## Management’ Discussion and Analysis of Financial Condition and Results of Operations 

Merger-Related Charges. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger-related costs when incurred. The merger-related costs are primarily a result of the merger transactions with ALP, Allegiance and Scherer. 

During the fiscal years presented in the table herein, the Company incurred direct transaction costs related to its merger transactions. These expenses primarily include investment banking, legal, accounting and other professional fees associated with the r espective merger transactions. In addition, the Company incur red employee- related costs, which consist primarily of severance and transaction/stay bonuses as a result of the ALP, Allegiance and Scherer merger transactions. Partially offsetting the transaction and employee-related costs recorded during the fiscal year ended June 30, 2000 was a $10.3 million credit to adjust the estimated transaction and employee- related costs previously recorded in connection with the Allegiance merger transaction. Actual billings and employee - related costs were less than the amounts originally antici - pated, resulting in a reduction of the merger-related costs. Exit costs relate primarily to costs associated with lease terminations and moving expenses as a dir ect result of the merger transactions with ALP, Allegiance and Scherer. Other integration costs include charges related to integrat- ing the operations of previous merger transactions. 

The Company recorded charges of $9.6 million and $26.7 million during the fiscal years ended June 30, 2000 and 1999, respectively, associated with the business restructuring as a result of the Company’s merger transac- tion with Scherer. As part of the business restructuring, the Company is closing certain facilities. In connection with such closings, the Company has incur red employee-related costs, asset impairment charges and exit costs related to the termination of contracts and lease agr eements. 

Charges of $4.0 million related to the write-down of impaired inventory associated with the merger transac- tion with Owen Healthcare, Inc. (“Owen”) were recorded during the fiscal year ended June 30, 1999. Also, during fiscal 1999, the Company recorded $1.1 million related to severance costs for a r estructuring associated with the change in management that resulted from the merger transaction with Owen. Partially offsetting the total merger- related charges for fiscal 1999 was a cr edit recorded to adjust the estimated transaction and ter mination costs previously recorded in connection with the canceled mer ger transaction with Bergen Brunswig Corporation (“Bergen”) (see Note 15 of “Notes to Consolidated Financial State - ments”). The actual billings for ser vices provided by third parties engaged by the Company wer e less than the esti- mate, resulting in a reduction of the merger-related costs. 

Other Special Charges. During fiscal 1998, the Com- pany recorded a special charge of $8.6 million related to the rationalization of its phar maceutical distribution operations. Approximately $6.1 million related to asset impairments and lease exit costs r esulting primarily from the Company’s decision to accelerate the consolidation of a number of distribution facilities and the r elocation to more modern facilities for certain others. The remaining amount related to employee severance costs, including approximately $2.0 million incurred in connection with the settlement of a labor dispute with for mer employees of the Company’s Boston pharmaceutical distribution facility, resulting in termination of the union relationship. 

During fiscal 1998, Scherer, along with its joint ven - ture partner, converted the legal ownership structure of Scherer’s 51% owned subsidiary in Germany from a corporation to a partnership. As a result of this change in tax status, the Company’s tax basis in the Ger man sub- sidiary was adjusted, resulting in a one-time tax r efund of approximately $4.6 million, as well as a r eduction in the cash taxes to be paid in the cur rent and future years. Combined, these factors reduced fiscal 1998 income tax expense by $11.7 million. 

Pro Forma Impact. Since April 1998, ALP has been organized as an S-Corporation for tax purposes. Accor d- ingly, ALP was not subject to federal income tax fr om April 1998 up to the date of the mer ger transaction. For the fis- cal years ended 1999 and 1998, net ear nings would have been reduced by $9.3 million and $4.6 million, r espec- tively, if ALP had been subject to federal income taxes. 

The effects of the merger-related costs and other spe- cial charges recorded, as well as the pr o forma adjustments related to ALP tax treatment was to reduce net earnings by $49.8 million to $679.7 million in fiscal 2000, by $108.3 million to $481.0 million in fiscal 1999, and by $19.5 million to $448.5 million in fiscal 1998. The effect of such charges reduced reported diluted earnings per Common Share by $0.18 to $2.39 in fiscal 2000, by $0.38 to $1.68 in fiscal 1999 and by $0.06 to $1.58 in fiscal 1998. 

The Company estimates that it will incur additional merger-related costs associated with the various mer ger transactions it has completed to date totaling appr oxi- mately $69.4 million ($45.1 million, net of tax) in futur e periods in order to properly integrate operations, of which a portion represents facility rationalizations, and imple- ment efficiencies with regard to, among other things, information systems, customer systems, marketing pr o- grams and administrative functions. Such amounts will be charged to expense when incurred. 

The Company’s trend with regard to acquisitions has been to expand its role as a provider of services to the 

