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AmerisourceBergen (ABC) to See Tax Benefit on Walgreens Boots Warrants

November 24, 2015 4:14 PM EST

AmerisourceBergen (NYSE: ABC) disclosed the following Tuesday:

As previously disclosed in its filings with the Securities and Exchange Commission, including the Current Report on Form 8-K filed on March 20, 2013 and the Annual Report on Form 10-K filed on November 25, 2014, AmerisourceBergen Corporation (the “Company”) issued warrants on March 18, 2013 (the “Warrants”) in connection with various agreements and arrangements with Walgreens Boots Alliance, Inc. (“WBA”), as successor in interest to Walgreen Co. and Alliance Boots GmbH. At that time, the Company determined that the Warrants had a fair value of $242.4 million on the date of issuance, which approximated the tax deductible amount that would be deducted ratably on the Company’s tax return over the 10-year term of the various agreements, and that any value in excess of the initial fair value of the Warrants on the date of issuance would not be tax deductible.

On November 23, 2015, the Company received a private letter ruling from the Internal Revenue Service determining that the Company may recognize the tax consequences of the Warrants when they are exercised. As a result, the Company will be entitled to an income tax deduction when the Warrants are exercised for the Warrant expense equal to the difference between the fair value of the Warrants on the date of exercise and the strike price to be paid to exercise the Warrants. As a result of the receipt of the private letter ruling, in the quarter ending December 31, 2015, the Company will recognize in earnings a tax benefit adjustment of approximately $456 million representing the estimated tax deduction for the increase in the value of the Warrants since the inception of the arrangement through September 30, 2015. Additionally, the Company also expects to recognize the tax impact of the change in fair value of the Warrants, through the date of exercise, within the Company’s results of earnings subsequently at the applicable tax rate, currently estimated to be 36.5%.

The estimated $456 million tax benefit that the Company expects to record in the quarter ending December 31, 2015 will impact the Company’s GAAP earnings; however, it will not impact the Company’s previously announced expectations for fiscal year 2016 adjusted diluted earnings per share in the range of $5.73 to $5.90. The tax benefits are expected to eventually be beneficial to free cash flow, contingent upon the timing of the exercise of the Warrants and the stock price at the time of each exercise. The other key assumptions set forth in the Company’s news release dated October 29, 2015 and furnished as Exhibit 99.1 to the Current Report on Form 8-K dated the same date remain unchanged.

The information in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference to such disclosure in this Current Report on Form 8-K in such a filing.



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