of $1,544.6 million;

• Net positive non-cash items totaling $754.7 million, which is primarily comprised of the provision for deferred income taxes of $334.9 million, depreciation expense of $326.7 million, amortization expense of $188.1 million, and a LIFO credit of $203.0 million, offset in part by:

◦ An increase in inventories of $1,116.3 million to support the increase in business volume;

◦ An increase in accounts receivable of $930.1 million primarily due to our revenue growth and the timing of payments from our customers.

We use days sales outstanding, days inventory on hand, and days payable outstanding to evaluate our working capital performance.

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Additionally, any changes to payment terms with a significant customer or manufacturer supplier could have a material impact to our cash flows from operations.

The acquisition of Alliance Healthcare increased our days sales outstanding and days payable outstanding as it has longer payment terms with customers and manufacturers.

Operating cash flows during the fiscal year ended September 30, 2023 included $271.3 million of interest payments and $463.1 million of income tax payments, net of refunds.

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Capital expenditures in the fiscal years ended September 30, 2023, 2022, and 2021 were $458.4 million, $496.3 million, and $438.2 million, respectively.

Significant capital expenditures in fiscal 2022 included investments in various technology initiatives, including technology initiatives at Alliance Healthcare.

Significant capital expenditures in fiscal 2021 and 2020 included costs associated with facility expansions, and various technology initiatives, including costs related to enhancing and upgrading our primary information technology operating systems.

Significant capital expenditures in fiscal 2023 and 2022 included investments in various technology initiatives, including technology initiatives at Alliance Healthcare.

Significant capital expenditures in fiscal 2021 included costs associated with facility expansions and various technology initiatives, including costs related to enhancing and upgrading our primary information technology operating systems.

We currently expect to spend approximately $500 million for capital expenditures during fiscal 2024.

Larger 2023 capital expenditures will include investments relating to various technology initiatives, including technology investments at Alliance Healthcare and those required to comply with new regulatory requirements.

In addition to capital expenditures, net cash used in investing activities in the fiscal year ended September 30, 2022 included $133.8 million of cash to acquire companies, including $60.0 million that was paid to settle accrued consideration related to the Alliance Healthcare acquisition (see Note 2 of the Notes to Consolidated Financial Statements), and was offset in part by $272.6 million in proceeds from the sale of non-core businesses.

Larger 2024 capital expenditures will include investments relating to various technology initiatives, including technology investments at Alliance Healthcare.

In addition to capital expenditures, net cash used in investing activities in the fiscal year ended September 30, 2023 included $1,406.5 million for the acquisition of PharmaLex and $718.4 million for our investment in OneOncology (see Note 2 of the Notes to Consolidated Financial Statements).

In addition to capital expenditures, net cash used in investing activities in the fiscal year ended 2021 included $5,563.0 million of cash to acquire companies, which principally related to the June 2021 acquisition of Alliance Healthcare, net of cash acquired, and $162.6 million for equity investments.

Net cash used in financing activities in the fiscal year ended September 30, 2022 principally resulted from an $850 million repayment of our 0.737% senior notes that mature in 2023, the repayment of our $250 million term loan, $391.7 million in cash dividends paid on our common stock, and $483.7 million in purchases of our common stock.

Net cash provided by financing activities in the fiscal year ended September 30, 2021 principally resulted from the issuance of senior notes and the February 2021 Term Loan (see above) and $198.8 million of exercises of stock options, offset in part by $650 million of repayments of our term loans, $366.6 million in cash dividends paid on our common stock, and $82.2 million in purchases of our common stock.

Net cash used in financing activities in the fiscal year ended September 30, 2020 principally related to $420.4 million in purchases of our common stock and $343.6 million in cash dividends paid on our common stock.

Net cash used in financing activities in the fiscal year ended September 30, 2023 principally resulted from $1,180.7 million purchases of our common stock, a $675 million repayment of our 0.737% senior notes that matured in March 2023, and $398.8 million in cash dividends paid on our common stock.

Net cash used in financing activities in the fiscal year ended September 30, 2022 principally resulted from an $850 million repayment of our 0.737% senior notes that matured in 2023, the repayment of our $250 million term loan, $391.7 million in cash dividends paid on our common stock, and $483.7 million in purchases of our common stock.

Debt and Credit Facility Availability

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$500,000, 4.300% senior notes due 2047 493,554 —

$500,000, 4.300% senior notes due 2047 493,288 —

Nonrecourse debt 74,684 —

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Variable-Rate Debt:

Revolving credit note — 75,000

Money market facility — 100,000

Multi-currency revolving credit facility due 2028 — 2,400,000

Receivables securitization facility due 2025 350,000 1,100,000

Revolving credit note — 75,000

Overdraft facility due 2024 (£10,000) — 12,200

Multi-currency revolving credit facility due 2027 — 2,400,000

Money market facility — 100,000

Alliance Healthcare debt 68,017 465,185

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Total debt $ 4,787,457 $ 4,152,385

In May 2020, we issued $500 million of 2.80% senior notes due May 15, 2030 (the "2030 Notes").

The 2030 Notes were sold at 99.71% of the principal amount and have an effective yield of 2.81%.

Interest on the 2030 Notes is payable semi-annually in arrears and commenced on November 15, 2020.

We used the proceeds from the 2030 Notes to finance the early retirement of the $500 million of 3.50% senior notes that were due in 2021 and made a $21.4 million prepayment premium in connection with this early retirement.

In March 2021, we issued $1,525 million of 0.737% senior notes due March 15, 2023 (the "2023 Notes").

The 2023 Notes were sold at 100.00% of the principal amount.

Interest on the 2023 Notes is payable semi-annually in arrears, commencing on September 15, 2021.

Interest on the 2023 Notes was payable semi-annually in arrears and commenced on September 15, 2021.

In the fiscal year ended September 30, 2022, we elected to repay $850 million of 2023 Notes due in March 2023.

In March 2023, the remaining balance of $675 million on the original $1.5 billion of 0.737% senior notes matured and was repaid.

In March 2021, we issued $1,000 million of 2.70% senior notes due March 15, 2031 (the "2031 Notes").

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Interest on the 2031 Notes is payable semi-annually in arrears and commenced on September 15, 2021.

The 2023 Notes and 2031 Notes rank pari passu to our other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility.

The 2031 Notes rank pari passu to our other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility.

We used the proceeds from the 2023 Notes and 2031 Notes to finance a portion of the June 2021 Alliance Healthcare acquisition.

In fiscal 2022, we elected to repay $850 million of the 2023 Notes due in March 2023.

In addition to the 2023 Notes, the 2030 Notes, and the 2031 Notes, we have $500 million of 3.40% senior notes due May 15, 2024, $500 million of 3.25% senior notes due March 1, 2025, $750 million of 3.45% senior notes due December 15, 2027, $500 million of 4.25% senior notes due March 1, 2045, and $500 million of 4.300% senior notes due December 15, 2047 (collectively, the "Notes").

Interest on the Notes is payable semiannually in arrears.

We have a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire in November 2026, with a syndicate of lenders.

In October 2022, we amended and restated the Multi-Currency Revolving Credit Facility to extend the expiration to October 2027 and to make changes to effect a transition from the LIBOR interest rate benchmark to Term SOFR.

We have a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire in October 2027, with a syndicate of lenders.

In October 2023, we amended and restated the Multi-Currency Revolving Credit Facility to extend the expiration to October 2028.

Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon our debt rating and ranges from 80.5 basis points to 122.5 basis points over SOFR/EURIBOR/CDOR/RFR, as applicable (102.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2023) and from 0 basis points to 22.5 basis points over the alternate base rate and Canadian prime rate, as applicable.

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The notes will bear interest, if interest bearing, or will be sold at a discount from their face amounts.

The commercial paper program does not increase our borrowing capacity as it is fully backed by our Multi-Currency Revolving Credit Facility.

The commercial paper program

does not increase our borrowing capacity as it is fully backed by our Multi-Currency Revolving Credit Facility.

There were no borrowings outstanding under our commercial paper program as of September 30, 2023 and 2022.

We have a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire in November 2024.

In October 2022, we amended the Receivables Securitization Facility ("Receivables Amendment") to extend the expiration for an additional one year until October 2025.

In addition, the Receivables Amendment made changes to (i) substitute Term SOFR for LIBOR as a benchmark and establish procedures to choose a new benchmark if Term SOFR becomes unavailable, (ii) provide for the return of erroneous payments, if any, by purchasers, (iii) update provisions regarding compliance with sanctions and anti-money laundering laws, and (iv) implement certain other technical amendments.

We have a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which is scheduled to expire in October 2025.

We have available to us an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to $250 million, subject to lender approval, for seasonal needs during the December and March quarters.

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The Money Market Facility may be decreased or terminated by the bank or us at any time without prior notice.

Our $400 million Term Loan matured and was repaid in October 2020.

In February 2021, we entered into a $1.0 billion variable-rate term loan (“February 2021 Term Loan”), which was available to be drawn on the closing date of the acquisition of Alliance Healthcare.

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Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates.

A majority of the outstanding borrowings were held in Egypt (which is 50% owned) as of September 30, 2022 and 2021.

A vast majority of the outstanding borrowings were held in Turkey as of September 30, 2023.

These facilities are used to fund its working capital needs.

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In October 2018, our Board of Directors authorized a share repurchase program allowing us to purchase up to $1.0 billion of our shares of common stock, subject to market conditions.

During the fiscal year ended September 30, 2019, we purchased $538.9 million of our common stock under this program, which included $14.8 million of September 2019 purchases that cash settled in October 2019.

During the fiscal year ended September 30, 2020, we purchased $405.6 million of our common stock, which excluded $14.8 million of September 2019 purchases that cash settled in October 2019.

During the fiscal year ended September 30, 2021, we purchased $55.5 million of our common stock to complete our authorization under this program.

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During the fiscal year ended September 30, 2022, we purchased $473.4 million of our common stock to complete our authorization under this program.

In May 2022, the Company's board of directors authorized a new share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions.

During the fiscal year ended September 30, 2022, we purchased $38.7 million of our common stock, which included $28.4 million of September 2022 purchases that cash settled in October 2022.

As of September 30, 2022, we had $961.3 million of availability remaining under this program.

In October 2022, under this program, we purchased 0.6 million shares of our common stock for $78.8 million.

In November 2022, under this program, we purchased 3.2 million shares of our common stock from WBA for $500.0 million.

In May 2022, our Board of Directors authorized a share repurchase program allowing us to purchase up to $1.0 billion of our outstanding shares of common stock, subject to market conditions.

During the fiscal year ended September 30, 2022, we purchased $38.7 million of common stock, which included $28.4 million of September 2022 purchases that cash settled in October 2022.

During the fiscal year ended September 30, 2023, we purchased $961.3 million of our common stock, including $882.5 million from WBA, to complete our authorization under this program.

In March 2023, our Board of Directors authorized a new share repurchase program allowing us to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions.

During the fiscal year ended September 30, 2023, we purchased $191.0 million of our common stock, including $167.5 million from WBA.

As of September 30, 2023, we had $809.0 million of availability under this program.

From October 1, 2023 through November 20, 2023, we purchased $325.3 million of our common stock, including $250.0 million from WBA.

Our Board of Directors approved the following quarterly dividend increases:

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Date New Rate Old Rate % Increase

January 2020 $0.420 $0.400 5%

November 2020 $0.440 $0.420 5%

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November 2022 $0.485 $0.460 5%

November 2023 $0.510 $0.485 5%

We anticipate that we will continue to pay quarterly cash dividends in the future.

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Commitments and Obligations

As discussed in Note 13 of the Notes to Consolidated Financial Statements, on July 21, 2021, it was announced that we and the two other national pharmaceutical distributors had negotiated a comprehensive opioid settlement agreement.

The comprehensive settlement agreement became effective on April 2, 2022, and as of September 30, 2022, it included 48 of 49 eligible states (the “Settling States”) as well as 99% by population of the eligible political subdivisions in the Settling States.

Pursuant to the comprehensive settlement agreement and related agreements with Settling States, we will pay up to approximately $6.4 billion over 18 years.

Our estimated liability related to the State of Alabama (with whom we have not reached a settlement agreement), as well as other opioid-related litigation for which we have reached settlement agreements is approximately $0.4 billion.

Net of $0.8 billion of payments made through September 30, 2022, we have a $6.0 billion liability on our Consolidated Balance Sheet as of September 30, 2022 for litigation relating to our comprehensive opioid settlement as well as other opioid-related litigation.

As discussed and defined in Note 13 of the Notes to Consolidated Financial Statements, on July 21, 2021, it was announced that we and the two other national pharmaceutical distributors had negotiated a Distributor Settlement Agreement.

The Distributor Settlement Agreement became effective on April 2, 2022, and as of September 30, 2023, it included 48 of 49 eligible states (the “Settling States”) as well as 99% by population of the eligible political subdivisions in the Settling States.

Our remaining estimated liability related to the Distributor Settlement Agreement, the State of Alabama (with whom we have not reached a settlement agreement), and other opioid-related litigation for which we have reached settlement agreements is approximately $5.5 billion on our Consolidated Balance Sheet as of September 30, 2023 and is expected to be paid over the next 15 years.

The payment of the aforementioned litigation liability has not and is not expected to have an impact on our ability to pay dividends.

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Since the amount and timing of any future cash settlements cannot be predicted with reasonable certainty, the estimated liability has been excluded from the above contractual obligations table.

Our liability for uncertain tax positions as of September 30, 2022 primarily includes an uncertain tax benefit related to the $6.8 billion legal accrual for litigation related to the distribution of prescription opioid pain medications, as disclosed in Note 13 of the Notes to Consolidated Financial Statements.

Our liability for uncertain tax positions as of September 30, 2023 primarily includes an uncertain tax benefit related to the legal accrual for litigation related to the distribution of prescription opioid pain medications, as disclosed in Note 13 of the Notes to Consolidated Financial Statements.

We have exposure to foreign currency and exchange rate risk from our non-U.S.

Our largest exposure to foreign exchange rates exists primarily with the U.K.

Pound Sterling, the Euro, the Turkish Lira, the Egyptian Pound, the Brazilian Real, and the Canadian Dollar.

During the quarter ended March 31, 2022, Turkey became a highly inflationary economy, as defined under U.S.

GAAP (see Note 1 of the Notes to Consolidated Financial Statements).

Also, with the June 2021 acquisition of Alliance Healthcare, our foreign currency and exchange rate risk increased;

therefore, we now use forward contracts to hedge against the foreign currency exchange rate impact on certain intercompany receivable and payable balances.

Pound Sterling, the Euro, the Turkish Lira, the Brazilian Real, and the Canadian Dollar.

We use forward contracts to hedge against the foreign currency exchange rate impact on certain intercompany receivable and payable balances.

We may use derivative instruments to hedge our foreign currency exposure, but not for speculative or trading purposes.

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Deterioration of general economic conditions, among other factors, could adversely affect the number of prescriptions that are filled and the amount of pharmaceutical products purchased by consumers and, therefore, could reduce purchases by our customers.

In addition, volatility in financial markets may also negatively impact our customers' ability to obtain credit to finance their businesses on acceptable terms.

In addition, volatility in financial markets and higher borrowing costs may also negatively impact our customers' ability to obtain credit to finance their businesses on acceptable terms.

Reduced purchases by our customers or changes in the ability of our customers to remit payments to us could adversely affect our revenue growth, our profitability, and our cash flow from operations.

Recent elevated levels of inflation in the global and U.S.

economies have not had a significant impact on our results of operations.

economies have impacted certain operating expenses.

If elevated levels of inflation persist or increase, our operations and financial results could be adversely affected, particularly in certain global markets.

We have risks from other geopolitical trends and events, such as the Russia-Ukraine war.

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in fiscal 2022 has not been material.

We have risks from other geopolitical trends and events, such as the ongoing conflicts in Ukraine and between Israel and Hamas.

Although the long-term implications of these conflicts are difficult to predict at this time, the financial impact of these conflicts has not been material.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis