UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission file number 1-16671

AMERISOURCEBERGEN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		23-3079390
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1300 Morris Drive, Chesterbrook, PA		19087-5594
(Address of principal executive offices)		(Zip Code)

(610) 727-7000

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes þ 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 þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of common stock of AmerisourceBergen Corporation outstanding as of January 31, 2010 was 282,383,043.

 

 

AMERISOURCEBERGEN CORPORATION

TABLE OF CONTENTS

		Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets, December 31, 2009 and September 30, 2009			2
Consolidated Statements of Operations for the three months ended December 31, 2009 and 2008			3
Consolidated Statements of Cash Flows for the three months ended December 31, 2009 and 2008			4
Notes to Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 6. Exhibits			31
SIGNATURES			32
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM I. Financial Statements (Unaudited)

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,				September 30,
(in thousands, except share and per share data)		2009				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	979,567			$	1,009,368
Accounts receivable, less allowances for returns and doubtful accounts: $367,415 at December 31, 2009 and $370,303 at September 30, 2009			3,540,919				3,916,509
Merchandise inventories			5,361,851				4,972,820
Prepaid expenses and other			33,794				55,056
Total current assets			9,916,131				9,953,753
Property and equipment, at cost:
Land			36,109				35,665
Buildings and improvements			294,245				292,903
Machinery, equipment and other			727,664				694,555
Total property and equipment			1,058,018				1,023,123
Less accumulated depreciation			(416,109	)			(403,885	)
Property and equipment, net			641,909				619,238
Goodwill and other intangible assets			2,857,242				2,859,064
Other assets			140,989				140,685
TOTAL ASSETS		$	13,556,271			$	13,572,740
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	8,225,557			$	8,517,162
Accrued expenses and other			355,830				315,657
Current portion of long-term debt			593				1,068
Deferred income taxes			661,468				645,723
Total current liabilities			9,243,448				9,479,610
Long-term debt, net of current portion			1,375,256				1,176,933
Other liabilities			196,706				199,728
Stockholders’ equity:
Common stock, $0.01 par value — authorized: 600,000,000 shares; issued and outstanding: 484,645,368 shares and 283,825,325 shares at December 31, 2009, respectively, and 482,941,212 shares and 287,922,263 shares at September 30, 2009, respectively			4,846				4,829
Additional paid-in capital			3,775,410				3,737,835
Retained earnings			3,047,918				2,919,760
Accumulated other comprehensive loss			(42,818	)			(46,096	)
			6,785,356				6,616,328
Treasury stock, at cost: 200,820,043 shares at December 31, 2009 and 195,018,949 shares at September 30, 2009			(4,044,495	)			(3,899,859	)
Total stockholders’ equity			2,740,861				2,716,469
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	13,556,271			$	13,572,740

See notes to consolidated financial statements.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended
		December 31,
(in thousands, except per share data)		2009				2008
Revenue		$	19,335,859			$	17,338,377
Cost of goods sold			18,772,489				16,848,529
Gross profit			563,370				489,848
Operating expenses:
Distribution, selling, and administrative			280,239				272,026
Depreciation			16,658				15,053
Amortization			4,139				3,856
Facility consolidations, employee severance and other			(48	)			1,029
Operating income			262,382				197,884
Other loss			277				429
Interest expense, net			17,267				14,183
Income from continuing operations before income taxes			244,838				183,272
Income taxes			93,531				70,743
Income from continuing operations			151,307				112,529
Loss from discontinued operations, net of income taxes			—				(1,473	)
Net income		$	151,307			$	111,056
Earnings per share:
Basic earnings per share:
Continuing operations		$	0.53			$	0.36
Discontinued operations			—				—
Total		$	0.53			$	0.36
Diluted earnings per share:
Continuing operations		$	0.52			$	0.36
Discontinued operations			—				—
Total		$	0.52			$	0.36
Weighted average common shares outstanding:
Basic			286,955				308,594
Diluted			291,287				310,178
Cash dividends declared per share of common stock		$	0.08			$	0.05

See notes to consolidated financial statements.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three months ended
		December 31,
(in thousands)		2009				2008
OPERATING ACTIVITIES
Net income		$	151,307			$	111,056
Loss from discontinued operations			—				1,473
Income from continuing operations			151,307				112,529
Adjustments to reconcile income from continuing operations to net cash used in operating activities:
Depreciation, including amounts charged to cost of goods sold			19,820				17,813
Amortization, including amounts charged to interest expense			5,384				4,843
Provision for doubtful accounts			9,387				8,175
Provision for deferred income taxes			17,511				9,681
Share-based compensation			7,176				7,374
Other			2,630				(3,278	)
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions:
Accounts receivable			371,936				(80,090	)
Merchandise inventories			(391,153	)			(768,924	)
Prepaid expenses and other assets			22,499				22,611
Accounts payable, accrued expenses, and income taxes			(254,538	)			366,625
Other liabilities			(3,648	)			(1,474	)
Net cash used in operating activities-continuing operations			(41,689	)			(304,115	)
Net cash used in operating activities-discontinued operations			—				(251	)
NET CASH USED IN OPERATING ACTIVITIES			(41,689	)			(304,366	)
INVESTING ACTIVITIES
Capital expenditures			(42,574	)			(42,344	)
Proceeds from the sale of PMSI			—				14,936
Other			127				—
Net cash used in investing activities-continuing operations			(42,447	)			(27,408	)
Net cash used in investing activities-discontinued operations			—				(1,138	)
NET CASH USED IN INVESTING ACTIVITIES			(42,447	)			(28,546	)
FINANCING ACTIVITIES
Long-term debt borrowings			396,696				—
Borrowings under revolving and securitization credit facilities			290,074				339,208
Repayments under revolving and securitization credit facilities			(491,704	)			(311,689	)
Purchases of common stock			(144,626	)			(88,352	)
Exercises of stock options, including excess tax benefits of $5,050 and $55 in fiscal 2010 and 2009, respectively			30,416				1,331
Cash dividends on common stock			(23,149	)			(15,571	)
Debt issuance costs and other			(3,372	)			788
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			54,335				(74,285	)
DECREASE IN CASH AND CASH EQUIVALENTS			(29,801	)			(407,197	)
Cash and cash equivalents at beginning of period			1,009,368				878,114
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	979,567			$	470,917

See notes to consolidated financial statements.

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 wholly-owned subsidiaries (the “Company”) as of the dates and for the periods indicated. The Company evaluated subsequent events through the date and time the financial statements were issued on February 5, 2010. 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 December 31, 2009 and the results of operations and cash flows for the interim periods ended December 31, 2009 and 2008 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, 2009.

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.

The Company has three operating segments, which include the operations of AmerisourceBergen Drug Corporation (“ABDC”), the AmerisourceBergen Specialty Group (“ABSG”), and the AmerisourceBergen Packaging Group (“ABPG”). The Company has aggregated the operating results of ABDC, ABSG, and ABPG into one reportable segment, Pharmaceutical Distribution, which represents the consolidated operating results of the Company. The businesses of the Pharmaceutical Distribution operating segments are similar in that they service both healthcare providers and pharmaceutical manufacturers in the pharmaceutical supply channel. Prior to October 1, 2009, management considered gains on antitrust litigation settlements and costs related to facility consolidations, employee severance and other, to be reconciling items between the operating results of Pharmaceutical Distribution and the Company.

On June 15, 2009, the Company effected a two-for-one stock split of its outstanding shares of common stock in the form of a 100% stock dividend to stockholders of record at the close of business on May 29, 2009. All applicable share and per-share amounts in the consolidated financial statements and related disclosures have been retroactively adjusted to reflect this stock split.

Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.

Recent Accounting Pronouncements

Effective October 1, 2009, the Company adopted the applicable sections of Accounting Standards Codification (“ASC”) 805, “Business Combinations,” which provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. Additionally, this ASC provides disclosure requirements to enable users of financial statements to evaluate the nature and financial effects of a business combination. The Company also adopted certain other applicable sections that address application issues raised on the initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities from contingencies from a business combination. The application of ASC 805 relating to a future acquisition or divestiture may have an impact to the Company’s financial position and/or results of operations.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 2. Discontinued Operations

In October 2008, the Company completed the divestiture of its workers’ compensation business, PMSI. The Company classified PMSI’s operating results and cash flows as discontinued in the consolidated financial statements for the three months ended December 31, 2008. PMSI’s revenue and loss before income taxes were $29.0 million and $1.1 million, respectively, for the three months ended December 31, 2008.

The Company sold PMSI for approximately $31 million, net of a final working capital adjustment, including a $19 million subordinated note due from PMSI on the fifth anniversary of the closing date (the “maturity date”), of which $4 million may be payable in October 2010 if PMSI achieves certain revenue targets with respect to its largest customer during the twelve months ending September 30, 2010. Interest accrues at an annual rate of LIBOR plus 4% (not to exceed 8%).

Note 3. Income Taxes

The Company files income tax returns in U.S. federal and state jurisdictions as well as various foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2006 and subsequent years remain subject to examination by the U.S. Internal Revenue Service (“IRS”). The IRS is currently examining the Company’s tax returns for fiscal 2006 and 2007. In Canada, the Company is currently under examination for fiscal years 2007 and 2008.

As of December 31, 2009, 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 $54.7 million ($38.6 million net of federal benefit, which, if recognized, would reduce income tax expense). Included in this amount is $17.8 million of interest and penalties, which the Company records in income tax expense. During the three months ended December 31, 2009, unrecognized tax benefits increased by $0.3 million. During the next 12 months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could result in a reduction of unrecognized tax benefits by approximately $8.0 million.

Note 4. Goodwill and Other Intangible Assets

Following is a summary of the changes in the carrying value of goodwill for the three months ended December 31, 2009 (in thousands):

Goodwill at September 30, 2009		$	2,542,352
Foreign currency translation			1,717
Goodwill at December 31, 2009		$	2,544,069

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Following is a summary of other intangible assets (in thousands):

		December 31, 2009												September 30, 2009
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Indefinite-lived intangibles-trade names		$	241,638			$	—			$	241,638			$	241,554			$	—			$	241,554
Finite-lived intangibles:
Customer relationships			121,731				(59,963	)			61,768				121,419				(56,679	)			64,740
Other			33,369				(23,602	)			9,767				33,100				(22,682	)			10,418
Total other intangible assets		$	396,738			$	(83,565	)		$	313,173			$	396,073			$	(79,361	)		$	316,712

Amortization expense for other intangible assets was $4.1 million and $3.9 million in the three months ended December 31, 2009 and 2008, respectively. Amortization expense for other intangible assets is estimated to be $16.0 million in fiscal 2010, $15.1 million in fiscal 2011, $12.8 million in fiscal 2012, $11.0 million in fiscal 2013, $7.8 million in fiscal 2014, and $12.9 million thereafter.

Note 5. Debt

Debt consisted of the following (in thousands):

		December 31,				September 30,
		2009				2009
Blanco revolving credit facility at 2.23% and 2.25%, respectively, due 2010		$	55,000			$	55,000
Receivables securitization facility due 2010			—				—
Multi-currency revolving credit facility at 2.25% and 0.92%, respectively, due 2011			25,618				224,026
$400,000, 5 5/8% senior notes due 2012			399,132				399,058
$500,000, 5 7/8% senior notes due 2015			498,398				498,339
$400,000, 4 7/8% senior notes due 2019			396,739				—
Other			962				1,578
Total debt			1,375,849				1,178,001
Less current portion			593				1,068
Total, net of current portion		$	1,375,256			$	1,176,933

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company has a $695 million multi-currency senior unsecured revolving credit facility, which expires in November 2011, (the “Multi-Currency Revolving Credit Facility”) with a syndicate of lenders. Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based on the Company’s debt rating and ranges from 19 basis points to 60 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (40 basis points over LIBOR/EURIBOR/Bankers Acceptance Stamping Fee at December 31, 2009). Additionally, interest on borrowings denominated in Canadian dollars may accrue at the greater of the Canadian prime rate or the CDOR rate. The Company pays quarterly facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based on the Company’s debt rating, ranging from 6 basis points to 15 basis points of the total commitment (10 basis points at December 31, 2009). The Company may choose to repay or reduce its commitments under the Multi-Currency Revolving Credit Facility at any time. The Multi-Currency Revolving Credit Facility contains covenants, including compliance with a financial leverage ratio test, as well as others that impose limitations on, among other things, indebtedness of excluded subsidiaries and asset sales.

The Company has a $700 million receivables securitization facility (“Receivables Securitization Facility”), which expires in April 2010. The Company also has available to it 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. Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee. The Company pays a commitment fee to maintain the availability under the Receivables Securitization Facility. The program fee and the commitment fee were 150 basis points and 75 basis points, respectively, at December 31, 2009. At December 31, 2009, there were no borrowings outstanding under the Receivables Securitization Facility. The agreement governing the Receivables Securitization Facility contains restrictions and covenants which include limitations on the incurrence of additional indebtedness, making of certain restricted payments, issuance of preferred stock, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets.

The Blanco revolving credit facility (the “Blanco Credit Facility”) is not classified in the current portion of long-term debt on the accompanying consolidated balance sheet at December 31, 2009 because the Company has the ability and intent to refinance it on a long-term basis. Borrowings under the Blanco Credit Facility are guaranteed by the Company. Interest on borrowings under the Blanco Credit Facility accrues at specific rates based on the Company’s debt rating (200 basis points over LIBOR at December 31, 2009). Additionally, the Company is required to pay quarterly facility fees of 50 basis points on any unused portion of the facility.

In November 2009, the Company issued $400 million of 4⁷/₈% senior notes due November 15, 2019 (the “2019 Notes”). The 2019 Notes were sold at 99.174% of the principal amount and have an effective yield of 4.98%. The interest on the 2019 Notes is payable semiannually, in arrears, commencing May 15, 2010. The 2019 Notes rank pari passu to the Multi-Currency Revolving Credit Facility, the 5 5/8% senior notes due 2012, and the 5 7/8% senior notes due 2015. The Company used the net proceeds of the 2019 Notes to repay substantially all amounts then outstanding under its Multi-Currency Revolving Credit Facility, and the remaining net proceeds were used for general corporate purposes. Costs incurred in connection with the issuance of the 2019 Notes were deferred and are being amortized over the 10-year term of the notes.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 6. Stockholders’ Equity and Earnings per Share

The following table illustrates comprehensive income for the three months ended December 31, 2009 and 2008 (in thousands):

		2009				2008
Net income		$	151,307			$	111,056
Foreign currency translation adjustments and other			3,278				(10,066	)
Comprehensive income		$	154,585			$	100,990

In November 2008, the Company’s board of directors increased the quarterly dividend by 33% to $0.05 per common share. In May 2009, the Company declared a two-for-one split of the Company’s outstanding shares of common stock and increased the quarterly dividend by 20% to $0.06 per common share. In November 2009, the Company’s board of directors authorized another increase in the quarterly dividend by 33% to $0.08 per share.

In November 2008, the Company’s board of directors authorized a program allowing the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions. During the three months ended December 31, 2009, the Company purchased 2.8 million shares for $68.1 million to complete its authorization under this program. During the three months ended December 31, 2008, the Company purchased 4.7 million shares under this program for $70.2 million and another 1.2 million shares for $18.1 million to complete its authorization under a prior share repurchase program.

In November 2009, the Company’s board of directors authorized a new program allowing the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions. During the three months ended December 31, 2009, the Company purchased 3.0 million shares for $76.4 million under this new program. In January 2010, the Company acquired 1.7 million shares of its common stock totaling $42.9 million.

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods presented plus the dilutive effect of stock options, restricted stock, and restricted stock units.

		Three months ended
		December 31,
(in thousands)		2009				2008
Weighted average common shares outstanding-basic			286,955				308,594
Effect of dilutive securities: stock options, restricted stock, and restricted stock units			4,332				1,584
Weighted average common shares outstanding-diluted			291,287				310,178

The potentially dilutive stock options that were antidilutive for the three months ended December 31, 2009 and 2008 were 3.3 million and 13.0 million, respectively.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 7. Facility Consolidations, Employee Severance and Other

During fiscal 2008, the Company announced a more streamlined organizational structure and introduced an initiative (“cE2”) designed to drive increased customer efficiency and cost effectiveness. In connection with these efforts, the Company has reduced various operating costs and terminated certain positions. During the three months ended December 31, 2008, the Company terminated 122 employees and incurred $1.0 million of employee severance costs. Employees receive their severance benefits over a period of time, generally not in excess of 12 months, or in the form of a lump-sum payment.

The following table displays the activity in accrued expenses and other from September 30, 2009 to December 31, 2009 (in thousands):

		Employee				Lease Cancellation
		Severance				Costs and Other				Total
Balance as of September 30, 2009		$	7,876			$	3,549			$	11,425
Expense recorded during the period			(48	)			—				(48	)
Payments made during the period			(1,627	)			(238	)			(1,865	)
Balance as of December 31, 2009		$	6,201			$	3,311			$	9,512

The employee severance balance set forth in the above table as of December 31, 2009 includes an accrual for the Bergen Brunswig Matter as described in Note 8. The lease cancellation costs and other balance set forth in the above table as of December 31, 2009 primarily consists of an accrual for information technology transition costs payable to IBM Global Services.

Note 8. Legal Matters and Contingencies

In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, government subpoenas, and government investigations, including antitrust, commercial, environmental, product liability, intellectual property, regulatory, employment discrimination, and other matters. Significant damages or penalties may be sought from the Company in some matters, and some matters may require years for the Company to resolve. The Company establishes reserves based on its periodic assessment of estimates of probable losses. There can be no assurance that an adverse resolution of one or more matters during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations for that period or on the Company’s financial condition.

Bergen Brunswig Matter

A former Bergen Brunswig chief executive officer who was terminated in 1999 filed an action that year in the Superior Court of the State of California, County of Orange (the “Superior Court”) claiming that Bergen Brunswig (predecessor in interest to AmerisourceBergen Corporation) had breached its obligations to him under his employment agreement. Shortly after the filing of the lawsuit, Bergen Brunswig made a California Civil Procedure Code § 998 Offer of Judgment to the executive, which the executive accepted. The resulting judgment awarded the executive damages and the continuation of certain employment benefits. Since then, the Company and the executive have engaged in litigation as to what specific benefits were included in the scope of the Offer of Judgment and the value of those benefits. The Superior Court entered an Order in Implementation of Judgment on June 7, 2001, which identified the specific benefits encompassed by the Offer of Judgment. Following submission by the executive of a claim for benefits pursuant to the Bergen Brunswig Supplemental Executive Retirement Plan (the “Plan”), the

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Company followed the administrative procedure set forth in the Plan. This procedure involved separate reviews by two independent parties, the first by the Review Official appointed by the Plan Administrator and second by the Plan Trustee, and resulted in a determination that the executive was entitled to a $1.9 million supplemental retirement benefit and such amount was paid. The executive challenged this award and on July 7, 2006, the Superior Court entered a Second Order in Implementation of Judgment determining that the executive was entitled to a supplemental retirement benefit, net of the $1.9 million previously paid to him, in the amount of $19.4 million, which included interest at the rate of ten percent per annum from August 29, 2001. The Company recorded a charge of $13.9 million in June 2006 to establish the total liability of $19.4 million on its balance sheet. Both the executive and the Company appealed the ruling of the Superior Court. On October 12, 2007, the Court of Appeal for the State of California, Fourth Appellate District (the “Court of Appeal”) made certain rulings, and reversed certain portions of the July 2006 decision of the Superior Court in a manner that was favorable to the Company. As a result, in fiscal 2007, the Company reduced its total liability to the executive by $10.4 million. The parties then entered into a stipulation to remand the calculation of the executive’s supplemental retirement benefit to the Plan Administrator in accordance with the Court of Appeal’s decision of October 12, 2007. On June 10, 2008, the Plan Administrator issued a decision that the executive was entitled to receive approximately $6.9 million in supplemental retirement benefits plus interest, less the $1.9 million already paid to the executive under the Plan. The executive appealed this determination and a hearing on his appeal was held in August 2008 before a Review Official appointed by the Plan Administrator. On October 31, 2008, the Review Official issued a decision affirming in most respects the Plan Administrator’s determination of the executive’s supplemental retirement benefit. On November 17, 2008, the executive filed a motion for a Third Order in Implementation of Judgment with the Superior Court asking the court to overturn the decision of the Review Official. On March 9, 2009, the Company paid the executive approximately $5.6 million, plus interest, for the executive’s supplemental retirement benefit, as determined by the Review Official. On April 9, 2009, the Superior Court affirmed most aspects of the Review Official’s determination of decision, but held that the Review Official had abused his discretion by discounting the executive’s supplemental retirement benefit to its present value. As a result, the Superior Court held that the executive was entitled to an additional supplemental retirement benefit of approximately $6.6 million, plus interest, beyond what has already been paid by the Company. During the fiscal year ended September 30, 2009, the Company accrued an additional $2.2 million related to this matter. The Company believes that the Superior Court’s holding is inconsistent with the 2007 Court of Appeal decision and on May 4, 2009, filed a Notice of Appeal appealing the Superior Court’s holding. The executive also appealed the Superior Court’s holding.

Ontario Ministry of Health and Long-Term Care Civil Rebate Payment Order and Civil Complaint

On April 27, 2009, the Ontario Ministry of Health and Long-Term Care (“OMH”) notified the Company’s Canadian subsidiary, AmerisourceBergen Canada Corporation (“ABCC”), that it had entered a Rebate Payment Order requiring ABCC to pay C$5.8 million to the Ontario Ministry of Finance. OMH maintains that it has reasonable grounds to believe that ABCC accepted rebates, directly or indirectly, in violation of the Ontario Drug Interchangeability and Dispensing Fee Act. OMH at the same time announced similar rebate payment orders against other wholesalers, generic manufacturers, pharmacies, and individuals. ABCC was cooperating fully with OMH prior to the entry of the Order by responding fully to requests for information and/or documents and will continue to cooperate. ABCC filed an appeal of the Order pursuant to OMH procedures in May 2009. In addition, on the same day that the Order was issued, OMH notified ABCC that it had filed a civil complaint with Health Canada (department of the Canadian government responsible for national public health) against ABCC for potential violations of the Canadian Food and Drug Act. Health Canada subsequently conducted an audit of ABCC, and ABCC has cooperated fully with Health Canada in the conduct of the audit. The Company has met several times with representatives of OMH to present its position on the Rebate Payment Order. Although ABCC believes that it has not violated the relevant statutes and regulations and has conducted its business consistent with widespread industry practices, it cannot predict the outcome of these matters.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Qui Tam Matter

On October 30, 2009, 14 states (including New York and Florida) and the District of Columbia filed a complaint (the “Intervention Complaint”) in the United States District Court for the District of Massachusetts (the “Federal District Court”) naming Amgen Inc. as well as two business units of AmerisourceBergen Specialty Group, AmerisourceBergen Specialty Group, and AmerisourceBergen Corporation as defendants. The Intervention Complaint was filed to intervene in a pending civil case against the defendants filed under the qui tam provisions of the federal and various state civil False Claims Acts (the “Original Qui Tam Complaint”). The qui tam provisions permit a private person, known as a “relator” (i.e. whistleblower), to file civil actions under these statutes on behalf of the federal and state governments. The relator in the Original Complaint is a former Amgen employee. The Office of the New York Attorney General is leading the intervention on behalf of the state governments.

The Original Qui Tam Complaint was initially filed under seal. On January 21, 2009, the Company learned that the United States Attorney for the Eastern District of New York (the “DOJ”) was investigating allegations in a sealed civil complaint filed in the Federal District Court under the qui tam provisions of the federal civil False Claims Act. In February 2009, the Company received a redacted copy of the then current version of the Original Qui Tam Complaint, pursuant to a court order. However, the Company was never served with the Original Qui Tam Complaint. Based upon the disclosed portions of the redacted complaint, it appears that the relator initially filed the action on or about June 5, 2006 and a first amendment thereto on or about July 2, 2007. On May 18, 2009, the Federal District Court extended the time period for federal and state government authorities to conduct their respective investigations and to decide whether to intervene in the civil action. On September 1, 2009, 14 states and the District of Columbia filed notices of their intent to intervene. The 14 states and the District of Columbia were given leave by the Federal District Court to file a complaint within 60 days, or by October 30, 2009. The DOJ filed a notice that it was not intervening as of September 1, 2009, but stated that its investigation is continuing. The Company has received subpoenas for records issued by the DOJ in connection with its investigation. The Company has been cooperating with the DOJ and is producing records in response to the subpoenas.

Both the Intervention Complaint and the Original Qui Tam Complaint, as amended on October 30, 2009, allege that from 2002 through 2009, Amgen offered remuneration to medical providers in violation of federal and state health laws to increase purchases and prescriptions of Amgen’s anemia drug, Aranesp. Specifically with regard to the Company’s business units, the complaints allege that ASD Specialty Healthcare, Inc., which is a distributor of pharmaceuticals to physician practices (“ASD”), and International Nephrology Network, which was a business name for one of the Company’s subsidiaries and a group purchasing organization for nephrologists and nephrology practices (“INN”), conspired with Amgen to promote Aranesp in violation of federal and state health laws. The complaints further allege that the defendants caused medical providers to submit to state Medicaid programs false certifications and false claims for payment for Aranesp. According to the complaints, the latter conduct allegedly violated state civil False Claims Acts and constituted fraud and unjust enrichment. The Original Qui Tam Complaint, as amended, also alleges that the defendants caused medical providers to submit to other federal health programs, including Medicare, false certifications and false claims for payment for Aranesp.

On December 17, 2009, the states and the relator both filed amended complaints. The State of Texas, which was not one of the original 14 states intervening in the action, joined in the amended complaint. On January 20, 2010, the States of Florida and Texas filed notices to voluntarily dismiss the Intervention Complaint, as amended, leaving 13 states and the District of Columbia as intervenors. The Company intends to defend itself vigorously against the allegations contained in the Intervention Complaint and the Original Qui Tam Complaint, as amended, and on February 1, 2010, the Company filed a motion to dismiss the complaints. The Company has learned that there are filings in another federal district, which are under seal, that contain allegations similar to those in the pending civil action. The Company cannot predict the outcome of either the pending civil action or the DOJ investigation or the potential outcome of any other action involving similar allegations in which any AmerisourceBergen entity is a defendant.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9. Litigation Settlements

Antitrust Settlements

During the last several years, numerous class action lawsuits have been filed against certain brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. The Company has not been a named plaintiff in any of these class actions, but has been a member of the direct purchasers’ class (i.e., those purchasers who purchase directly from these pharmaceutical manufacturers). None of the class actions has gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement funds. Currently, there are several such class actions pending in which the Company is a class member. During the three months ended December 31, 2009, the Company recognized a gain of $1.5 million relating to the above-mentioned class action lawsuits. The gain, which was net of attorney fees and estimated payments due to other parties, was recorded as a reduction to cost of goods sold in the Company’s consolidated statements of operations.

Note 10. Financial Instruments

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable at December 31, 2009 and September 30, 2009 approximated their fair values due to the short-term nature of these financial instruments. Included in cash and cash equivalents at December 31, 2009 and September 30, 2009 are money market fund investments of $859.7 million and $928.3 million, respectively, which are reported at fair value. The fair value of these investments was determined by using quoted prices for identical investments in active markets which are considered to be Level 1 inputs under ASC 820-10, “Fair Value Measurements and Disclosures.”

The carrying amounts and fair values of the Company’s debt were $1,375.8 million and $1,452.3 million at December 31, 2009 and $1,178.0 million and $1,246.4 million at September 30, 2009. The fair value of the Company’s debt was determined using quoted market prices that were derived from available market information.

Note 11. Selected Consolidating Financial Statements of Parent, Guarantors and Non-Guarantors

The Company’s 5 5/8% senior notes due September 15, 2012 (the “2012 Notes”), 5 7/8% senior notes due September 15, 2015 (the “2015 Notes”), and 4 7/8% senior notes due November 15, 2019 (the “2019 Notes” and, together with the 2012 Notes and 2015 Notes, the “Notes”) each are fully and unconditionally guaranteed on a joint and several basis by certain of the Company’s subsidiaries (the subsidiaries of the Company that are guarantors of the Notes being referred to collectively as the “Guarantor Subsidiaries”). The total assets, stockholders’ equity, revenue, earnings, and cash flows from operating activities of the Guarantor Subsidiaries reflect the majority of the consolidated total of such items as of or for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of the Notes (the “Non-Guarantor Subsidiaries”) are: (a) the receivables securitization special purpose entity, (b) the foreign operating subsidiaries, and (c) certain smaller operating subsidiaries. The following tables present condensed consolidating financial statements including AmerisourceBergen Corporation (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of December 31, 2009 and September 30, 2009, statements of operations for the three months ended December 31, 2009 and 2008, and statements of cash flows for the three months ended December 31, 2009 and 2008.

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

SUMMARY CONSOLIDATING BALANCE SHEETS:

		December 31, 2009
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Current assets:
Cash and cash equivalents		$	857,093			$	89,916			$	32,558			$	—			$	979,567
Accounts receivable, net			49				1,141,152				2,399,718				—				3,540,919
Merchandise inventories			—				5,229,511				132,340				—				5,361,851
Prepaid expenses and other			161				31,319				2,314				—				33,794
Total current assets			857,303				6,491,898				2,566,930				—				9,916,131
Property and equipment, net			—				612,073				29,836				—				641,909
Goodwill and other intangible assets			—				2,718,759				138,483				—				2,857,242
Other assets			13,030				127,243				716				—				140,989
Intercompany investments and advances			2,891,342				1,360,398				94,681				(4,346,421	)			—
Total assets		$	3,761,675			$	11,310,371			$	2,830,646			$	(4,346,421	)		$	13,556,271
Current liabilities:
Accounts payable		$	—			$	8,063,686			$	161,871			$	—			$	8,225,557
Accrued expenses and other			(273,455	)			622,478				6,807				—				355,830
Current portion of long-term debt			—				347				246				—				593
Deferred income taxes			—				661,468				—				—				661,468
Total current liabilities			(273,455	)			9,347,979				168,924				—				9,243,448
Long-term debt, net of current portion			1,294,269				361				80,626				—				1,375,256
Other liabilities			—				193,949				2,757				—				196,706
Total stockholders’ equity			2,740,861				1,768,082				2,578,339				(4,346,421	)			2,740,861
Total liabilities and stockholders’ equity		$	3,761,675			$	11,310,371			$	2,830,646			$	(4,346,421	)		$	13,556,271

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

SUMMARY CONSOLIDATING BALANCE SHEETS:

		September 30, 2009
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Current assets:
Cash and cash equivalents		$	927,049			$	58,900			$	23,419			$	—			$	1,009,368
Accounts receivable, net			66				1,292,822				2,623,621				—				3,916,509
Merchandise inventories			—				4,856,637				116,183				—				4,972,820
Prepaid expenses and other			67				52,816				2,173				—				55,056
Total current assets			927,182				6,261,175				2,765,396				—				9,953,753
Property and equipment, net			—				589,838				29,400				—				619,238
Goodwill and other intangible assets			—				2,719,324				139,740				—				2,859,064
Other assets			9,645				129,817				1,223				—				140,685
Intercompany investments and advances			2,405,087				1,938,742				(152,302	)			(4,191,527	)			—
Total assets		$	3,341,914			$	11,638,896			$	2,783,457			$	(4,191,527	)		$	13,572,740
Current liabilities:
Accounts payable		$	—			$	8,360,776			$	156,386			$	—			$	8,517,162
Accrued expenses and other			(271,952	)			581,354				6,255				—				315,657
Current portion of long-term debt			—				346				722				—				1,068
Deferred income taxes			—				645,723				—				—				645,723
Total current liabilities			(271,952	)			9,588,199				163,363				—				9,479,610
Long-term debt, net of current portion			897,397				412				279,124				—				1,176,933
Other liabilities			—				197,496				2,232				—				199,728
Total stockholders’ equity			2,716,469				1,852,789				2,338,738				(4,191,527	)			2,716,469
Total liabilities and stockholders’ equity		$	3,341,914			$	11,638,896			$	2,783,457			$	(4,191,527	)		$	13,572,740

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

		Three months ended December 31, 2009
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Revenue		$	—			$	18,906,972			$	428,887			$	—			$	19,335,859
Cost of goods sold			—				18,363,112				409,377				—				18,772,489
Gross profit			—				543,860				19,510				—				563,370
Operating expenses:
Distribution, selling and administrative			—				293,595				(13,356	)			—				280,239
Depreciation			—				15,827				831				—				16,658
Amortization			—				3,260				879				—				4,139
Facility consolidations, employee severance and other			—				(48	)			—				—				(48	)
Operating income			—				231,226				31,156				—				262,382
Other loss (income)			—				279				(2	)			—				277
Interest expense, net			550				13,585				3,132				—				17,267
(Loss) income before income taxes and equity in earnings of subsidiaries			(550	)			217,362				28,026				—				244,838
Income taxes			(193	)			83,535				10,189				—				93,531
Equity in earnings of subsidiaries			151,664				—				—				(151,664	)			—
Net income		$	151,307			$	133,827			$	17,837			$	(151,664	)		$	151,307

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

		Three months ended December 31, 2008
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Revenue		$	—			$	16,974,597			$	363,780			$	—			$	17,338,377
Cost of goods sold			—				16,503,219				345,310				—				16,848,529
Gross profit			—				471,378				18,470				—				489,848
Operating expenses:
Distribution, selling and administrative			—				284,846				(12,820	)			—				272,026
Depreciation			—				14,349				704				—				15,053
Amortization			—				3,146				710				—				3,856
Facility consolidations, employee severance and other			—				1,029				—				—				1,029
Operating income			—				168,008				29,876				—				197,884
Other loss			—				429				—				—				429
Interest (income) expense, net			(2,171	)			12,454				3,900				—				14,183
Income from continuing operations before income taxes and equity in earnings of subsidiaries			2,171				155,125				25,976				—				183,272
Income taxes			760				60,701				9,282				—				70,743
Equity in earnings of subsidiaries			109,645				—				—				(109,645	)			—
Income from continuing operations			111,056				94,424				16,694				(109,645	)			112,529
Loss from discontinued operations			—				(1,473	)			—				—				(1,473	)
Net income		$	111,056			$	92,951			$	16,694			$	(109,645	)		$	111,056

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:

		Three months ended December 31, 2009
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Net income		$	151,307			$	133,827			$	17,837			$	(151,664	)		$	151,307
Adjustments to reconcile net income to net cash (used in) provided by operating activities			(152,529	)			(408,333	)			216,202				151,664				(192,996	)
Net cash (used in) provided by operating activities			(1,222	)			(274,506	)			234,039				—				(41,689	)
Capital expenditures			—				(41,388	)			(1,186	)			—				(42,574	)
Other			—				15				112				—				127
Net cash used in investing activities			—				(41,373	)			(1,074	)			—				(42,447	)
Long-term debt borrowings			396,696				—				—				—				396,696
Net repayments under revolving and securitization credit facilities			—				—				(201,630	)			—				(201,630	)
Purchases of common stock			(144,626	)			—				—				—				(144,626	)
Exercise of stock options, including excess tax benefit			30,416				—				—				—				30,416
Cash dividends on common stock			(23,149	)			—				—				—				(23,149	)
Debt issuance costs and other			(4,110	)			741				(3	)			—				(3,372	)
Intercompany financing and advances			(323,961	)			346,154				(22,193	)			—				—
Net cash (used in) provided by financing activities			(68,734	)			346,895				(223,826	)			—				54,335
(Decrease) increase in cash and cash equivalents			(69,956	)			31,016				9,139				—				(29,801	)
Cash and cash equivalents at beginning of period			927,049				58,900				23,419				—				1,009,368
Cash and cash equivalents at end of period		$	857,093			$	89,916			$	32,558			$	—			$	979,567

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:

		Three months ended December 31, 2008
						Guarantor				Non-Guarantor								Consolidated
(in thousands)		Parent				Subsidiaries				Subsidiaries				Eliminations				Total
Net income		$	111,056			$	92,951			$	16,694			$	(109,645	)		$	111,056
Loss from discontinued operations			—				1,473				—				—				1,473
Income from continuing operations			111,056				94,424				16,694				(109,645	)			112,529
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities			(109,608	)			(236,694	)			(179,987	)			109,645				(416,644	)
Net cash provided by (used in) operating activities — continuing operations			1,448				(142,270	)			(163,293	)			—				(304,115	)
Net cash used in operating activities — discontinued operations			—				(251	)			—				—				(251	)
Net cash provided by (used in) operating activities			1,448				(142,521	)			(163,293	)			—				(304,366	)
Capital expenditures			—				(38,325	)			(4,019	)			—				(42,344	)
Proceeds from the sale of PMSI			—				14,936				—				—				14,936
Net cash used in investing activities — continuing operations			—				(23,389	)			(4,019	)			—				(27,408	)
Net cash used in investing activities — discontinued operations			—				(1,138	)			—				—				(1,138	)
Net cash used in investing activities			—				(24,527	)			(4,019	)			—				(28,546	)
Net borrowings under revolving and securitization credit facilities			—				—				27,519				—				27,519
Purchases of common stock			(88,352	)			—				—				—				(88,352	)
Deferred financing costs and other			—				835				(47	)			—				788
Exercise of stock options, including excess tax benefit			1,331				—				—				—				1,331
Cash dividends on common stock			(15,571	)			—				—				—				(15,571	)
Intercompany financing and advances			(285,696	)			152,480				133,216				—				—
Net cash (used in) provided by financing activities			(388,288	)			153,315				160,688				—				(74,285	)
Decrease in cash and cash equivalents			(386,840	)			(13,733	)			(6,624	)			—				(407,197	)
Cash and cash equivalents at beginning of period			719,570				100,623				57,921				—				878,114
Cash and cash equivalents at end of period		$	332,730			$	86,890			$	51,297			$	—			$	470,917

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein and in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.

In May 2009, we declared a two-for-one stock split of our outstanding shares of common stock. The stock split occurred in the form of a 100% stock dividend, whereby each stockholder received one additional share for each share owned. The shares were distributed on June 15, 2009 to stockholders of record at the close of business on May 29, 2009. All applicable share and per share data in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have been retroactively adjusted to give effect to this stock split.

We are a pharmaceutical services company providing drug distribution and related healthcare services and solutions to our pharmacy, physician, and manufacturer customers, which are based primarily in the United States and Canada. Substantially all of our operations are located in the United States and Canada. We also have a pharmaceutical packaging operation in the United Kingdom.

We have three operating segments, which include the operations of AmerisourceBergen Drug Corporation (“ABDC”), AmerisourceBergen Specialty Group (“ABSG”), and AmerisourceBergen Packaging Group (“ABPG”). We have aggregated the operating results of ABDC, ABSG, and ABPG into one reportable segment, Pharmaceutical Distribution, which represents the consolidated operating results of the Company. Servicing both healthcare providers and pharmaceutical manufacturers in the pharmaceutical supply channel, the Pharmaceutical Distribution segment’s operations provide drug distribution and related services designed to reduce healthcare costs and improve patient outcomes.

Prior to October 1, 2009, management considered gains on antitrust litigation settlements and costs related to facility consolidations, employee severance and other, to be reconciling items between the operating results of Pharmaceutical Distribution and the Company.

ABDC distributes a comprehensive offering of brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and other alternate site pharmacies, and other customers. ABDC also provides pharmacy management, staffing and other consulting services; scalable automated pharmacy dispensing equipment; medication and supply dispensing cabinets; and supply management software to a variety of retail and institutional healthcare providers.

ABSG, through a number of individual operating businesses, provides pharmaceutical distribution and other services primarily to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including dialysis clinics. ABSG also distributes vaccines, other injectables, and plasma and other blood products. In addition, through its specialty services businesses, ABSG provides drug commercialization services, third party logistics, and other services for biotech and other pharmaceutical manufacturers, as well as reimbursement consulting, data analytics, outcomes research, practice management, and group purchasing services for physician practices.

ABPG consists of American Health Packaging, Anderson Packaging (“Anderson”), and Brecon Pharmaceuticals Limited (“Brecon”). American Health Packaging delivers unit dose, punch card, unit-of-use, and other packaging solutions to institutional and retail healthcare providers. American Health Packaging’s largest customer is ABDC and, as a result, its operations are closely aligned with the operations of ABDC. Anderson is a leading provider of contract packaging services for pharmaceutical manufacturers. Brecon is a United Kingdom-based provider of contract packaging and clinical trials materials services for pharmaceutical manufacturers.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary Financial Information

		Quarter ended December 31,
(dollars in thousands)		2009				2008				Change
Revenue		$	19,335,859			$	17,338,377				12	%
Gross profit		$	563,370			$	489,848				15	%
Operating income		$	262,382			$	197,884				33	%
Percentages of revenue:
Gross profit			2.91	%			2.83	%
Operating expenses			1.56	%			1.68	%
Operating income			1.36	%			1.14	%