AmerisourceBergen 2005 Annual Report Download - page 50

AmerisourceBergen Corporation 2005
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Note 13. Antitrust Litigation Settlements
During the fiscal years ended September 30, 2005 and 2004,
the Company recognized gains of $40.1 million and $38.0 million,
respectively, from antitrust litigation settlements with pharmaceutical
manufacturers. These gains, which are net of attorney fees and
estimated payments due to other parties, were recorded as reductions
to cost of goods sold in the Company’s consolidated statements
of operations for the fiscal year ended September 30, 2005 and
2004, respectively.
Note 14. Business Segment Information
The Company is organized based upon the products and services
it provides to its customers, and substantially all of its operations are
located in the United States. The Company’s operations are comprised of
two reportable segments: Pharmaceutical Distribution and PharMerica.
The Pharmaceutical Distribution reportable segment includes the
operations of ABDC and AmerisourceBergen Specialty and Packaging
groups. The operations of the former AmerisourceBergen Technology
Group became a part of the overall ABDC operations in fiscal 2005.
The Pharmaceutical Distribution reportable segment is comprised of
two operating segments: ABDC and the AmerisourceBergen Specialty
Group (“ABSG”). The ABDC operating segment includes the operations
oftheAmerisourceBergen Packaging Group.
ThePharMerica reportable segment includes the operations of
the PharMerica long-term care business (“Long-Term Care”) and a
workers’ compensation-related business (“Workers’ Compensation”).
The PharMerica reportable segment encompasses only the PharMerica
operating segment.
In accordance with FAS 131, we have aggregated the operating
segment of ABDC and the operating segment of ABSG into one
reportable segment, the Pharmaceutical Distribution segment. Our
decision to aggregate these two operating segments into one
reportable segmentwas based on:
• the objective and basic principles of FAS 131,
•the Aggregation Criteriaas noted in paragraph 17 of FAS 131 and
• the fact that ABDC and ABSG have similar economic characteristics.
The chief operating decision maker for the Pharmaceutical
Distribution segmentis thePresident and Chief Operating Officer of the
Company whose function is to allocate resources to, and assess the
performance of, the ABDC and ABSG operating segments. The President
of ABDC and the President of ABSG each function as operating segment
managers whose roles include reporting directly to the President and
Chief Operating Officer of the Company on their respective operating
segment’s business activities, financial results and operating plans.
The businesses of the Pharmaceutical Distribution operating
segments are similar. These segments service both pharmaceutical
manufacturers and healthcare providers in the pharmaceutical supply
channel. The warehousing and distribution of pharmaceutical drugs,
which are purchased from the same suppliers, is the primary business
activity of both operating segments. The distribution of pharmaceutical
drugs represented approximately 98.0%, 98.3%, and 98.8% of the
Pharmaceutical Distribution segment’s total operating revenue for the
fiscal years ended September 30, 2005, 2004 and 2003, respectively.
ABDC and ABSG both operate in a high volume and low margin
environment and, as a result, their economic characteristics are
similar. Both operating segments warehouse and distribute products
in a similar manner. Additionally, both operating segments are
subject to thesame extensive regulatory environment under which
the pharmaceutical distribution industry operates.
ABDC distributes a comprehensive offering of brand name and
generic pharmaceuticals, over-the-counter healthcare products,
and home healthcare supplies and equipment to a wide variety of
healthcare providers, including acute care hospitals and health
systems, independent and chain retail pharmacies, mail order facilities,
physicians, clinics and other alternate site facilities, and skilled
nursing and assisted living centers.
ABSG, through a number of individual operating businesses,
provides distribution and other services, including group purchasing
services, to physicians and alternate care providers who specialize in
avariety of disease states, including oncology, nephrology, and
rheumatology. ABSG also distributes vaccines, other injectables and
plasma. In addition, through its manufacturer services and physician
and patient services businesses, ABSG provides a number of
commercialization and other services for biotech and other
pharmaceutical manufacturers, third party logistics, reimbursement
consulting, practice management, and physician education.
ABDC also provides scalable automated pharmacy dispensing
equipment, medication and supply dispensing cabinets and supply
management software to a variety of retail and institutional
healthcare providers.
The AmerisourceBergen Packaging Group consists of American
Health Packaging and Anderson Packaging (“Anderson”). American
Health Packaging delivers unit dose, punch card, unit-of-use and
other packaging solutions to institutional and retail healthcare
providers. Anderson is a leading provider of contracted packaging
services for pharmaceutical manufacturers.
Long-Term Careis a leading national provider of pharmacy
products and services to patients in long-term care and alternate site
settings, including skilled nursing facilities, assisted living facilities
and residential living communities. Long-Term Care’s institutional
pharmacy business involves the purchase of bulk quantities of
prescription and nonprescription pharmaceuticals, principally from
our Pharmaceutical Distribution segment, and the distribution of those
products to residents in long-term care and alternate site facilities.
Unlike hospitals, most long-term and alternate care facilities do not
have onsite pharmacies to dispense prescription drugs, but depend
instead on institutional pharmacies, such as Long-Term Care, to provide
the necessary pharmacy products and services and to play an integral
role in monitoring patient medication. Long-Term Care pharmacies
dispense pharmaceuticals in patient-specific packaging in accordance
with physician orders. In addition, Long-Term Care provides infusion
therapy services and Medicare Part B products, as well as formulary
management and other pharmacy consulting services.
Workers’ Compensation provides mail order and on-line pharmacy
services to chronically and catastrophically ill patients under workers’
compensation programs, and provides pharmaceutical claims
administration services for payors. Workers’ Compensation services
include home delivery of prescription drugs, medical supplies and
equipment and an array of computer software solutions to reduce
the payor’s administrative costs.