8-KRegulation FD

Cencora, Inc. 8-K Report, Regulation FD Disclosure (Nov 24, 2015)

Filed November 24, 2015For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) filed an 8-K on November 24, 2015, to announce a significant development regarding warrants previously issued to Walgreens Boots Alliance, Inc. (WBA). The Internal Revenue Service (IRS) issued a private letter ruling confirming that Cencora can recognize the tax consequences of these warrants upon their exercise. This ruling allows the company to claim an income tax deduction for the increase in the warrants' fair value from their issuance date to their exercise date. As a direct result of this ruling, Cencora expects to record a substantial tax benefit adjustment of approximately $456 million in its earnings for the fourth quarter of fiscal year 2015. This adjustment reflects the estimated tax deduction from the increase in the warrants' value up to September 30, 2015. While this will impact GAAP earnings, the company clarified that it will not affect its previously provided guidance for fiscal year 2016 adjusted diluted earnings per share. The ultimate benefit to free cash flow is contingent on the timing of warrant exercises and the stock price at those times.

Key Highlights

  • 1IRS Private Letter Ruling received on November 23, 2015, regarding warrants issued to Walgreens Boots Alliance, Inc. (WBA).
  • 2The ruling allows Cencora to recognize tax consequences of warrants upon their exercise.
  • 3Cencora will be entitled to an income tax deduction for the increase in warrant fair value at the time of exercise.
  • 4Expects to record a tax benefit adjustment of approximately $456 million in Q4 2015 earnings for the increase in warrant value through September 30, 2015.
  • 5This tax benefit will impact GAAP earnings but not the previously announced FY2016 adjusted diluted EPS guidance of $5.73 to $5.90.
  • 6Potential future benefit to free cash flow is dependent on warrant exercise timing and stock price.
  • 7The company reiterates that other key assumptions from its October 29, 2015, news release remain unchanged.

Frequently Asked Questions

The 8-K filing is to announce that Cencora received a private letter ruling from the IRS. This ruling permits the company to recognize the tax benefits associated with warrants issued to Walgreens Boots Alliance, Inc. (WBA) when those warrants are exercised, rather than on a ratable basis over the agreement's term.

Cencora expects to record a significant tax benefit adjustment of approximately $456 million in its earnings for the quarter ending December 31, 2015. This amount represents the estimated tax deduction from the increase in the warrants' fair value from their issuance date through September 30, 2015. This will increase GAAP earnings but is not expected to impact the company's adjusted diluted earnings per share guidance for fiscal year 2016.

The tax benefits are expected to be beneficial to free cash flow over time. However, the actual cash flow impact is contingent upon the timing of when WBA exercises the warrants and the company's stock price at the time of each exercise.

The filing includes a cautionary note regarding forward-looking statements. Potential risks include fluctuations in stock price affecting the future tax deduction and cash flow, changes in tax laws, and other factors affecting the company's business and financial performance. The ultimate impact depends on the exercise of the warrants.