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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended January 2, 2009

or



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

For the transition period from              to

Commission File Number 0-23832





PSS WORLD MEDICAL, INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-2280364                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



|                                         |  |           
|---------------------------------------- |  | ----------
|4345 Southpoint Blvd.                    |  |           
|Jacksonville, Florida                    |  | 32216     
|(Address of principal executive offices) |  | (Zip code)

Registrants telephone number, including area code (904) 332-3000





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.    x  Yes     ̈  No

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  | x |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  |  ̈

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

The number of shares of common stock, par value $0.01 per share, of the registrant outstanding as of February 6, 2009 was 60,533,160 shares.









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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

JANUARY 2, 2009

TABLE OF CONTENTS



|     |  |                                                                                                                                      |  |     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Item |  |                                                                                                                                      |  | Page
|     |  | Information Regarding Forward-Looking Statements                                                                                     |  | 1   
|     |  |                                                                                                                                     
|     |  | Part IFinancial Information                                                                                                         |  |     
|     |  |                                                                                                                                     
|1.   |  | Financial Statements:                                                                                                                |  |     
|     |  |                                                                                                                                     
|     |  | Unaudited Condensed Consolidated Balance Sheets January 2, 2009 and March 28, 2008                                                  |  | 2   
|     |  |                                                                                                                                     
|     |  | Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 2, 2009 and December
 28, 2007 |  | 3   
|     |  |                                                                                                                                     
|     |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 2, 2009 and December 28, 2007            |  | 4   
|     |  |                                                                                                                                     
|     |  | Unaudited Notes to Condensed Consolidated Financial Statements                                                                       |  | 5   
|     |  |                                                                                                                                     
|2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                |  | 18  
|     |  |                                                                                                                                     
|3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                                           |  | 31  
|     |  |                                                                                                                                     
|4.   |  | Controls and Procedures                                                                                                              |  | 31  
|     |  |                                                                                                                                     
|     |  | Part IIOther Information                                                                                                            |  |     
|     |  |                                                                                                                                     
|1A.  |  | Risk Factors                                                                                                                         |  | 31  
|     |  |                                                                                                                                     
|2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                          |  | 32  
|     |  |                                                                                                                                     
|6.   |  | Exhibits                                                                                                                             |  | 34  
|     |  |                                                                                                                                     
|     |  | Signature                                                                                                                            |  | 35  



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CAUTIONARY STATEMENTS

Forward-Looking Statements

Management may from time-to-time make written or oral statements
with respect to the Companys annual or long-term goals, including statements contained in this Quarterly Report on Form 10-Q, the Annual Report on Form 10-K for the fiscal year ended March 28, 2008, Reports on Form 8-K, and
reports to shareholders that are forward-looking statements within the meaning, and subject to the protections of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could
cause actual results to differ materially from historical earnings and those currently anticipated or projected. Management cautions readers not to place undue reliance on any of the Companys forward-looking statements, which speak only as of
the date made.

Words such as anticipates, expects, intends, plans, believes,
seeks, estimates, may, could, assumes, should, indicates, projects, targets and similar expressions identify forward-looking statements.
Forward-looking statements contained in this Quarterly Report on Form 10-Q that involve risks and uncertainties include, without limitation:



| |  | Managements expectation that cash flows from operations, in conjunction with borrowings under the revolving line of credit, capital markets, and/or other
financing arrangements will fund future working capital needs, capital expenditures, and the overall growth in the business; and its belief that the Company continues to be well positioned to weather the current crisis in the financial markets;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Managements expectation to use up to $150 million of the net proceeds from its August 4, 2008 debt issuance on or before March 15, 2024, when
holders of the notes have the option to require the Company to redeem all or part of the outstanding 2.25% notes, with remaining proceeds used for general corporate purposes;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Managements belief that the outcome of legal proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the
Companys consolidated financial position, liquidity, or results of operations;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Managements expectation that remaining Federal and state net operating loss carryforwards will be utilized prior to their expiration date
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, management is
identifying important factors that could affect the Companys financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current
statements about the Companys goals or expectations. The Companys future results could be adversely affected by a variety of factors, including those discussed in Item 1A-Risk Factors in the Companys 2008 Form 10-K
and this Form 10-Q. In addition, all forward-looking statements that are made by or attributable to the Company are qualified in their entirety by and should be read in conjunction with this cautionary notice and the risks described or referred to
in Item 1A-Risk Factors of the Companys 2008 Form 10-K and this Form 10-Q. The Company has no obligation to and does not undertake to update, revise, or correct any of the forward-looking statements after the date of this
report, or after the respective dates on which such statements are made.



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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

JANUARY 2, 2009 AND MARCH 28, 2008

(Dollars in Thousands)



|                                                                                                                                                                                |  |            |           |           |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | --------- | --------- | - | -------
|                                                                                                                                                                                |  | January 2, |           | March 28,
|                                                                                                                                                                                |  | 2009       |           | 2008     
|ASSETS                                                                                                                                                                         
|Current Assets:                                                                                                                                                                 |  |            |           |           |   |        
|Cash and cash equivalents                                                                                                                                                       |  | $          | 214,709   |           | $ | 21,122 
|Accounts receivable, net of allowance for doubtful accounts of $7,770 and $7,011 as of January 2, 2009 and March 28, 2008,
respectively                                         |  |            | 232,894   |           |   | 237,248
|Inventories                                                                                                                                                                     |  |            | 239,940   |           |   | 190,846
|Prepaid expenses                                                                                                                                                                |  |            | 3,420     |           |   | 3,146  
|Other current assets                                                                                                                                                            |  |            | 19,815    |           |   | 56,086 
|                                                                                                                                                                                |  |            |           |           |   |        
|Total current assets                                                                                                                                                            |  |            | 710,778   |           |   | 508,448
|Property and equipment, net of accumulated depreciation of $100,585 and $88,498 as of January 2, 2009 and March 28, 2008,
respectively                                          |  |            | 96,088    |           |   | 90,680 
|Other Assets:                                                                                                                                                                   |  |            |           |           |   |        
|Goodwill                                                                                                                                                                        |  |            | 112,717   |           |   | 110,679
|Intangibles, net of accumulated amortization of $19,034 and $17,834 as of January 2, 2009 and March 28, 2008,
respectively                                                      |  |            | 23,102    |           |   | 26,305 
|Investment in available for sale securities                                                                                                                                     |  |            | 15,333    |           |   | 11,318 
|Other                                                                                                                                                                           |  |            | 91,689    |           |   | 67,395 
|                                                                                                                                                                                |  |            |           |           |   |        
|Total assets                                                                                                                                                                    |  | $          | 1,049,707 |           | $ | 814,825
|                                                                                                                                                                                |  |            |           |           |   |        
|                                                                                                                                                                               
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                           
|Current Liabilities:                                                                                                                                                            |  |            |           |           |   |        
|Accounts payable                                                                                                                                                                |  | $          | 155,133   |           | $ | 135,930
|Accrued expenses                                                                                                                                                                |  |            | 43,170    |           |   | 46,056 
|Current portion of long-term debt                                                                                                                                               |  |            | 151,007   |           |   | 150,987
|Revolving line of credit                                                                                                                                                        |  |            | 50,000    |           |   | 70,000 
|Other                                                                                                                                                                           |  |            | 13,135    |           |   | 11,969 
|                                                                                                                                                                                |  |            |           |           |   |        
|Total current liabilities                                                                                                                                                       |  |            | 412,445   |           |   | 414,942
|Long-term debt, excluding current portion                                                                                                                                       |  |            | 232,033   |           |   | 725    
|Other noncurrent liabilities                                                                                                                                                    |  |            | 56,503    |           |   | 64,130 
|                                                                                                                                                                                |  |            |           |           |   |        
|Total liabilities                                                                                                                                                               |  |            | 700,981   |           |   | 479,797
|                                                                                                                                                                                |  |            |           |           |   |        
|Commitments and contingencies (Note 8)                                                                                                                                          |  |            |           |           |   |        
|Shareholders Equity:                                                                                                                                                           |  |            |           |           |   |        
|Preferred stock, $0.01 par value; 1,000,000 shares authorized, no shares issued and outstanding                                                                                 |  |            |          |           |   |       
|Common stock, $0.01 par value; 150,000,000 shares authorized, 60,527,861 and 61,847,679 shares issued and outstanding at as of January 2,
2009 and March 28, 2008, respectively |  |            | 595       |           |   | 609    
|Additional paid in capital                                                                                                                                                      |  |            | 164,551   |           |   | 195,657
|Retained earnings                                                                                                                                                               |  |            | 179,091   |           |   | 136,718
|Accumulated other comprehensive income                                                                                                                                          |  |            | 4,489     |           |   | 2,044  
|                                                                                                                                                                                |  |            |           |           |   |        
|Total shareholders equity                                                                                                                                                      |  |            | 348,726   |           |   | 335,028
|                                                                                                                                                                                |  |            |           |           |   |        
|Total liabilities and shareholders equity                                                                                                                                      |  | $          | 1,049,707 |           | $ | 814,825
|                                                                                                                                                                                |  |            |           |           |   |        

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JANUARY 2, 2009 AND DECEMBER 28, 2007

(In Thousands, Except
Per Share Data)



|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|--------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---------- |  | - | ------------ | - |  | - | --------- | -
|                                                    |  | For the Three Months Ended |         |   | For the Nine Months Ended |  
|                                                    |  | January 2,                 |         |   | December 28,              |   |         | January 2, |  |   | December 28, |  
|                                                    |  | 2009                       |         |   | 2007                      |   |         | 2009       |  |   | 2007         |  
|Net sales                                           |  | $                          | 519,145 |   |                           | $ | 465,208 |            |  | $ | 1,482,962    |   |  | $ | 1,362,048 |  
|Cost of goods sold                                  |  |                            | 364,282 |   |                           |   | 330,215 |            |  |   | 1,041,912    |   |  |   | 966,831   |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Gross profit                                        |  |                            | 154,863 |   |                           |   | 134,993 |            |  |   | 441,050      |   |  |   | 395,217   |  
|General and administrative expenses                 |  |                            | 89,372  |   |                           |   | 79,370  |            |  |   | 269,587      |   |  |   | 240,285   |  
|Selling expenses                                    |  |                            | 33,721  |   |                           |   | 31,508  |            |  |   | 97,148       |   |  |   | 91,823    |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Income from operations                              |  |                            | 31,770  |   |                           |   | 24,115  |            |  |   | 74,315       |   |  |   | 63,109    |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|                                                    |  |                            |         |  
|Other (expense) income:                             |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Interest expense                                    |  |                            | (3,964  | ) |                           |   | (1,811  | )          |  |   | (8,576       | ) |  |   | (4,702    | )
|Interest and investment income                      |  |                            | 1,034   |   |                           |   | 26      |            |  |   | 1,999        |   |  |   | 668       |  
|Other income, net                                   |  |                            | 877     |   |                           |   | 833     |            |  |   | 2,005        |   |  |   | 1,923     |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Other expense                                       |  |                            | (2,053  | ) |                           |   | (952    | )          |  |   | (4,572       | ) |  |   | (2,111    | )
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Income before provision for income taxes            |  |                            | 29,717  |   |                           |   | 23,163  |            |  |   | 69,743       |   |  |   | 60,998    |  
|Provision for income taxes                          |  |                            | 11,559  |   |                           |   | 9,001   |            |  |   | 27,370       |   |  |   | 23,666    |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Net income                                          |  | $                          | 18,158  |   |                           | $ | 14,162  |            |  | $ | 42,373       |   |  | $ | 37,332    |  
|                                                    |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|                                                    |  |                            |         |  
|Basic earnings per common share                     |  | $                          | 0.31    |   |                           | $ | 0.22    |            |  | $ | 0.70         |   |  | $ | 0.57      |  
|Diluted earnings per common share                   |  | $                          | 0.30    |   |                           | $ | 0.22    |            |  | $ | 0.69         |   |  | $ | 0.56      |  
|                                                    |  |                            |         |  
|Weighted average common shares outstanding, Basic   |  |                            | 59,481  |   |                           |   | 63,999  |            |  |   | 60,125       |   |  |   | 65,533    |  
|Weighted average common shares outstanding, Diluted |  |                            | 60,322  |   |                           |   | 65,756  |            |  |   | 60,971       |   |  |   | 67,195    |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 2, 2009 AND DECEMBER 28, 2007

(Dollars in Thousands)



|                                                                                        |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                        |  | Nine Months Ended |        
|                                                                                        |  | January 2, 2009   |         |   | December 28, 2007 |  
|Cash Flows From Operating Activities:                                                   |  |                   |         |   |                   |   |         |  
|Net income                                                                              |  | $                 | 42,373  |   |                   | $ | 37,332  |  
|Adjustments to reconcile net income to net cash provided by operating activities:       |  |                   |         |   |                   |   |         |  
|Provision (benefit) for deferred income taxes                                           |  |                   | 157     |   |                   |   | (1,391  | )
|Depreciation                                                                            |  |                   | 14,695  |   |                   |   | 14,029  |  
|Noncash compensation expense                                                            |  |                   | 5,032   |   |                   |   | 3,051   |  
|Amortization of intangible assets                                                       |  |                   | 4,161   |   |                   |   | 4,226   |  
|Provision for doubtful accounts                                                         |  |                   | 3,488   |   |                   |   | 3,461   |  
|Provision for deferred compensation                                                     |  |                   | 797     |   |                   |   | 1,197   |  
|Amortization of debt issuance costs                                                     |  |                   | 1,318   |   |                   |   | 1,075   |  
|Loss on sales of property and equipment                                                 |  |                   | 78      |   |                   |   | 24      |  
|Gain on sale of available for sale securities                                           |  |                   | (444    | ) |                   |   |        |  
|Changes in operating assets and liabilities, net of effects from business combinations: |  |                   |         |   |                   |   |         |  
|Accounts receivable, net                                                                |  |                   | 1,618   |   |                   |   | (1,872  | )
|Inventories                                                                             |  |                   | (48,705 | ) |                   |   | (37,939 | )
|Prepaid expenses and other current assets                                               |  |                   | 2,177   |   |                   |   | (870    | )
|Other assets                                                                            |  |                   | (6,507  | ) |                   |   | (8,408  | )
|Accounts payable                                                                        |  |                   | 18,589  |   |                   |   | 25,762  |  
|Accrued expenses and other liabilities                                                  |  |                   | 6,607   |   |                   |   | 6,050   |  
|                                                                                        |  |                   |         |   |                   |   |         |  
|Net cash provided by operating activities                                               |  |                   | 45,434  |   |                   |   | 45,727  |  
|                                                                                        |  |                   |         |   |                   |   |         |  
|                                                                                        |  |                  
|Cash Flows From Investing Activities:                                                   |  |                   |         |   |                   |   |         |  
|Capital expenditures                                                                    |  |                   | (17,805 | ) |                   |   | (13,760 | )
|Payments for business acquisitions, net of cash acquired                                |  |                   | (2,994  | ) |                   |   | (15,155 | )
|Proceeds from sale of available for sale securities                                     |  |                   | 22,099  |   |                   |   |        |  
|Payments for investment in available for sale securities                                |  |                   |        |   |                   |   | (24,064 | )
|Proceeds from note receivable                                                           |  |                   |        |   |                   |   | 2,737   |  
|Other                                                                                   |  |                   | (240    | ) |                   |   | (111    | )
|                                                                                        |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) investing activities                                     |  |                   | 1,060   |   |                   |   | (50,353 | )
|                                                                                        |  |                   |         |   |                   |   |         |  
|                                                                                        |  |                  
|Cash Flows From Financing Activities:                                                   |  |                   |         |   |                   |   |         |  
|Proceeds from issuance of convertible debt                                              |  |                   | 230,000 |   |                   |   |        |  
|Proceeds from issuance of warrants                                                      |  |                   | 25,368  |   |                   |   |        |  
|Proceeds from exercise of stock options                                                 |  |                   | 5,992   |   |                   |   | 2,316   |  
|Excess tax benefits from share-based compensation arrangements                          |  |                   | 1,664   |   |                   |   | 1,270   |  
|Payment for purchase of hedge on convertible note                                       |  |                   | (54,096 | ) |                   |   |        |  
|Purchase of common stock                                                                |  |                   | (35,709 | ) |                   |   | (62,521 | )
|Net (payments) proceeds on the revolving line of credit                                 |  |                   | (20,000 | ) |                   |   | 32,550  |  
|Payment for debt issue costs                                                            |  |                   | (5,147  | ) |                   |   |        |  
|Payments under capital lease obligations                                                |  |                   | (979    | ) |                   |   | (616    | )
|                                                                                        |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) financing activities                                     |  |                   | 147,093 |   |                   |   | (27,001 | )
|                                                                                        |  |                   |         |   |                   |   |         |  
|                                                                                        |  |                  
|Net increase (decrease) in cash and cash equivalents                                    |  |                   | 193,587 |   |                   |   | (31,627 | )
|Cash and cash equivalents, beginning of period                                          |  |                   | 21,122  |   |                   |   | 46,658  |  
|                                                                                        |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents, end of period                                                |  | $                 | 214,709 |   |                   | $ | 15,031  |  
|                                                                                        |  |                   |         |   |                   |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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##### Table of Contents

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 2, 2009 AND DECEMBER 28, 2007

(In Thousands, Except Share and Per Share Data, Unless
Otherwise Noted)



|1. | BACKGROUND AND BASIS OF PRESENTATION
|-- | ------------------------------------

The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been omitted pursuant to the SEC rules and regulations. The unaudited condensed consolidated
financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.

The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with GAAP and include the consolidated accounts of PSS World Medical, Inc. and its wholly-owned subsidiaries as well as a variable interest entity for which the Company is the primary beneficiary. All significant intercompany balances and
transactions have been eliminated in consolidation.

The Company conducts business through two operating segments, the Physician Business and the Elder
Care Business. These strategic segments serve a broad customer base. A third segment, Corporate Shared Services, includes allocated and unallocated costs of corporate departments which support the operating activities and various
initiatives of the operating segments, and engage in certain other operating activities.

The consolidated balance sheet as of March 28, 2008 has been
derived from the Companys audited consolidated financial statements for the fiscal year ended March 28, 2008, except as noted in the Reclassificationsection, below. The financial statements and related notes included in this
report should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended March 28, 2008.

The Company
reports its year-end and quarter-end financial position, results of operations, and cash flows as of the Friday closest to calendar month end, determined using the number of business days. Fiscal years 2009 and 2008 each consist of
52 weeks or 253 selling days, respectively. The three and nine months ended January 2, 2009 consisted of 66 and 193 selling days, respectively, while the three and nine months ended December 28, 2007 consisted of 62 and 189
selling days, respectively.

The results of operations for the interim periods covered by this report may not be indicative of operating results for the
full fiscal year or any other interim periods.

Reclassification

During the first quarter of fiscal year 2009, the Company corrected the classification of its 2.25% $150.0 million convertible senior notes at March 28, 2008 from long-term debt to short-term
debt, reflecting the one-day put option afforded to the holders of the notes on March 15, 2009 in accordance with the terms thereof. See Footnote 3, Debt, for additional information regarding the note holders put option. Under
Staff Accounting Bulletin (SAB) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,the Company evaluated the quantitative
and qualitative aspects of the adjustment and determined the correction was not material. There was no impact on the Companys results of operations or cash flow statements for the fiscal year ended March 28, 2008.

Additionally, certain items previously reported in combined financial statement captions have been reclassified to conform to the current financial statement
presentation. In particular, Other current assets and Prepaid expenses previously presented combined have been presented separate in the Unaudited condensed consolidated balance sheets.



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##### Table of Contents

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 2, 2009 AND DECEMBER 28, 2007

(In Thousands, Except Share and Per Share Data, Unless
Otherwise Noted)



Marketable Securities

The Company reports marketable securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities(SFAS 115).
The equity securities held by the Company at January 2, 2009 are classified as available-for-sale securities. Accordingly, amounts are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component
of shareholders equity. See Footnotes 2, 4 and 9, Equity Investment, Comprehensive Income, and Fair Value Measurements, respectively.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements by establishing a fair value hierarchy based on the quality
of inputs used to measure fair value. SFAS 157 does not require any new fair value measurements, but applies to other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for financial statements
for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 on March 29, 2008 and adoption did not have a material impact on its financial position, results of operations or cash flows. FSP SFAS
No. 157-2, Effective Date of FASB Statement No. 157 (FSP SFAS 157-2), delays the effective date of SFAS 157 with respect to nonfinancial assets and nonfinancial liabilities not remeasured at
fair value on a recurring basis until fiscal years beginning after November 15, 2008, or the Companys fiscal year 2010. Accordingly, the Company has not yet applied the requirements of SFAS 157 to certain such nonfinancial assets for
which fair value measurements are determined only when there is an indication of potential impairment.

During February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB SFAS 115 (SFAS 159). SFAS 159 permits entities to choose to measure financial instruments and
certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 mandates certain financial statement presentation and disclosure requirements when a company elects to report assets and liabilities at
fair value under SFAS 159. SFAS 159 is effective for fiscal years beginning after November 15, 2007, or the Companys fiscal year 2009. The Company adopted SFAS 159 on March 29, 2008 and adoption did not have an
impact on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful
Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and the disclosure
requirements under FASB Statement No. 142, Goodwill and Other Intangibles. FSP 142-3 requires that an entity consider its historical experience in renewing or extending similar arrangements in determining the useful life of a
recognized intangible asset. Determining the useful life of a recognized intangible asset under FSP 142-3 applies prospectively to intangible assets acquired after the effective date. The disclosure requirements of FSP 142-3 will be
applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, or the Companys fiscal
year 2010, and interim periods within those fiscal years. Early adoption of FSP 142-3 is prohibited. The Company is currently assessing the effect, if any, the adoption of FSP 142-3 will have on its financial position, results of
operations or cash flows.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1



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requires entities with convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to separately account for
the liability and equity components in a manner that reflects an estimate of the entitys nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, or the Companys fiscal year 2010. Entities are required to apply FSP APB 14-1 retrospectively for all periods presented. Upon adoption, the Company estimates FSP APB
14-1 will increase non-cash interest expense by $10.9 million (or approximately $6.7 million after-tax) and $7.7 million (or approximately $4.7 million after-tax) for fiscal year 2009 and fiscal year 2010, respectively.

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock
(EITF 07-5). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments
contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008, or the Companys fiscal year 2010. This pronouncement will not effect future reporting periods, as the Company currently accounts for their financial instruments under the guidance set forth by EITF 07-5.

Stock Repurchase Program

The Company repurchases its
common stock under stock repurchase programs authorized by the Companys Board of Directors. As of March 28, 2008, there were 0.4 million shares available for repurchase under existing stock repurchase programs. On April 2, 2008,
the Companys Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.1 million common
shares, in the open market, in privately negotiated transactions, or otherwise. During the nine months ended January 2, 2009, primarily in connection with the debt offering, the Company repurchased approximately 2.1 million shares of
common stock at an average price of $16.67 per common share for approximately $35.7 million. At January 2, 2009, approximately 1.4 million shares were available for repurchase under this program. The share repurchase program does not
have an expiration date.

The following table summarizes the common stock repurchases and Board of Directors authorizations during the period from
March 28, 2008 to January 2, 2009:



|                                 |  |        |  
|-------------------------------- |  | ------ | -
|(in thousands)                   |  | Shares |  
|Balance, March 28, 2008          |  | 403    |  
|Shares authorized for repurchase |  | 3,093  |  
|Shares repurchased               |  | (2,142 | )
|                                 |  |        |  
|Balance, January 2, 2009         |  | 1,354  |  
|                                 |  |        |  



|2. | EQUITY INVESTMENT
|-- | -----------------

On June 29, 2007, the Company invested
$24,064 (including $1,564 of legal and other professional fees) in athenahealth, Inc. (athena), a leading provider of internet-based healthcare information technology and business services to physician practices. The Company classifies
this investment as available-for-sale in accordance with SFAS 115. This investment was marked-to-market based on quoted market prices as of January 2, 2009. During the third quarter of fiscal year 2009, the Company sold
a portion of its investment in athena, resulting in a gain of approximately $444, or $275 net of tax. Proceeds of $22,099 were received during the nine months ended January 2, 2009 related to the sale of athena stock during the third quarter of
fiscal year 2009 and the fourth quarter of fiscal year 2008.

As of January 2, 2009, the aggregate fair value of the remaining investment is $15,333.
During the three and nine months ended January 2, 2009, the Company recorded a net unrealized holding loss of $737, of which $457 was



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recorded in other comprehensive income net of related income taxes of $280 and a net unrealized holding gain of $4,670, of which $2,898 was recorded in other
comprehensive income net of related income taxes of $1,772, respectively.



|3. | DEBT
|-- | ----

Debt consists of the following:



|                                           |  |                 |         |                |   |        
|------------------------------------------ |  | --------------- | ------- | -------------- | - | -------
|                                           |  | As of          
|(in thousands)                             |  | January 2, 2009 |         | March 28, 2008
|Revolving line of credit                   |  | $               | 50,000  |                | $ | 70,000 
|2.25% convertible senior notes             |  |                 | 150,000 |                |   | 150,000
|3.125% convertible senior notes            |  |                 | 230,000 |                |   |       
|Capital lease obligations                  |  |                 | 3,040   |                |   | 1,712  
|                                           |  |                 |         |                |   |        
|Total debt                                 |  |                 | 433,040 |                |   | 221,712
|Less: Current portion of long-term debt(a) |  |                 | 201,007 |                |   | 220,987
|                                           |  |                 |         |                |   |        
|Long-term debt                             |  | $               | 232,033 |                | $ | 725    
|                                           |  |                 |         |                |   |        

| | 
| | 

| | (a) | During the first quarter of fiscal year 2009, the Company corrected the classification of its 2.25% $150.0 million convertible senior notes at March 28, 2008 from
long-term debt to short-term debt. See Footnote 1, Background and Basis of Presentation, for additional information.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revolving
Line of Credit

The Company had $50.0 million in outstanding borrowings under the revolving line of credit at January 2, 2009. The Credit
Agreement permits maximum borrowings of up to $200.0 million, which may be increased to $250.0 million at the Companys discretion. After reducing availability for outstanding borrowings and letter of credit commitments, the Company
had sufficient assets based on eligible accounts receivable and inventory to borrow up to $149.2 million (excluding the additional increase of $50.0 million) under the revolving line of credit. The average daily interest rate, excluding
debt issuance costs and unused line fees, for the three months ended January 2, 2009 and December 28, 2007 was 4.30% and 6.51%. The average daily interest rate, excluding debt issuance costs and unused line fees, for the nine months ended
January 2, 2009 and December 28, 2007 was 4.09% and 6.88%. This decrease in rates relates to the use of an interest rate swap agreement during fiscal year 2009, as discussed below.

On February 14, 2008, the Company entered into an interest rate swap agreement which matures on February 19, 2010. The purpose of this swap agreement was to
hedge the variable interest rate of the revolving line of credit. The notional amount of the swap is $50.0 million. The interest rate swap effectively fixed the interest rate on a portion of the revolving line of credit to 2.70%, plus an applicable
credit spread as determined by the Credit Agreement.

The interest rate swap has been designated as a cash flow hedge in accordance with the provisions of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133,and SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.Therefore, changes in fair value are recognized in Accumulated other comprehensive income in the accompanying Consolidated balance sheets. Under
the terms of the interest rate swap agreement, the Company makes monthly payments based on the fixed rate and receives interest payments based on 1-month LIBOR. The changes in market value of this financial instrument are highly correlated with
changes in market value of the hedged item both at inception and over the life of the agreement. Amounts received or paid under the interest rate swap agreement are recorded as reductions or additions to interest expense. The unrealized holding loss
on the interest rate swap for the three months ended January 2, 2009 represents the fair value adjustment of $1,363, of which $845 is recorded in other comprehensive income net of related income taxes of $518. The unrealized holding loss
on the interest rate swap for the nine months ended January 2, 2009 represents the fair value adjustment of $731, of which $453 is recorded in other comprehensive income net of related income taxes of $278.



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2.25% Convertible Senior Notes

During fiscal year 2004, the Company issued $150.0 million principal amount of 2.25% convertible senior notes, which mature on March 15, 2024. Interest on the notes is payable semiannually in arrears on
March 15 and September 15 of each year. Contingent interest is also payable during any six-month interest period, beginning with the six-month interest period commencing on March 15, 2009, if the average trading price of the notes for
the five trading days ending on the second trading day immediately preceding such six-month interest period equals or exceeds 120% of the principal amount of the notes. The amount of contingent interest payable per note in respect of any six-month
interest period is equal to 0.25% of the average trading price of a note for the trading period referenced above.

The notes may be converted into shares
of the Companys common stock under the following circumstances: (i) prior to March 15, 2019, during any calendar quarter that the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading
days ending the day prior to such quarter is greater than 120% of the applicable conversion price of $17.10 per share; (ii) if on any date after March 15, 2019, the closing sale price of the Companys common stock is greater than
120% of the then applicable conversion price; (iii) during the five consecutive business day period following any five consecutive trading day period in which the trading price for a note for each day of that trading period is less than 98% of
the closing sale price of the Companys common stock on such corresponding trading day multiplied by the applicable conversion rate, provided that if the price of the Companys common stock issuable upon conversion is between 100% and 120%
of the applicable conversion price, then holders will be entitled to receive upon conversion only the value of the principal amount of the notes converted plus accrued and unpaid interest, including contingent interest, if any; (iv) if the
Company has called the notes for redemption; (v) during any period in which the Companys long-term issuer rating assigned by Moodys Investor Services (Moodys) is at or below Caa1 or the corporate credit rating
assigned by Standard & Poors Ratings Services (S&P) is at or below B-, or if the Company is no longer rated by at least one of S&P or Moodys; or (vi) upon the occurrence of specified corporate
transactions described in the indenture governing the notes. The initial conversion rate is 58.4949 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of $17.10 per
share. The conversion rate is subject to adjustment if certain events occur, such as stock dividends or other distributions of cash, securities, indebtedness or assets; stock splits and combinations; issuances of rights or warrants; tender offers;
or repurchases. Upon conversion, the Company has the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. The Companys stated policy is to satisfy the Companys obligation upon a conversion of the
notes first, in cash, in an amount equal to the principal amount of the notes converted and second, in shares of the Companys common stock, to satisfy the remainder, if any, of the Companys conversion obligation.

As of January 2, 2009, the fair value of the 2.25% $150.0 million convertible senior notes was approximately $167.9 million.

The ability of note holders to convert is assessed on a quarterly basis and is dependent on the trading price of the Companys stock during the last 30 trading days
of each quarter. The Contingent Conversion Trigger was not met during the three months ended January 2, 2009.

On each of March 15, 2009,
March 15, 2014, and March 15, 2019, holders of the 2.25% $150.0 million convertible senior notes have the option to require the Company to purchase the notes at 100% of the principal amount of the notes plus accrued and unpaid
interest, and other considerations, including contingent interest, if applicable (put option). As such, the 2.25% $150.0 million convertible senior notes have been classified as short-term debt on the Companys Unaudited
condensed consolidated balance sheet as of January 2, 2009. During the first quarter of fiscal year 2009, the Company corrected the classification of its 2.25% $150.0 million convertible senior notes at March 28, 2008 from
long-term debt to short-term debt. See Footnote 1, Background and Basis of Presentation, for additional information.

On or after March 15,
2009, the Company has the right to redeem the notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, and other considerations, including contingent interest and
liquidated damages, if any or applicable.



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As of January 2, 2009, the Company has a deferred income tax liability of $15,058 (tax effected) related to interest
deductions taken for tax purposes on its 2.25% $150.0 million convertible senior notes. The ultimate tax liability will be dependent on the Companys stock price at the time of settlement and will range from $0.00 to
$17.0 million. Any such liability will be paid in the fiscal quarter following settlement and reflected in operating cash flows. Amounts paid, if any, would not have a material impact on the Companys effective tax rate.

3.125% Convertible Senior Notes

In August 2008, the Company
issued $230.0 million principal amount of 3.125% convertible senior notes, which mature on August 1, 2014. Interest on the notes is payable semiannually in arrears on February 1 and August 1 of each year. The notes will be
convertible into cash up to the principal amount of the notes and shares of the Companys common stock for any conversion value in excess of the principal amount under the following circumstances: (i) if the Company has called the notes
for redemption; (ii) in the event of a fundamental change, as defined in the indenture, such as a merger, acquisition, or liquidation; (iii) on or after May 1, 2014 and prior to the close of business on the second scheduled trading
day immediately preceding August 1, 2014; (iv) prior to May 1, 2014, during the five consecutive business day period following any five consecutive trading day period in which the trading price for a note for each day of that
trading period is less than 98% of the closing sale price of the Companys common stock on such corresponding trading day multiplied by the applicable conversion rate; (v) prior to May 1, 2014, during any calendar quarter after
September 30, 2008 in which the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 130% of the applicable conversion price of
$21.22 per share; or (vi) upon certain specified corporate events as discussed in the indenture governing the notes.

A note holder may not
exercise its conversion right with respect to all or any portion of a note, if such conversion would cause the note holder to become a beneficial owner of more than 9.9% of the Companys outstanding voting stock. The initial conversion rate is
47.1342 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of $21.22 per share. The conversion rate is subject to adjustment upon the occurrence of certain events.

As of January 2, 2009, the fair value of the 3.125% $230.0 million convertible senior notes was approximately $237.1 million.

The ability of note holders to convert is assessed on a quarterly basis and is dependent on the trading price of the Companys stock during the last
30 trading days of each quarter. The Contingent Conversion Trigger was not met during the three months ended January 2, 2009; therefore, the notes may not be converted during the Companys fourth quarter of fiscal year 2009.

The Company used a portion of the net proceeds of the offering to repurchase approximately $35.0 million of its common stock in privately negotiated transactions
with institutional investors concurrently with this offering. See Stock Repurchase Program in Footnote 1, Background and Basis of Presentation, for additional information. The Company anticipates using up to $150.0 million of the net
proceeds on or before March 15, 2024, when holders of the notes have the option, as described above, to require the Company to redeem all or part of the outstanding 2.25% notes. Remaining proceeds will be used for general corporate purposes.

Convertible Note Hedge Transactions

In
connection with the offering of the notes, the Company also entered into convertible note hedge transactions with respect to its common stock (the purchased options) with a major financial institution (the
counterparty). The Company paid an aggregate amount of $54.1 million to the counterparty for the purchased options. The purchased options cover, subject to anti-dilution adjustments substantially identical to those in the
notes, approximately 10.8 million shares of common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to adjustment, and are exercisable at each conversion date of the notes. The purchased
options will expire upon the earlier of (i) the last day the notes remain outstanding or (ii) the second scheduled trading day immediately preceding the maturity date of the notes.

The purchased options are intended to reduce the potential dilution upon conversion of the notes in the event that the market value per share of the common stock, as
measured under the notes, at the time of exercise is greater than the



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conversion price of the notes. The options have been accounted for as an adjustment to the Companys stockholders equity, net of deferred tax
assets of $20,993, recorded in Other long term assets on the Unaudited condensed consolidate balance sheets.

The purchased options are separate
transactions, entered into by the Company with the counterparty, and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the purchased options.

Warrant Transactions

The Company also entered into warrant
transactions (the warrants), whereby the Company sold to the counterparty warrants in an aggregate amount of $25.4 million to acquire, subject to anti-dilution adjustments, up to 10.8 million shares of common stock at a
strike price of $28.29 per share of common stock, also subject to adjustment. The warrants will expire after the purchased options in approximately ratable portions on a series of expiration dates commencing on November 3, 2015.

If the market value per share of the common stock, as measured under the warrants, exceeds the strike price of the warrants, the warrants will have a
dilutive effect on the Companys earnings per share. The warrants have been accounted for as an adjustment to the Companys stockholders equity.

The warrants are separate transactions, entered into by the Company with the counterparties, and are not part of the terms of the notes. Holders of the notes do not have any rights with respect to the warrants.



|4. | COMPREHENSIVE INCOME
|-- | --------------------

The following table includes the components
of comprehensive income for the three and nine months ended January 2, 2009 and December 28, 2007:



|                                                                                               |  |                            |        |                           |              |   |            |  |   |              |   |  |   |       
|---------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------- | ------------ | - | ---------- |  | - | ------------ | - |  | - | ------
|                                                                                               |  | For the Three Months Ended |        | For the Nine Months Ended
|                                                                                               |  | January 2,                 |        |                           | December 28, |   | January 2, |  |   | December 28,
|(in thousands)                                                                                 |  | 2009                       |        |                           | 2007         |   | 2009       |  |   | 2007        
|Net income                                                                                     |  | $                          | 18,158 |                           |              | $ | 14,162     |  | $ | 42,373       |   |  | $ | 37,332
|Unrealized holding (losses) gains on available-for-sale investments, net of income taxes       |  |                            | (182   | )                         |              |   | 2,521      |  |   | 3,173        |   |  |   | 16,235
|Reclassification adjustment for gains on available-for-sale investments included in net income |  |                            | (275   | )                         |              |   |           |  |   | (275         | ) |  |   |      
|Unrealized holding losses on interest rate swap, net of income taxes                           |  |                            | (845   | )                         |              |   |           |  |   | (453         | ) |  |   |      
|                                                                                               |  |                            |        |                           |              |   |            |  |   |              |   |  |   |       
|Comprehensive income                                                                           |  | $                          | 16,856 |                           |              | $ | 16,683     |  | $ | 44,818       |   |  | $ | 53,567
|                                                                                               |  |                            |        |                           |              |   |            |  |   |              |   |  |   |       

The unrealized holding gains and losses on available-for-sale investments relate to the Companys investment
in athena, as discussed in Footnote 2, Equity Investment.

The unrealized holding gains and losses on the interest rate swap relate to the
Companys revolving line of credit, as discussed in Footnote 3, Debt.



|5. | EARNINGS PER SHARE
|-- | ------------------

Basic and diluted earnings per share are
presented in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common
share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period adjusted for the potential dilutive effect of stock options and restricted stock using the treasury stock
method and the potential impact of outstanding convertible senior notes. Common equivalent shares are excluded from the computation in periods in which they have an antidilutive effect.



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The following table sets forth computational data for the denominator in the basic and diluted earnings per common share
calculation for the three and nine months ended January 2, 2009 and December 28, 2007:



|                                                                                                       |  |                            |  |                           |  |                |  |                 
|------------------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------------------- |  | -------------- |  | ----------------
|                                                                                                       |  | For the Three Months Ended |  | For the Nine Months Ended
|(in thousands)                                                                                         |  | January 2,2009             |  | December 28,2007          |  | January 2,2009 |  | December 28,2007
|Denominator-weighted average shares outstanding used in computing basic earnings per common share      |  | 59,481                     |  | 63,999                    |  | 60,125         |  | 65,533          
|Assumed exercise of stock options(a)                                                                   |  | 392                        |  | 611                       |  | 451            |  | 642             
|Assumed vesting of restricted stock                                                                    |  | 145                        |  | 97                        |  | 152            |  | 110             
|Assumed conversion of 2.25% convertible senior notes                                                   |  | 304                        |  | 1,049                     |  | 243            |  | 910             
|                                                                                                       |  |                            |  |                           |  |                |  |                 
|Denominator-weighted average shares outstanding used in computing diluted earnings per common share(b) |  | 60,322                     |  | 65,756                    |  | 60,971         |  | 67,195          
|                                                                                                       |  |                            |  |                           |  |                |  |                 



|(a) | Options to purchase approximately 200,000 and 127 shares of outstanding common stock at January 2, 2009 and December 28, 2007, respectively, were not included in the
computation of diluted earnings per share for each of the respective periods because the options inclusion would be antidilutive.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The assumed conversion of the 3.125% convertible notes was not included in the computation of diluted earnings per share for the three and nine months ended January 2, 2009 as
their inclusion would be antidilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | STOCK-BASED COMPENSATION
|-- | ------------------------

Stock-based compensation represents the
cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the cost as compensation expense on a
straight-line basis (net of estimated forfeitures) over the awards vesting period. The Companys stock-based compensation expense is reflected in general and administrative expenses in the Unaudited condensed consolidated statements of
operations.

Total stock-based compensation expense during the three months ended January 2, 2009 and December 28, 2007 was approximately $1,444
and $942, respectively, with related income tax benefits of $549 and $358, respectively. Total stock-based compensation expense during the nine months ended January 2, 2009 and December 28, 2007 was approximately $5,593 and $2,369,
respectively, with related income tax benefits of $2,125 and $887, respectively.

The Companys Unaudited condensed consolidated statements of cash
flows present the stock-based compensation expense as an adjustment to reconcile net income to net cash used in operating activities for all periods presented. Income tax benefits of $1,664 and $1,270 associated with tax deductions in excess of
recognized compensation expense are presented as a cash inflow from financing activities for the nine months ended January 2, 2009 and December 28, 2007, respectively.



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Outstanding stock-based awards granted under equity incentive plans as of January 2, 2009 and March 28, 2008
are as follows:



|                         |  |                          |  |        |                   |  |               |   |  |          |  |        |  
|------------------------ |  | ------------------------ |  | ------ | ----------------- |  | ------------- | - |  | -------- |  | ------ | -
|                         |  | Performance-Based Awards |  |        | Time-Based Awards |  | Stock Options |  
|                         |  | Performance              |  |        |                   |  |               |   |  |          |  |        |  
|                         |  | Shares                   |  | PARS   |                   |  |               |   |  |          |  |        |  
|                         |  |                          |  |        |                   |  |               |   |  | Deferred |  |        |  
|(in thousands)           |  | Units                    |  | Shares |                   |  | Shares        |   |  | Units    |  | Shares |  
|Balance, March 28, 2008  |  | 99                       |  | 610    |                   |  | 344           |   |  | 9        |  | 1,774  |  
|Granted                  |  | 122                      |  | 191    |                   |  | 79            |   |  |         |  | 200    |  
|Vested / Exercised       |  |                         |  |       |                   |  | (154          | ) |  |         |  | (584   | )
|Forfeited                |  |                         |  | (34    | )                 |  | (16           | ) |  |         |  | (63    | )
|                         |  |                          |  |        |                   |  |               |   |  |          |  |        |  
|Balance, January 2, 2009 |  | 221                      |  | 767    |                   |  | 253           |   |  | 9        |  | 1,327  |  
|                         |  |                          |  |        |                   |  |               |   |  |          |  |        |  

Stock Option Awards

On June 6, 2008, the Compensation Committee of the Companys Board of Directors approved a retention award of 200,000 stock options under the Companys 2006 Incentive Stock Plan to the Companys Chief Executive Officer.
The stock options awarded will cliff-vest on the five-year anniversary of the grant date.

The fair value of stock options granted was estimated as of the
date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:



|                                 |  |      |  
|-------------------------------- |  | ---- | -
|                                 |  | 2009 |  
|Expected dividend yield          |  |     |  
|Expected stock price volatility  |  | 29   | %
|Risk-free interest rate          |  | 1.75 | %
|Expected term of options (years) |  | 10   |  

Based on these assumptions, the estimated fair value of the options granted during the first quarter of
fiscal year 2009 was approximately $1,481.

As of January 2, 2009, there was $1,308 of unrecognized compensation cost related to these options
which is expected to be recognized over a weighted average period of 4.5 years.

Restricted Stock Awards

The Company issues (i) restricted stock which vests based on the recipients continued service over time (Time-Based Awards) and
(ii) restricted stock or restricted stock units which vest based on the Company achieving specified performance measurements (Performance-Based Awards).

Time-Based Awards

The Company measures the fair value of Time-Based Awards on the date of grant
based on the closing stock price. The related compensation expense is recognized on a straight-line basis net of estimated forfeitures over the vesting period, which normally ranges from 2 to 5 years.

Performance-Based Awards

During the
first quarter of fiscal year 2009, the Companys Compensation Committee of the Board of Directors (the Committee), approved awards of performance-based restricted stock units (Performance Shares) and
performance-accelerated restricted stock (PARS) to the Companys top six officers. These awards were granted under the Companys 2006 Incentive Plan.

The Performance Shares will vest after three years and convert to shares of common stock based on the Companys achievement of certain cumulative
earnings per share growth targets, the calculation of



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which will not be impacted by any change in generally accepted accounting principles promulgated by standard setting bodies. These awards, which are
denominated in terms of a target number of shares, will be forfeited if performance falls below a designated threshold level and may vest for up to 250% of the target number of shares for exceptional performance. The ultimate number of shares
delivered to recipients and the related compensation cost recognized as expense will be based on actual performance.

The PARS awards will
vest on the five-year anniversary of the grant date, subject to accelerated vesting after three years if the Company achieves a cumulative earnings per share growth target, the calculation of which will not be impacted by any change in generally
accepted accounting principles promulgated by standard setting bodies. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the cost as compensation expense on a
straight-line basis (net of estimated forfeitures) over the awards vesting period of five years based on the Companys estimate of its cumulative earnings per share growth rate. This estimate may be adjusted in future periods based on
actual experience and changes in management assumptions.

As of January 2, 2009, there was $16,591 of unrecognized compensation cost related to
non-vested restricted stock and restricted stock units granted under the stock incentive plans. The compensation cost related to these non-vested restricted stock grants is expected to be recognized over a weighted average period of 4.3 years.



|7. | SEGMENT INFORMATION
|-- | -------------------

The Companys reportable segments are
strategic businesses that offer different products to different segments of the healthcare industry, and are the basis on which management regularly evaluates the Company. These segments are managed separately based on different customers and
products. The Company evaluates the operating performance of its segments based primarily on net sales and income from operations. Corporate Shared Services allocates amounts to the two operating segments for shared operating costs and interest
expense. The allocation of shared operating costs is generally proportional to the revenues of each operating segment. Interest expense is allocated based on internally calculated carrying value of historical capital used to acquire or develop the
operating segments operations. The following tables present financial information about the Companys business segments:



|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|---------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---------- |  | - | ------------ | - |  | - | --------- | -
|                                               |  | For the Three Months Ended |         |   | For the Nine Months Ended |  
|                                               |  | January 2,                 |         |   | December 28,              |   |         | January 2, |  |   | December 28, |  
|                                               |  | 2009                       |         |   | 2007                      |   |         | 2009       |  |   | 2007         |  
|Net Sales:                                     |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Physician Business                             |  | $                          | 357,269 |   |                           | $ | 326,520 |            |  | $ | 1,030,416    |   |  | $ | 952,936   |  
|Elder Care Business                            |  |                            | 161,874 |   |                           |   | 138,688 |            |  |   | 451,765      |   |  |   | 409,112   |  
|Corporate Shared Services                      |  |                            | 2       |   |                           |   |        |            |  |   | 781          |   |  |   |          |  
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Total net sales                                |  | $                          | 519,145 |   |                           | $ | 465,208 |            |  | $ | 1,482,962    |   |  | $ | 1,362,048 |  
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|                                               |  |                            |         |  
|Income from Operations:                        |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Physician Business                             |  | $                          | 32,156  |   |                           | $ | 23,804  |            |  | $ | 80,529       |   |  | $ | 63,230    |  
|Elder Care Business                            |  |                            | 8,717   |   |                           |   | 6,491   |            |  |   | 22,569       |   |  |   | 18,041    |  
|Corporate Shared Services                      |  |                            | (9,103  | ) |                           |   | (6,180  | )          |  |   | (28,783      | ) |  |   | (18,162   | )
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Total income from operations                   |  | $                          | 31,770  |   |                           | $ | 24,115  |            |  | $ | 74,315       |   |  | $ | 63,109    |  
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|                                               |  |                            |         |  
|Income Before Provision for Income Taxes:      |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Physician Business                             |  | $                          | 31,497  |   |                           | $ | 23,033  |            |  | $ | 78,728       |   |  | $ | 60,932    |  
|Elder Care Business                            |  |                            | 6,723   |   |                           |   | 4,532   |            |  |   | 16,621       |   |  |   | 12,155    |  
|Corporate Shared Services                      |  |                            | (8,503  | ) |                           |   | (4,402  | )          |  |   | (25,606      | ) |  |   | (12,089   | )
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  
|Total income before provision for income taxes |  | $                          | 29,717  |   |                           | $ | 23,163  |            |  | $ | 69,743       |   |  | $ | 60,998    |  
|                                               |  |                            |         |   |                           |   |         |            |  |   |              |   |  |   |           |  



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|                          |  |            |           |           |   |        
|------------------------- |  | ---------- | --------- | --------- | - | -------
|                          |  | As of     
|                          |  | January 2, |           | March 28,
|                          |  | 2009       |           | 2008     
|Total Assets:             |  |            |           |           |   |        
|Physician Business        |  | $          | 454,649   |           | $ | 447,711
|Elder Care Business       |  |            | 277,264   |           |   | 264,977
|Corporate Shared Services |  |            | 317,794   |           |   | 102,137
|                          |  |            |           |           |   |        
|Total assets              |  | $          | 1,049,707 |           | $ | 814,825
|                          |  |            |           |           |   |        



|8. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

Litigation

The Company is party to various legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of
uncertainty, the Company believes the outcome of proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Companys consolidated financial position, liquidity, or results of operations.

The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate. In many cases in
which the Company has been sued in connection with products manufactured by others, the Company is provided indemnification by the manufacturer. There can be no assurance that the insurance coverage maintained by the Company is sufficient or will be
available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the Company, including agreements with foreign vendors.

Purchase Commitments

During fiscal year 2008, the Company entered into an agreement to purchase a minimum number of
latex and vinyl gloves through February 2010. The pricing of the latex gloves may be periodically adjusted and is based on the price of raw latex as traded on the Malaysian Rubber Exchange. The pricing of the vinyl gloves may also be periodically
adjusted and is based on the weighted price of two raw materials, Poly vinyl chloride (PVC) and Dioctylphthalate (DOP), as published on www.icis.com. These purchase commitments are valued at approximately $11,683 at January 2, 2009
based on managements estimate of current pricing.

During October 2007, the Company entered into an exclusive distributor agreement with a supplier
to purchase certain chemistry analyzers through September 2009. As of January 2, 2009, the purchase commitment was valued at approximately $1,492.

Commitments and Other Contingencies

The Company has employment agreements with certain executive officers which provide that in the event
of their termination or resignation, under certain conditions, the Company may be required to pay severance to the executive officers in amounts ranging from one-fourth to two times their base salary and target annual bonus. In the event that a
termination or resignation follows or is in connection with a change in control, the Company may be required to pay severance to the executive officers in amounts ranging from three-fourths to three times their base salary and target annual bonus.
The Company may also be required to continue welfare benefit plan coverage for the executive officers following a termination or resignation for a period ranging from three months to three years.

If the Physician Business or the Elder Care Business were to terminate a contract with a vendor of its Select Medical Products brand (Select) for any reason,
the Company may be required to purchase the remaining inventory of Select products from the vendor, provided that, in no event would the Company be required to purchase quantities of such products which exceed the aggregate amount of such products
ordered by the Company in a negotiated time period immediately preceding the date of termination. As of January 2, 2009, the Company had no material obligations to purchase inventory from Select vendors due to contract terminations.



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##### Table of Contents

|9. | FAIR VALUE MEASUREMENTS
|-- | -----------------------

As discussed in the Recent Accounting
Pronouncements section of Footnote 1, Background and Basis of Presentation, the Company adopted SFAS 157 (as impacted by FSP 157-2) effective March 29, 2008, with respect to fair value measurements of (i) nonfinancial assets
and liabilities that are recognized or disclosed at fair value in the Companys financial statements on a recurring basis (at least annually) and (ii) all financial assets and liabilities.

SFAS 157 provides a framework for measuring fair value, expands disclosures about fair value measurements, and establishes a fair value hierarchy which prioritizes
the inputs used in measuring fair value summarized as follows:

Level 1: Financial assets and liabilities whose values are based on
unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2:
Financial assets and liabilities whose values are based on quoted prices in markets that are not active, or model inputs that are observable either directly or indirectly.

Level 3: Financial assets and liabilities whose values are based on prices or valuations that require inputs that are both significant to the fair value measurement and unobservable (i.e., an entitys own data).

As of January 2, 2009, the Companys financial assets and/or liabilities are categorized as Level 1 or Level 2. The following table presents the
Companys assets and liabilities which are measured at fair value on a recurring basis as of January 2, 2009, by level within the fair value hierarchy:



|                                        |  |         |        |         |   |       |  |   |       
|--------------------------------------- |  | ------- | ------ | ------- | - | ----- |  | - | ------
|(in thousands)                          |  | Level 1 |        | Level 2 |   | Total
|Assets:                                 |  |         |        |         |   |       |  |   |       
|Available-for-sale equity securities(a) |  | $       | 15,333 |         | $ |      |  | $ | 15,333
|                                        |  |         |        |         |   |       |  |   |       
|Total assets                            |  | $       | 15,333 |         | $ |      |  | $ | 15,333
|                                        |  |         |        |         |   |       |  |   |       
|                                        |  |         |        |         |   |       |  |   |       
|Liabilities:                            |  |         |        |         |   |       |  |   |       
|Interest rate swap(b)                   |  | $       |       |         | $ | 1,056 |  | $ | 1,056 
|Deferred compensation(c)                |  |         | 49,367 |         |   |      |  |   | 49,367
|                                        |  |         |        |         |   |       |  |   |       
|Total liabilities                       |  | $       | 49,367 |         | $ | 1,056 |  | $ | 50,423
|                                        |  |         |        |         |   |       |  |   |       

| | 
| | 

| | (a) | Relates to the Companys investment in athenahealth, Inc., which is included in Investment in available for sale securities on the Companys Unaudited
condensed consolidated balance sheet. This investment is measured using quoted market prices.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Relates to the Companys interest rate swap on its revolving line of credit. See Footnote 3, Debt, for further information. The interest rate swap is valued using quoted
market prices and significant observable inputs.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Relates to the Companys obligation to pay benefits under its non-qualified deferred compensation plans, which is included in Other noncurrent liabilities on the
Companys Unaudited condensed consolidated balance sheet. The obligation to pay benefits is based off of participants allocation percentages to plan investments. The investments are measured using quoted market prices.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As indicated in Footnote 1, Background and Basis of Presentation,FSP 157-2 delays the effective date of SFAS 157 with respect
to nonfinancial assets and nonfinancial liabilities that are not remeasured at fair value on a recurring basis until fiscal years beginning after November 15, 2008. Accordingly, the Company has not yet applied the disclosure requirements of
SFAS 157 to certain such nonfinancial assets for which fair value measurements are determined only when there is an indication of potential impairment.



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|10. | INCOME TAXES
|--- | ------------

The Company classifies interest and penalties related
to income tax matters as a component of income tax expense. The total amount of accrued interest and penalties was approximately $93 as of March 28, 2008. There have been no material changes to this balance during the nine months ended
January 2, 2009.

The tax years subject to examination by major tax jurisdictions include the fiscal year ended March 31, 2006 and forward by the U.S.
Internal Revenue Service, and the fiscal year ended April 2, 2004 and forward for certain states.

The Companys deferred tax asset and liability
balances as of January 2, 2009 and March 28, 2008 are presented in the following table:



|                                    |  |                 |        |                |   |       
|----------------------------------- |  | --------------- | ------ | -------------- | - | ------
|                                    |  | As of          
|(in thousands)                      |  | January 2, 2009 |        | March 28, 2008
|Current deferred tax assets(a)      |  | $               |       |                | $ | 10,488
|Noncurrent deferred tax assets(b)   |  |                 | 30,376 |                |   |      
|Current deferred tax liabilities(c) |  | $               | 3,975  |                | $ |      

| | 
| | 

| | (a) | Current deferred tax assets are included in Other current assets on the Unaudited condensed consolidated balance sheets
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (b) | Noncurrent deferred tax assets are included in Other assets on the Unaudited condensed consolidated balance sheets
| | --- | ------------------------------------------------------------------------------------------------------------------

| | (c) | Current deferred tax liabilities are included in Other current liabilities on the Unaudited condensed consolidated balance sheets
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

The changes in the deferred tax account balances above resulted from the issuance of the 3.125% convertible senior notes and the reclassification of the 2.25%
convertible senior notes as described in Footnote 3, Debt.

FIN 48 Disclosures

There were no significant changes to the Companys uncertain tax positions in the nine months ended January 2, 2009. For a detail of the Companys
uncertain tax positions, please refer to Footnote 11, Income Taxes in the Companys Annual Report Form 10-K for the fiscal year ended March 28, 2008, filed on May 23, 2008.



|11. | SUPPLEMENTAL CASH FLOW INFORMATION
|--- | ----------------------------------

The Companys supplemental
disclosures for the nine months ended January 2, 2009 and December 28, 2007 are as follows:



|                  |  |                   |        |                   |   |       
|----------------- |  | ----------------- | ------ | ----------------- | - | ------
|                  |  | Nine Months Ended
|                  |  | January 2, 2009   |        | December 28, 2007
|Cash paid for:    |  |                   |        |                   |   |       
|Interest          |  | $                 | 3,787  |                   | $ | 2,789 
|Income taxes, net |  | $                 | 20,930 |                   | $ | 23,513

During the nine months ended January 2, 2009, the Company had $2,306 in non-cash transactions relating to new
capital lease obligations.

During the nine months ended December 28, 2007, the Company had $1,180 in non-cash transactions relating to new capital
lease obligations.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

THE COMPANY

PSS World Medical, Inc. (the Company or PSSI), a Florida
corporation which began operations in 1983, is a national distributor of medical products, equipment, billing services and pharmaceutical related products to alternate-site healthcare providers including physician offices, long-term care and
assisted living facilities, home health care and hospice providers through 39 full-service distribution centers, which serve all 50 states throughout the United States. The Company currently conducts business through two operating segments, the
Physician Business and the Elder Care Business, which serve a diverse customer base.

PSSI is a market-leading company in the two alternate-site segments
it serves as a result of value-added, solutions-based marketing programs; a differentiated customer distribution and service model; a consultative sales force with extensive product, disease state, reimbursement, and supply chain knowledge; unique
arrangements with manufacturers; a full line of Select and specialty brand products; innovative information systems and technology that serve its core markets; innovative marketing programs; and a culture of performance.

EXECUTIVE OVERVIEW

During the third quarter of fiscal year
2009, the Company continued profitable growth despite the volatile economic environment. During the quarter, net sales grew 11.6% at the consolidated level and 9.4% and 16.7% in the Physician and Elder Care Businesses, respectively, when compared to
the third quarter of fiscal year 2008. This was due to continued progress in the Companys sales growth initiatives and four additional selling days during the current period. While there were four additional selling days during the current
period, fiscal year 2008 and 2009 both consist of 253 selling days. Although average daily net sales grew during the three and nine months ended January 2, 2009 compared to prior year, sales per billing day growth has slowed during the three
months ended January 2, 2009, attributable to a general downturn in the overall economy.

The Company recognized sales growth throughout all product
lines within the Physician Business and across each customer segment within the Elder Care Business during the third quarter and year-to-date periods compared to the prior year. Select brand product sales grew 17.2% and 39.5% during the quarter and
18.1% and 30.1% during the year-to-date period in the Physician and Elder Care Businesses, respectively, which reflects the Companys efforts to promote its globally-sourced brand through sales and marketing initiatives.

Income from operations of $31.8 million during the third quarter of fiscal year 2009 increased 31.7% or $7.7 million compared with the same period in prior year and
increased 17.8% or $11.2 million to $74.3 million for the nine months ended January 2, 2009 compared to the prior year period. This was primarily the result of the net sales growth discussed above offset by increases in general and
administrative expenses.

Cash flow from operations during the three and nine months ended January 2, 2009 was approximately $(6.9) and
$45.4 million, respectively. Operating income growth offset by an investment in inventory and timing of an income tax payment resulted in negative operating cash flow during the current quarter.

With the tightening of business and consumer credit markets, the Company remains focused on credit management and the collection of its receivable balances, with
additional investments in credit and collections training and continued focus on aged balances. During the third quarter of fiscal year 2009, days sales outstanding decreased from 42.4 days to 39.4 days in the Physician Business and from 50.2 days
to 49.2 days in the Elder Care business, when compared to the same quarter in the prior year.



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##### Table of Contents

The following significant event impacted the Company during the nine months ended January 2, 2009.

3.125% Convertible Senior Notes Offering

During the nine months
ended January 2, 2009, the Company issued $230.0 million principal amount of 3.125% convertible senior notes. The Company used a portion of the net proceeds of the offering to repurchase approximately $35.0 million of its common stock
in privately negotiated transactions with institutional investors concurrent with this offering. The Company also entered into convertible note hedge transactions with the initial purchaser and/or its affiliates and, separately, sold warrants to the
initial purchaser and/or its affiliates. The Company used a portion of the net proceeds of the offering, and of the warrants it sold, to pay the costs of its hedge transactions. The Company anticipates using up to $150.0 million of the net
proceeds on or before March 15, 2024, when holders of the notes have the option to require the Company to redeem all or part of the outstanding 2.25% notes. Remaining proceeds will be used for general corporate purposes. See Footnote 3,
Debt, for additional information.

NET SALES

The following table summarizes net sales period over period.



|                          |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |         |  |       |  
|------------------------- |  | -------------------------- | ----- | ---------------- | ------------------------- | ------------- |  | ---- | -------------- |  | ---------------- | ------- | ------------- | - | ------- |  | ----- | -
|                          |  | For the Three Months Ended |       |                  | For the Nine Months Ended |              
|                          |  | January 2,2009             |       | December 28,2007 |                           |               |  |      | January 2,2009 |  | December 28,2007 |         |               |  
|(dollars in millions)     |  | Amount                     |       | Amount           |                           | PercentChange |  |      | Amount         |  | Amount           |         | PercentChange |  
|Physician Business        |  | $                          | 357.2 |                  | $                         | 326.5         |  | 9.4  | %              |  | $                | 1,030.4 |               | $ | 952.9   |  | 8.1   | %
|Elder Care Business       |  |                            | 161.9 |                  |                           | 138.7         |  | 16.7 | %              |  |                  | 451.8   |               |   | 409.1   |  | 10.4  | %
|Corporate Shared Services |  |                            |      |                  |                           |              |  | 0.0  | %              |  |                  | 0.8     |               |   |        |  | 100.0 | %
|                          |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |         |  |       |  
|Total Company             |  | $                          | 519.1 |                  | $                         | 465.2         |  | 11.6 | %              |  | $                | 1,483.0 |               | $ | 1,362.0 |  | 8.9   | %
|                          |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |         |  |       |  

The comparability of net sales year over year was impacted by the number of selling days in each period. The three
and nine months ended January 2, 2009 consisted of 66 and 193 selling days, respectively, while the three and nine months ended December 28, 2007 consisted of 62 and 189 selling days, respectively. Accordingly, although net sales increased
11.6% and 8.9% during the three and nine months ended January 2, 2009 compared to prior year, average daily net sales increased 4.8% and 6.6%, respectively, as shown in the following table.



|                      |  |                            |     |                        |                           |               |  |     |                        |  |                        |     |               |   |     |  |     |  
|--------------------- |  | -------------------------- | --- | ---------------------- | ------------------------- | ------------- |  | --- | ---------------------- |  | ---------------------- | --- | ------------- | - | --- |  | --- | -
|                      |  | For the Three Months Ended |     |                        | For the Nine Months Ended |              
|                      |  | January 2,2009             |     | December 28,2007       |                           |               |  |     | January 2,2009         |  | December 28,2007       |     |               |  
|(dollars in millions) |  | Average DailyNet Sales     |     | Average DailyNet Sales |                           | PercentChange |  |     | Average DailyNet Sales |  | Average DailyNet Sales |     | PercentChange |  
|Physician Business    |  | $                          | 5.4 |                        | $                         | 5.3           |  | 2.8 | %                      |  | $                      | 5.3 |               | $ | 5.0 |  | 5.9 | %
|Elder Care Business   |  |                            | 2.5 |                        |                           | 2.2           |  | 9.6 | %                      |  |                        | 2.3 |               |   | 2.2 |  | 8.1 | %
|                      |  |                            |     |                        |                           |               |  |     |                        |  |                        |     |               |   |     |  |     |  
|Total Company         |  | $                          | 7.9 |                        | $                         | 7.5           |  | 4.8 | %                      |  | $                      | 7.6 |               | $ | 7.2 |  | 6.6 | %
|                      |  |                            |     |                        |                           |               |  |     |                        |  |                        |     |               |   |     |  |     |  



19



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##### Table of Contents

Physician Business

Management evaluates the Physician Business by product category. The following table summarizes the growth rate by product category period over period.



|                      |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |       |  |      |  
|--------------------- |  | -------------------------- | ----- | ---------------- | ------------------------- | ------------- |  | ---- | -------------- |  | ---------------- | ------- | ------------- | - | ----- |  | ---- | -
|                      |  | For the Three Months Ended |       |                  | For the Nine Months Ended |              
|(dollars in millions) |  | January 2,2009             |       | December 28,2007 |                           | PercentChange |  |      | January 2,2009 |  | December 28,2007 |         | PercentChange |  
|Branded(a)            |  | $                          | 184.6 |                  | $                         | 170.1         |  | 8.5  | %              |  | $                | 532.2   |               | $ | 501.1 |  | 6.2  | %
|Select(b)             |  |                            | 44.1  |                  |                           | 37.6          |  | 17.2 | %              |  |                  | 125.8   |               |   | 106.5 |  | 18.1 | %
|Pharmaceuticals       |  |                            | 80.4  |                  |                           | 72.0          |  | 11.6 | %              |  |                  | 236.4   |               |   | 213.5 |  | 10.7 | %
|Equipment             |  |                            | 39.0  |                  |                           | 38.2          |  | 2.1  | %              |  |                  | 108.0   |               |   | 105.9 |  | 2.0  | %
|Immunoassay           |  |                            | 6.6   |                  |                           | 6.4           |  | 3.4  | %              |  |                  | 20.5    |               |   | 19.7  |  | 3.7  | %
|Other                 |  |                            | 2.5   |                  |                           | 2.2           |  | 16.5 | %              |  |                  | 7.5     |               |   | 6.2   |  | 21.4 | %
|                      |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |       |  |      |  
|Total                 |  | $                          | 357.2 |                  | $                         | 326.5         |  | 9.4  | %              |  | $                | 1,030.4 |               | $ | 952.9 |  | 8.1  | %
|                      |  |                            |       |                  |                           |               |  |      |                |  |                  |         |               |   |       |  |      |  



|(a) | Branded products are comprised of disposables and lab diagnostics from branded manufacturers.
|--- | ---------------------------------------------------------------------------------------------

|(b) | Select products are comprised of the Companys brand of disposables and lab diagnostics.
|--- | ----------------------------------------------------------------------------------------

Net sales growth during the three and nine months ended January 2, 2009 was primarily driven by continued momentum in the consumable, equipment, pharmaceutical sales growth programs, in conjunction with extra
selling days during the periods. Select product sales increased during the three and nine months ended January 2, 2009 due to the Companys continued focus on promoting its globally-sourced Select products, which resulted in new customer
sales as well as customer conversions from other manufacturer branded products to Select brand products. In spite of these conversions, branded product sales experienced an increase in volume resulting in period over period growth.

Pharmaceutical sales increased primarily as a result of growth in the Companys non-controlled drugs product line and, in part, to the introduction of additional
products to the Companys offering during the first quarter of fiscal year 2009. The Company reentered the influenza vaccine market on an agency basis during fiscal year 2009. As such, the Company is relieved from inventory risk and recognizes
fees received from its supplier on a net revenue recognition basis. Influenza vaccine sales contributed approximately $1.2 million and $2.4 million to revenue and gross profit during the three and nine months ended January 2, 2009.

Elder Care Business

Management evaluates the Elder Care business
by customer segment. The following table summarizes the change in net sales by customer segment period over period.



|                                            |  |                            |       |                  |                           |               |  |      |                |  |                  |       |               |   |       |  |      |  
|------------------------------------------- |  | -------------------------- | ----- | ---------------- | ------------------------- | ------------- |  | ---- | -------------- |  | ---------------- | ----- | ------------- | - | ----- |  | ---- | -
|                                            |  | For the Three Months Ended |       |                  | For the Nine Months Ended |              
|(dollars in millions)                       |  | January 2,2009             |       | December 28,2007 |                           | PercentChange |  |      | January 2,2009 |  | December 28,2007 |       | PercentChange |  
|Nursing home and assisted living facilities |  | $                          | 99.3  |                  | $                         | 86.7          |  | 14.5 | %              |  | $                | 276.0 |               | $ | 254.4 |  | 8.5  | %
|Hospice and home health care agencies       |  |                            | 45.2  |                  |                           | 35.8          |  | 26.3 | %              |  |                  | 124.6 |               |   | 107.3 |  | 16.2 | %
|Billing services                            |  |                            | 3.7   |                  |                           | 3.3           |  | 12.7 | %              |  |                  | 11.5  |               |   | 9.7   |  | 18.1 | %
|Other                                       |  |                            | 13.7  |                  |                           | 12.9          |  | 6.0  | %              |  |                  | 39.7  |               |   | 37.7  |  | 5.2  | %
|                                            |  |                            |       |                  |                           |               |  |      |                |  |                  |       |               |   |       |  |      |  
|Total                                       |  | $                          | 161.9 |                  | $                         | 138.7         |  | 16.7 | %              |  | $                | 451.8 |               | $ | 409.1 |  | 10.4 | %
|                                            |  |                            |       |                  |                           |               |  |      |                |  |                  |       |               |   |       |  |      |  

Net sales during the three and nine months ended January 2, 2009 compared to the same periods in the prior
year increased approximately $23.2 million and $42.7 million, respectively. The Companys net sales growth in the hospice and home health care lines of business during the quarter benefited from an increase in independent home health
agency sales and reflects the successful execution of its business growth strategies to diversify its customer base through expansion in the home health care



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market and other non-facilities based care and equipment providers. In addition, the nursing home and assisted living segment grew primarily from increased
penetration into independent skilled nursing facilities, where sales grew 22.2% and 14.4% during the three and nine months ended January 2, 2009, when compared to the same periods in the prior year.

Across its Elder Care customer segments, Select product sales increased 39.5% and 30.1% during the three and nine months ended January 2, 2009, when compared to the
same periods in the prior year due to the Companys focus on promoting its globally sourced products.

GROSS PROFIT

Gross profit for the Physician and Elder Care Businesses increased $13.2 million and $6.7 million, respectively, from the same quarter in the prior year and $30.0 million
and $15.7 million on a year to date basis. These increases were primarily due to the growth in net sales discussed above, as well as the Companys continued focus on its sourcing strategies and margin enhancement initiatives. The Companys
sourcing strategies are designed to improve the Physician and Elder Care Business cost competitiveness and increase its gross margins on certain products.

GENERAL AND ADMINISTRATIVE EXPENSES



|                             |  |                            |      |                           |                   |   |        |   |               |                 |      |          |                   |        |      |               |   |       |        |      |               |  |   |          |  |      |   |  |   |     
|---------------------------- |  | -------------------------- | ---- | ------------------------- | ----------------- | - | ------ | - | ------------- | --------------- | ---- | -------- | ----------------- | ------ | ---- | ------------- | - | ----- | ------ | ---- | ------------- |  | - | -------- |  | ---- | - |  | - | ----
|                             |  | For the Three Months Ended |      | For the Nine Months Ended
|                             |  | January 2, 2009            |      |                           | December 28, 2007 |   |        |   |               | January 2, 2009 |      |          | December 28, 2007 |        |      |              
|(dollars in millions)        |  | Amount                     |      | % of NetSales             |                   |   | Amount |   | % of NetSales |                 |      | Increase |                   | Amount |      | % of NetSales |   |       | Amount |      | % of NetSales |  |   | Increase
|Physician Business(a)        |  | $                          | 49.4 |                           | 13.8              | % |        | $ | 46.3          |                 | 14.2 | %        |                   | $      | 3.1  |               | $ | 151.0 |        | 14.7 | %             |  | $ | 142.6    |  | 15.0 | % |  | $ | 8.4 
|Elder Care Business(a)       |  |                            | 30.9 |                           | 19.1              | % |        |   | 26.9          |                 | 19.4 | %        |                   |        | 4.0  |               |   | 89.7  |        | 19.9 | %             |  |   | 79.6     |  | 19.5 | % |  |   | 10.1
|Corporate Shared Services(b) |  |                            | 9.1  |                           | 1.8               | % |        |   | 6.2           |                 | 1.3  | %        |                   |        | 2.9  |               |   | 28.9  |        | 1.9  | %             |  |   | 18.1     |  | 1.3  | % |  |   | 10.8
|                             |  |                            |      |                           |                   |   |        |   |               |                 |      |          |                   |        |      |               |   |       |        |      |               |  |   |          |  |      |   |  |   |     
|Total Company(b)             |  | $                          | 89.4 |                           | 17.2              | % |        | $ | 79.4          |                 | 17.1 | %        |                   | $      | 10.0 |               | $ | 269.6 |        | 18.2 | %             |  | $ | 240.3    |  | 17.6 | % |  | $ | 29.3
|                             |  |                            |      |                           |                   |   |        |   |               |                 |      |          |                   |        |      |               |   |       |        |      |               |  |   |          |  |      |   |  |   |     



|(a) | General and administrative expenses as a percentage of net sales are calculated based on reportable segment net sales.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(b) | General and administrative expenses as a percentage of net sales are calculated based on consolidated net sales.
|--- | ----------------------------------------------------------------------------------------------------------------

Physician Business

General and
administrative expenses as a percentage of net sales decreased period over period due to leveraging of the Companys assets over increased sales. Increases in general and administrative expenses are discussed below.

General and administrative expenses increased during the three months ended January 2, 2009, when compared to the same period in the prior year. This increase was
attributable to (i) an increase of $1.5 million in payroll related expenses related to general merit increases and headcount increases in support of strategic growth initiatives and (ii) an increase of $1.3 million in bonus expense for the
quarter, related to a combination of new incentive compensation plans introduced during fiscal year 2009 and operating performance.

General and
administrative expenses increased during the nine months ended January 2, 2009, when compared to the same period in the prior year. This increase was primarily attributable to (i) an increase of $3.8 million in bonus expense for the
year related to a combination of new incentive compensation plans introduced during fiscal year 2009 and operating performance; (ii) an increase of $3.3 million in payroll related charges; (iii) an increase of $1.3 million due to
additional National Meeting expenses; and (iv) an increase of $1.0 million for relocation expenses due to the Companys realignment of its organizational structure from four regions to six regions. Partially offsetting these increases
are $1.3 million of costs incurred during the nine months ended December 28, 2007 related to the Companys national launch of its Select and healthcare information technology marketing programs.



21



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Elder Care Business

General and administrative expenses increased during the three months ended January 2, 2009, when compared to the same period in the prior year. This increase was primarily attributable to (i) an increase of $1.8 million in
payroll related charges and (ii) an increase of $1.1 million in freight costs due to increased sales and rising fuel prices.

General and
administrative expenses increased during the nine months ended January 2, 2009, when compared to the same period in the prior year. This increase was primarily attributable to (i) an increase of $3.5 million in payroll related charges
and (ii) an increase of $3.4 million in freight and net fuel costs due to increased sales and rising fuel prices.

Corporate Shared Services

General and administrative expenses for the three months ended January 2, 2009 increased $2.9 million when compared to the same period in the
prior year. This increase is primarily attributable to an increase of $1.3 million in bonus expense related to a combination of new incentive compensation plans introduced during fiscal year 2009 and a $0.8 million increase in payroll
related costs due to an increase in full-time employees and merit increases.

General and administrative expenses for the nine months ended January 2,
2009 increased $10.8 million when compared to the same period in the prior year. This increase is primarily attributable to (i) an increase of $7.0 million in bonus expense related to a combination of new incentive compensation plans
introduced during fiscal year 2009, an increase in payout estimates based on managements quarterly review of performance achievement and the reversal of $3.2 million in the first nine months of the prior year; (ii) a
$3.0 million increase in payroll related costs due to an increase in full-time employees and merit increases; (iii) a $1.9 million increase in stock compensation expense related to new long-term incentive plans introduced during fiscal
year 2008; and (iv) $1.8 million related to increases in medical insurance costs. Partially offsetting these increases is a $4.3 million decrease in settlement and legal costs related to the Florida Department of Healths
inspection of the Companys operations for compliance with State Pedigree laws in fiscal year 2008.

SELLING EXPENSES

The following table summarizes selling expenses as a percentage of net sales period over period.



|                      |  |                            |      |                           |                   |   |        |   |               |                 |     |          |                   |        |     |               |   |      |        |     |               |  |   |          |  |     |   |  |   |    
|--------------------- |  | -------------------------- | ---- | ------------------------- | ----------------- | - | ------ | - | ------------- | --------------- | --- | -------- | ----------------- | ------ | --- | ------------- | - | ---- | ------ | --- | ------------- |  | - | -------- |  | --- | - |  | - | ---
|                      |  | For the Three Months Ended |      | For the Nine Months Ended
|                      |  | January 2, 2009            |      |                           | December 28, 2007 |   |        |   |               | January 2, 2009 |     |          | December 28, 2007 |        |     |              
|(dollars in millions) |  | Amount                     |      | % of NetSales             |                   |   | Amount |   | % of NetSales |                 |     | Increase |                   | Amount |     | % of NetSales |   |      | Amount |     | % of NetSales |  |   | Increase
|Physician Business    |  | $                          | 28.1 |                           | 7.9               | % |        | $ | 26.4          |                 | 8.1 | %        |                   | $      | 1.7 |               | $ | 81.1 |        | 7.9 | %             |  | $ | 76.8     |  | 8.1 | % |  | $ | 4.4
|Elder Care Business   |  |                            | 5.6  |                           | 3.4               | % |        |   | 5.1           |                 | 3.7 | %        |                   |        | 0.5 |               |   | 16.0 |        | 3.5 | %             |  |   | 15.0     |  | 3.7 | % |  |   | 1.0
|                      |  |                            |      |                           |                   |   |        |   |               |                 |     |          |                   |        |     |               |   |      |        |     |               |  |   |          |  |     |   |  |   |    
|Total Company         |  | $                          | 33.7 |                           | 6.5               | % |        | $ | 31.5          |                 | 6.8 | %        |                   | $      | 2.2 |               | $ | 97.1 |        | 6.6 | %             |  | $ | 91.8     |  | 6.7 | % |  | $ | 5.4
|                      |  |                            |      |                           |                   |   |        |   |               |                 |     |          |                   |        |     |               |   |      |        |     |               |  |   |          |  |     |   |  |   |    

Overall, the change in selling expenses is attributable to an increase in commission expense due to the growth in
net sales discussed above. A majority of the Companys sales representatives are fully commission-based. Commissions are generally paid to sales representatives based on gross profit dollars and gross profit as a percentage of net sales.



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PROVISION FOR INCOME TAXES

The following table summarizes the provision for income taxes period over period.



|                      |  |                            |      |                           |                   |   |        |   |               |                 |      |          |                   |        |     |               |   |      |        |      |               |  |   |          |  |      |   |  |   |    
|--------------------- |  | -------------------------- | ---- | ------------------------- | ----------------- | - | ------ | - | ------------- | --------------- | ---- | -------- | ----------------- | ------ | --- | ------------- | - | ---- | ------ | ---- | ------------- |  | - | -------- |  | ---- | - |  | - | ---
|                      |  | For the Three Months Ended |      | For the Nine Months Ended
|                      |  | January 2, 2009            |      |                           | December 28, 2007 |   |        |   |               | January 2, 2009 |      |          | December 28, 2007 |        |     |              
|(dollars in millions) |  | Amount                     |      | EffectiveRate             |                   |   | Amount |   | EffectiveRate |                 |      | Increase |                   | Amount |     | EffectiveRate |   |      | Amount |      | EffectiveRate |  |   | Increase
|Total Company         |  | $                          | 11.6 |                           | 38.9              | % |        | $ | 9.0           |                 | 38.9 | %        |                   | $      | 2.6 |               | $ | 27.4 |        | 39.2 | %             |  | $ | 23.7     |  | 38.8 | % |  | $ | 3.7

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources Highlights

Cash flows from operations are primarily impacted by segment
profitability and operational working capital. Management monitors operational working capital performance through the following:



|                             |  |                 |  |                  
|---------------------------- |  | --------------- |  | -----------------
|                             |  | As of          
|                             |  | January 2, 2009 |  | December 28, 2007
|Days Sales Outstanding:(a)   |  |                 |  |                  
|Physician Business           |  | 39.6            |  | 42.4             
|Elder Care Business          |  | 49.2            |  | 50.2             
|                             |  |                
|Days On Hand:(b)             |  |                 |  |                  
|Physician Business           |  | 54.9            |  | 52.8             
|Elder Care Business          |  | 51.9            |  | 55.3             
|                             |  |                
|Days in Accounts Payable:(c) |  |                 |  |                  
|Physician Business           |  | 41.2            |  | 46.2             
|Elder Care Business          |  | 25.7            |  | 28.0             
|                             |  |                
|Cash Conversion Days:(d)     |  |                 |  |                  
|Physician Business           |  | 53.3            |  | 49.0             
|Elder Care Business          |  | 75.4            |  | 77.5             
|                             |  |                
|Inventory Turnover:(e)       |  |                 |  |                  
|Physician Business           |  | 6.6x            |  | 6.8x             
|Elder Care Business          |  | 6.9x            |  | 6.5x             

| | 
| | 

| | (a) | Days sales outstanding (DSO) is average accounts receivable divided by average daily net sales. Average accounts receivable is the sum of accounts receivable, net of the
allowance for doubtful accounts, at the beginning and end of the most recent four quarters divided by five. Average daily net sales are net sales for the most recent four quarters divided by 360.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Days on hand (DOH) is average inventory divided by average daily cost of goods sold (COGS). Average inventory is the sum of inventory at the beginning and
end of the most recent four quarters divided by five. Average daily COGS is COGS for the most recent four quarters divided by 360.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Days in accounts payable (DIP) is average accounts payable divided by average daily COGS. Average accounts payable is the sum of accounts payable at the beginning and
end of the most recent four quarters divided by five.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Cash conversion days is the sum of DSO and DOH, less DIP.
| | --- | ---------------------------------------------------------

| | (e) | Inventory turnover is 360 divided by DOH.
| | --- | -----------------------------------------



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In addition to cash flow, the Company monitors other components of liquidity, including the following:



|                             |  |                 |        |   |                |   |        |  
|---------------------------- |  | --------------- | ------ | - | -------------- | - | ------ | -
|                             |  | As of           |       
|(dollars in millions)        |  | January 2, 2009 |        |   | March 28, 2009 |  
|Capital Structure:           |  |                 |        |   |                |   |        |  
|Convertible senior notes     |  | $               | 380.0  |   |                | $ | 150.0  |  
|Revolving line of credit     |  |                 | 50.0   |   |                |   | 70.0   |  
|Other debt                   |  |                 | 3.0    |   |                |   | 1.7    |  
|Cash and cash equivalents    |  |                 | (214.7 | ) |                |   | (21.1  | )
|                             |  |                 |        |   |                |   |        |  
|Net debt                     |  |                 | 218.3  |   |                |   | 200.6  |  
|Shareholders equity         |  |                 | 348.7  |   |                |   | 335.0  |  
|                             |  |                 |        |   |                |   |        |  
|Total capital                |  | $               | 567.0  |   |                | $ | 535.6  |  
|                             |  |                 |        |   |                |   |        |  
|                             |  |                
|Operational Working Capital: |  |                 |        |   |                |   |        |  
|Accounts receivable, net     |  | $               | 232.9  |   |                | $ | 237.2  |  
|Inventories                  |  |                 | 239.9  |   |                |   | 190.8  |  
|Accounts payable             |  |                 | (155.1 | ) |                |   | (135.9 | )
|                             |  |                 |        |   |                |   |        |  
|                             |  | $               | 317.7  |   |                | $ | 292.1  |  
|                             |  |                 |        |   |                |   |        |  

Cash Flows from Operating Activities

Net cash provided by operating activities during the nine months ended January 2, 2009 was primarily the result of overall operating profits partially offset by investments in operational working capital of
approximately $28.5 million, which includes investments in inventory made during the quarter.

Cash flows from operating activities during the nine months
ended January 2, 2009 and December 28, 2007 include the utilization of $1.0 million and $0.2 million (tax-effected), respectively, of net operating loss (NOL) carryforwards to offset cash payments due for Federal and
state tax liabilities based on estimated taxable income. Cash flows from operating activities were also impacted by cash payments made and refunds received for Federal and state taxes.

As of January 2, 2009, the Company has $6.5 million (tax effected) of Federal and state NOL carryforwards and expects to utilize the remaining NOL carryforwards prior to their expiration date. Of the total NOL
carryforwards, $4.6 relates to the acquisition of Activus Healthcare Solutions, Inc. and are expected to be utilized over the next 20 fiscal years.

As of
January 2, 2009, the Company has a deferred income tax liability of $15.1 (tax effected) related to interest deductions taken for tax purposes on its 2.25% $150.0 million convertible senior notes. The ultimate tax liability will be
dependent on the Companys stock price at the time of settlement and will range from $0.0 to $17.0 million. Any such liability will be paid in the fiscal quarter following settlement and reflected in operating cash flows. Amounts paid, if
any, will not impact the Companys effective tax rate.

Cash Flows from Investing Activities

Net cash provided (used) by investing activities was $1.1 million and $(50.4) million during the nine months ended January 2, 2009 and December 28, 2007,
respectively, and was primarily impacted by the following factors:



| |  |  | On June 29, 2007, the Company acquired approximately a 5% equity ownership in athenahealth, Inc. for $24.1 million, including $1.6 million of legal
and other professional fees, all of which was paid during the nine months ended December 28, 2007. During the third quarter of fiscal year 2009, the Company sold a portion of its investment in athena, resulting in a gain of approximately $0.4
million, $0.3 million net of tax. Proceeds of $22.1 million were received during the nine months ended January 2, 2009 related to the sale of athena stock during the third quarter of fiscal year 2009 and fourth quarter of fiscal year 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Payments for business combinations, net of cash acquired, were $3.0 million and $15.2 million during the nine months ended January 2, 2009 and
December 28, 2007, respectively, and consisted of the following:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the nine months ended January 2, 2009,
the Company acquired Cascade Medical Supply, a Washington-based distributor of Medicare Part B and Medicaid billing services and supplies to nursing and assisted living facilities. The maximum aggregate purchase price, after certain adjustments as
set forth in the purchase agreement, was approximately $3.0 million (net of cash acquired of $0.1 million). Payments totaling $3.0 million were made during the nine months ended January 2, 2009 from cash on hand.

On May 31, 2007, the Company acquired the stock of Activus Healthcare Solutions, Inc. (Activus), a California-based distributor of
medical supplies and pharmaceuticals to office-based physicians and surgery centers. The maximum aggregate purchase price, subject to certain adjustments as set forth in the purchase agreement, was approximately $13.2 million (net of cash
acquired of $0.4 million). Payments totaling $13.2 million were made during the nine months ended December 28, 2007 from cash on hand.

On September 30, 2005, the Physician Business acquired Southern Anesthesia & Surgical, Inc. During the three months ended June 29, 2007, the Company made a final payment of $1.5 million, as
outlined in the purchase agreement.



| |  |  | Capital expenditures totaled $17.8 million and $13.8 million during the nine months ended January 2, 2009 and December 28, 2007, respectively,
of which approximately $11.7 million and $8.5 million, respectively, related to development and enhancement of the Companys ERP system, electronic commerce platforms, and supply chain integration. Capital expenditures related to
distribution center expansions were approximately $3.4 million and $1.8 million during the nine months ended January 2, 2009 and December 28, 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Financing Activities

Net cash provided (used) by financing activities was $147.1 million and
$(27.0) million during the nine months ended January 2, 2009 and December 28, 2007, respectively. Net cash provided or used by financing activities during the nine months ended January 2, 2009 and December 28, 2007,
respectively, were mainly impacted by the following factors:



| |  |  | The Company issued $230.0 million of 3.125% convertible senior notes during the nine months ended January 2, 2009. In conjunction with this offering the
Company received $25.4 million from the issuance of warrants, paid $54.1 million for the purchase of a convertible note hedge, and paid debt issuance costs of approximately $5.1 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company repurchased approximately 2.1 million shares of common stock at an average price of $16.67 per common share for approximately $35.7 million
concurrently with the convertible debt offering. The Company repurchased approximately 3.5 million shares of common stock at an average price of $17.89 per common share for approximately $62.5 million during the nine months ended
December 28, 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company received proceeds from the exercise of stock options of approximately $6.0 million and $2.3 million during the nine months ended January 2,
2009 and December 28, 2007, respectively. The Company recognized related excess tax benefits of $1.7 million and $1.3 million during the nine months ended January 2, 2009 and December 28, 2007, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | The Company made net repayments of $20.0 million on its revolving line of credit during the nine months ended January 2, 2009. The Company borrowed
approximately $32.6 million on its revolving line of credit during the nine months ended December 28, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Resources

The capital and credit markets have recently experienced adverse conditions. The resulting restricted access to capital along with
significant volatility within capital markets have increased the costs associated with issuing or refinancing debt because of increased risk spreads over relevant interest rate benchmarks. The Company continues to be well positioned to weather the
current crisis in the financial markets, however, there can be no guarantee the recent disruptions in the overall economy and the financial markets will not adversely impact the business and results of operations.

The Companys three main sources of capital are the proceeds from the 2.25% $150.0 million convertible senior notes offering, proceeds from the
3.125% $230.0 million convertible senior notes offering, and the $200.0 million revolving line of credit. These instruments provide the financial resources to support the business strategies of customer service and revenue growth. The
revolving line of credit, which is an asset-based agreement, is primarily collateralized by the Companys accounts receivable and inventory. The Companys long-term priorities for use of capital are internal growth, acquisitions, and
repurchase of the Companys common stock.

2.25% $150 Million Convertible Senior Notes

The 2.25% $150.0 million convertible senior notes may be converted into shares of the Companys common stock prior to March 15, 2019, during any
calendar quarter that the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 120% of the applicable conversion price of $17.10 per share
(or $20.51 per share) (Contingent Conversion Trigger). The ability of note holders to convert is assessed on a quarterly basis. The Contingent Conversion Trigger was not met during the three months ended January 2, 2009.

On each of March 15, 2009, March 15, 2014 and March 15, 2019, holders of the 2.25% $150.0 million convertible senior notes have
the option to require the Company to purchase notes at 100% of the principal amount of the notes plus accrued and unpaid interest, and other considerations, including contingent interest, if applicable.

On or after March 15, 2009, the Company at any time has the right to redeem the notes in whole or in part at a redemption price equal to 100% of the principal
amount of the notes, plus accrued and unpaid interest, and other considerations, including contingent interest, if applicable.

As of January 2, 2009,
the fair value of the 2.25% $150.0 million convertible senior notes was approximately $167.9 million.

As of January 2, 2009, the
Company has a deferred income tax liability of $15.1 million (tax effected) related to interest deductions taken for tax purposes on its 2.25% $150.0 million convertible senior notes. The ultimate tax liability will be dependent on the
Companys stock price at the time of settlement and will range from $0.00 to $17.0 million. Any such liability will be paid in the fiscal quarter following settlement and reflected in operating cash flows. Amounts paid, if any, would not
have a material impact on the Companys effective tax rate.

During the first quarter of fiscal year 2009, the Company corrected the
classification of the Companys 2.25% $150.0 million convertible senior notes at March 28, 2008 from long-term debt to short-term debt, reflecting the one-day put option on March 15, 2009, afforded to the holders of the
notes in accordance with the terms thereof. Under SAB 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the quantitative and
qualitative aspects of the adjustment and determined the correction was not material. There was no impact on the Companys results of operations or cash flow statements for the fiscal year ended March 28, 2008.



26



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##### Table of Contents

3.125% $230 Million Convertible Senior Notes

In August 2008, the Company issued $230.0 million principal amount of 3.125% convertible senior notes, which mature on August 1, 2014. Interest on the
notes is payable semiannually in arrears on February 1 and August 1 of each year. The notes will be convertible into cash up to the principal amount of the notes and shares of the Companys common stock for any conversion value in
excess of the principal amount under the following circumstances: (i) if the Company has called the notes for redemption; (ii )in the event of a Fundamental Change, such as a merger, acquisition, or liquidation; (iii) on or after
May 1, 2014 and prior to the close of business on the second scheduled trading day immediately preceding August 1, 2014; (iv) prior to May 1, 2014, during the five consecutive business day period following any five
consecutive trading day period in which the trading price for a note for each day of that trading period is less than 98% of the closing sale price of the Companys common stock on such corresponding trading day multiplied by the applicable
conversion rate; (v) prior to May 1, 2014, during any calendar quarter after September 30, 2008 in which the closing sale price of the Companys common stock for at least 20 of the 30 consecutive trading days ending the day prior
to such quarter is greater than 130% of the applicable conversion price of $21.22 per share; or (vi) upon specified corporate events as discussed in the indenture governing the notes.

A note holder may not exercise its conversion right with respect to all or any portion of a note, if such conversion would cause the note holder to become a beneficial
owner of more than 9.9% of the Companys outstanding voting stock. The initial conversion rate is 47.1342 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of
$21.22 per share. The conversion rate is subject to adjustment if certain events occur, such as stock dividends or other distributions of cash, securities, indebtedness or assets; stock splits and combinations; issuances of rights or warrants;
tender offers; or repurchases.

As of January 2, 2009, the fair value of the 3.125% $230.0 million convertible senior notes was
approximately $237.1 million.

The ability of note holders to convert is assessed on a quarterly basis and is dependent on the trading price of the
Companys stock during the last 30 trading days of each quarter. The Contingent Conversion Trigger was not met during the three months ended January 2, 2009; therefore, the notes may not be converted during the Companys fourth
quarter of fiscal year 2009.

The Company used a portion of the net proceeds of the offering to repurchase approximately $35.0 million of its common
stock in privately negotiated transactions with institutional investors concurrently with this offering. See Stock Repurchase Program in Footnote 1, Background and Basis of Presentation, for additional information. The Company anticipates
using up to $150.0 million of the net proceeds on or before March 15, 2024, when holders of the notes have the option, as described above, to require the Company to redeem all or part of the outstanding 2.25% notes. Remaining proceeds will
be used for general corporate purposes.

Convertible Note Hedge Transactions

In connection with the offering of the notes, the Company also entered into convertible note hedge transactions with respect to its common stock (the purchased options) with a major financial
institution, (the counterparty). The Company paid an aggregate amount of $54.1 million to the counterparty for the purchased options. The purchased options cover, subject to anti-dilution adjustments substantially identical
to those in the notes, approximately 10.8 million shares of common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to adjustment, and are exercisable at each conversion date of the notes. The
purchased options will expire upon the earlier of (i) the last day the notes remain outstanding or (ii) the second scheduled trading day immediately preceding the maturity date of the notes.

The purchased options are intended to reduce the potential dilution upon conversion of the notes in the event that the market value per share of the common stock, as
measured under the notes, at the time of exercise is greater than the conversion price of the notes.

The purchased options are separate transactions,
entered into by the Company with the counterparty, and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the purchased options.



27



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##### Table of Contents

Warrant Transactions

The Company also entered into warrant transactions (the warrants), whereby the Company sold to the counterparty warrants in an aggregate amount of $25.4 million to acquire, subject to anti-dilution adjustments, up to
10.8 million shares of common stock at a strike price of $28.29 per share of common stock, also subject to adjustment. The warrants will expire after the purchased options in approximately ratable portions on a series of expiration dates
commencing on November 3, 2015.

If the market value per share of the common stock, as measured under the warrants, exceeds the strike price of the
warrants, the warrants will have a dilutive effect on the Companys earnings per share. The warrants have been accounted for as an adjustment to the Companys stockholders equity.

The warrants are separate transactions, entered into by the Company with the counterparties, and are not part of the terms of the notes. Holders of the notes do not have
any rights with respect to the warrants.

Revolving Line of Credit

The Company had $50.0 million in outstanding borrowings under the revolving line of credit at January 2, 2009. The Credit Agreement permits maximum borrowings of up to $200.0 million, which may be
increased to $250.0 million at the Companys discretion. After reducing availability for outstanding borrowings and letter of credit commitments, the Company had sufficient assets based on eligible accounts receivable and inventory to
borrow up to $149.2 million (excluding the additional increase of $50.0 million) under the revolving line of credit. The average daily interest rate, excluding debt issuance costs and unused line fees, for the nine months ended
January 2, 2009 and December 28, 2007 was 4.09% and 6.88%, respectively.

As the Companys business grows, its cash and working capital
requirements are expected to increase. The Company normally meets its operating requirements by maintaining appropriate levels of liquidity under its revolving line of credit and using cash flows from operating activities. The Company expects the
overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, capital markets, and/or other financing arrangements. During the nine months ended
January 2, 2009 and December 28, 2007, the Company has not entered into any new material working capital commitments that require funding.

Debt Rating

The Companys debt is rated by a nationally recognized rating agency, Standard and Poors Ratings Services
(S&P). Companies that have assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have
the weakest capability. On October 10, 2008, S&P revised its ratings outlook from stable to positive and reaffirmed the Companys credit rating of BB. This revision was attributable to the Companys solid operating
performance and its ability to manage credit in the current environment. Agency ratings are always subject to change, and there can be no assurance that a ratings agency will continue to rate the Company or its debt, and/or maintain its current
ratings. Management cannot predict the effect that a negative change in debt ratings will have on the Companys liquidity or whether the Company will maintain adequate ratings as required by the 2.25% convertible notes indenture. Additionally,
any decreases in the Companys debt rating could impact the Companys convertible notes, as holders may present the notes for redemption should the Companys debt rating fall below a certain level.



28



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##### Table of Contents

Future Contractual Obligations

In the normal course of business, the Company enters into obligations and commitments that require future contractual payments. The following table presents, in aggregate, scheduled payments under contractual
obligations for the Physician Business, the Elder Care Business, and Corporate Shared Services:



|                                         |  |              |         |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|---------------------------------------- |  | ------------ | ------- | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                                         |  | Fiscal Years |         |      |   |       
|(in thousands)                           |  | 2009         |         | 2010 |   | 2011   |  | 2012 |        | 2013 |   | Thereafter |  | Total
|Revolving line of credit(a), (b)         |  | $            | 587     |      | $ | 2,338  |  | $    | 2,250  |      | $ | 2,250      |  | $     | 51,125 |  | $ |        |  | $ | 58,550 
|2.25% convertible senior notes(b), (c)   |  |              | 151,688 |      |   |       |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 151,688
|3.125 % convertible senior notes(b), (d) |  |              | 3,534   |      |   | 7,188  |  |      | 7,188  |      |   | 7,188      |  |       | 7,188  |  |   | 240,781 |  |   | 273,067
|Outstanding letters of credit            |  |              |        |      |   | 783    |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 783    
|Operating lease obligations(e)           |  |              | 6,073   |      |   | 22,664 |  |      | 18,164 |      |   | 14,305     |  |       | 9,093  |  |   | 10,233  |  |   | 80,532 
|Capital lease obligations(b)             |  |              | 360     |      |   | 1,093  |  |      | 1,042  |      |   | 859        |  |       | 9      |  |   |        |  |   | 3,363  
|Purchase commitments(f), (g), (h)        |  |              | 3,243   |      |   | 10,169 |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 13,412 
|Outstanding purchase price(i)            |  |              | 750     |      |   | 750    |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 1,500  
|                                         |  |              |         |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Total(j)                                 |  | $            | 166,235 |      | $ | 44,985 |  | $    | 28,644 |      | $ | 24,602     |  | $     | 67,415 |  | $ | 251,014 |  | $ | 582,895
|                                         |  |              |         |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



|(a) | The revolving line of credit is classified as a current liability in accordance with Emerging Issues Task Force No. 95-22, Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement; however, the credit facility does not expire until September 30, 2012. The Company is not obligated to repay or
refinance amounts outstanding under the revolving line of credit until September 30, 2012. Interest expense has been estimated using current level borrowings outstanding at current effective interest rates. Actual interest expense may differ
due to changes in interest rates or levels of borrowings.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Amounts include interest expense.
|--- | ---------------------------------

|(c) | The 2.25% $150.0 million convertible debt due 2024 is classified as short term due to a one-day put option on March 15, 2009. See additional provisions relating to the
Companys debt in Footnote 3, Debt.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The 3.125% $230.0 million convertible debt, due 2014 is discussed further in Footnote 3, Debt.
|--- | ----------------------------------------------------------------------------------------------

|(e) | Amounts represent contractual obligations for operating leases of the Company as of January 2, 2009. Currently, it is managements intent to either renegotiate existing
leases or execute new leases prior to or upon their expiration date of such agreements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | If the Physician Business or the Elder Care Business were to terminate a contract with a vendor of its Select Medical Products brand (Select) for any reason, the Company
may be required to purchase the remaining inventory of Select products from the vendor, provided that, in no event would the Company be required to purchase quantities of such products which exceed the aggregate amount of such products ordered by
the Company in a negotiated time period immediately preceding the date of termination. As of January 2, 2009, the Company had no material obligations to purchase inventory from Select vendors due to contract terminations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | During the fourth quarter of fiscal year 2008, the Company entered into an agreement to purchase a minimum number of latex and vinyl gloves through February 2010. The pricing
of the latex gloves may be periodically adjusted and is based on the price of raw latex as traded on the Malaysian Rubber Exchange. The pricing of the vinyl gloves may also be periodically adjusted and is based on the weighted price of two raw
materials, Poly vinyl chloride (PVC) and Dioctylphthalate (DOP), as published on www.icis.com. These purchase commitments are valued at approximately $11.7 million at January 2, 2009 and are based on managements estimate of current
pricing.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) | During October 2007, the Company entered into an exclusive distributor agreement with a supplier to purchase certain chemistry analyzers through September 2009. As of
January 2, 2009, the purchase commitment was valued at approximately $1,492.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(i) | Amounts represent estimated additional consideration, including interest, to be paid to the sellers of previously acquired businesses, net of any amounts payable to the Company for
indemnity claims that arise under the purchase agreement.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | As of January 2, 2009, the Company had gross unrecognized tax benefits of $2.4 million. This amount is excluded from the table above as the Company cannot reasonably
estimate the period of cash settlement with the respective taxing authorities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Critical Accounting Estimates are disclosed in the Annual Report on Form 10-K for the fiscal year ended March 28, 2008 filed on May 23,
2008 under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations.There have been no material changes in the Companys Critical Accounting Estimates, as disclosed in the Annual
Report.

Recent Accounting Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair
value measurements by establishing a fair value hierarchy based on the quality of inputs used to measure fair value. SFAS 157 does not require any new fair value measurements, but applies to other accounting pronouncements that require or
permit fair value measurements. SFAS 157 is effective for financial statements for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 on March 29, 2008 and adoption did not have a material impact on its
financial position, results of operations or cash flows. FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157 (FSP SFAS 157-2), delays the effective date of SFAS 157 with respect
to nonfinancial assets and nonfinancial liabilities not remeasured at fair value on a recurring basis until fiscal years beginning after November 15, 2008, or the Companys fiscal year 2010. Accordingly, the Company has not yet applied the
requirements of SFAS 157 to certain such nonfinancial assets for which fair value measurements are determined only when there is an indication of potential impairment.

During February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB SFAS 115 (SFAS 159).
SFAS 159 permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 mandates certain financial statement presentation and
disclosure requirements when a company elects to report assets and liabilities at fair value under SFAS 159. SFAS 159 is effective for fiscal years beginning after November 15, 2007, or the Companys fiscal year 2009. The
Company adopted SFAS 159 on March 29, 2008 and adoption did not have an impact on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset and the disclosure requirements under FASB Statement No. 142, Goodwill and Other Intangibles. FSP 142-3 requires that an entity consider its historical
experience in renewing or extending similar arrangements in determining the useful life of a recognized intangible asset. Determining the useful life of a recognized intangible asset under FSP 142-3 applies prospectively to intangible assets
acquired after the effective date. The disclosure requirements of FSP 142-3 will be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, or the Companys fiscal year 2010, and interim periods within those fiscal years. Early adoption of FSP 142-3 is prohibited. The Company is currently assessing the effect, if
any, the adoption of FSP 142-3 will have on its financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Staff
Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires entities with convertible debt
instruments that may be settled in cash upon conversion (including partial cash settlement) to separately account for the liability and equity components in a manner that reflects an estimate of the entitys nonconvertible debt borrowing rate
when interest expense is recognized in subsequent periods.



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FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, or the Companys fiscal
year 2010. Entities are required to apply FSP APB 14-1 retrospectively for all periods presented. Upon adoption, the Company estimates FSP APB 14-1 will increase non-cash interest expense by $10.9 million (or approximately $6.7 million
after-tax) and $7.7 million (or approximately $4.7 million after-tax) for fiscal year 2009 and fiscal year 2010, respectively.

In June 2008, the FASB
ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated
strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008, or the Companys fiscal year 2010. This pronouncement will not
effect future reporting periods, as the Company currently accounts for their financial instruments under the guidance set forth by EITF 07-5.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The
Company believes there has been no material change in its exposure to market risk from that discussed in Item 7A in the Annual Report on Form 10-K for the fiscal year ended March 28, 2008 filed on May 23, 2008.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Companys management, with the participation of the Companys Principal Executive Officer and Principal Financial Officer, has
evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 240.15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the
period covered by this report (the Evaluation Date). Based on the evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, as of the Evaluation Date, the Companys disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is accumulated and communicated to the Companys management, including the Companys Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial
Reporting

There have been no changes in the Companys internal control over financial reporting that occurred during the nine months ended
January 2, 2009 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II  OTHER INFORMATION



|ITEM 1A. | RISK FACTORS
|-------- | ------------

In addition to the other information set forth in
this Quarterly Report on Form 10-Q, investors should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Companys Annual Report Form 10-K for the fiscal year ended March 28, 2008, filed
on May 23, 2008. Such factors could have a material adverse effect on the Companys financial position, results of operations, or cash flows. The Company has potential exposure to risks other than those described in the Companys
Annual Report on Form 10-K. Additional risks and uncertainties not currently known to management, or risks that management currently deem to be immaterial, could have a material adverse effect on the Companys financial position, results
of operations, or cash flows.



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##### Table of Contents

Except as set forth below, there have been no material changes from the risk factors disclosed in Part I, Item 1A,
Risk Factors, in the Companys Annual Report Form 10-K for the fiscal year ended March 28, 2008.

Cost increases for the
Companys products may impact the Companys results of operations.

Some of the Companys suppliers have and may continue to accelerate
cost increases for products distributed by the Company. While the Company is taking steps to mitigate the effect of these cost increases, there can be no assurance that these cost increases will not materially adversely impact the Companys
gross margins, financial condition, and results of operations.

General economic conditions, a decline in consumer spending or other conditions may
materially adversely impact the Companys sales in a disproportionate fashion.

Current and future economic conditions and other factors including
consumer confidence, employment levels, interest rates, tax rates, consumer debt levels, the threat or outbreak of terrorism, fuel and energy costs and the availability of consumer credit, and the impact of state budget deficits on Medicare and
Medicaid reimbursement could reduce consumer spending or change consumer purchasing habits. A general slowdown in the U.S. economy or in the global economy, or an uncertain economic outlook, could materially adversely affect consumer spending habits
and our operating results.

President Barack Obama has identified health care reform as a key priority of his administration. Publicly disclosed
initiatives include increased availability of insurance, funding for the use of health care information technology, promotion of patient safety, and efficiencies in Medicare and Medicaid. It is unclear at this time what laws and regulations may
ultimately be enacted and what impact such laws and regulations will have on the purchasing pattern of the Companys customers, and as a result, the Companys financial condition, results of operations and cash flows.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Issuer Sales and Purchases of Equity Securities

The Company repurchases its common stock under stock repurchase programs authorized by the
Companys Board of Directors. As of March 28, 2008, there were 0.4 million shares available for repurchase under existing stock repurchase programs. On April 2, 2008, the Companys Board of Directors approved a stock
repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.1 million common shares, in the open market, in privately negotiated
transactions, or otherwise. The share repurchase program does not have an expiration date. During the second quarter of fiscal year 2009, the Company issued $230 million principal amount of 3.125% convertible senior notes and used a
portion of the net proceeds to repurchase approximately 2.1 million shares of common stock at an average price of $16.64 per common share for approximately $35 million. Agreements relating to the issuance of the convertible senior notes
were previously described in the Companys Current Report on Form 8-K filed on August 12, 2008.



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##### Table of Contents

The following table summarizes the Companys repurchase activity during the three months ended January 2, 2009.



|                          |  |                                |     |  |                            |       |                                                                           |       |                                                                          |          
|------------------------- |  | ------------------------------ | --- |  | -------------------------- | ----- | ------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------ | ---------
|Period                    |  | Total Numberof SharesPurchased |     |  | Average PricePaid perShare |       | Total Numberof SharesPurchased asPart ofPubliclyAnnouncedPlans orPrograms |       | MaximumNumberof Shares thatMay yet
bePurchasedUnder the Plansor Programs
|September 27 - November 2 |  | 3,843                          | (a) |  | $                          | 17.33 |                                                                           | 3,843 |                                                                          | 1,353,771
|November 3 - December 2   |  |                               |     |  |                            |      |                                                                           |      |                                                                          | 1,353,771
|December 3 - January 2    |  |                               |     |  |                            |      |                                                                           |      |                                                                          | 1,353,771
|                          |  |                                |     |  |                            |       |                                                                           |       |                                                                          |          
|Total third quarter       |  | 3,843                          |     |  | $                          | 17.33 |                                                                           | 3,843 |                                                                          | 1,353,771
|                          |  |                                |     |  |                            |       |                                                                           |       |                                                                          |          



|(a) | Includes shares repurchased for net share settlement of employee share-based awards.
|--- | ------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

(a) Exhibits required by Item 601 of Regulation S-K:



|              |  |                                                                                                                                                                                 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                     
|3.1           |  | Restatement of Amended and Restated Articles of Incorporation, dated December 12, 2008 (1)                                                                                      
|              | 
|3.2           |  | Amended and Restated Bylaws, dated December 12, 2008 (1)                                                                                                                        
|              | 
|10.1          |  | Eighth Amendment to the Amended and Restated Savings Plan                                                                                                                       
|              | 
|10.2          |  | Amended and Restated Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 29, 2008, by and between the Company and David A.
Smith   
|              | 
|10.3          |  | Amended and Restated Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 30, 2008, by and between the Company and David M.
Bronson 
|              | 
|10.4          |  | Amended and Restated Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 30, 2008, by and between the Company and John F. Sasen
Sr.
|              | 
|10.5          |  | Amended and Restated Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 29, 2008, by and between the Company and Gary A.
Corless  
|              | 
|10.6          |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 30, 2008, by and between the Company and Kevin P. English         
|              | 
|10.7          |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 30, 2008, by and between the Company and Bradley J. Hilton        
|              | 
|10.8          |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 28, 2008, by and between the Company and Jeffrey H. Anthony       
|              | 
|10.9          |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 31, 2008, by and between the Company and David D. Klarner         
|              | 
|10.10         |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 30, 2008, by and between the Company and Robert C. Weiner         
|              | 
|10.11         |  | Amendment to Employment Agreement related to Section 409A, of the Internal Revenue Code, dated as of December 28, 2008, by and between the Company and Joshua H. DeRienzis      
|              | 
|10.12         |  | PSS World Medical Inc. Amended and Restated Directors Deferred Compensation Plan, as amended and restated effective January 1, 2009                                            
|              | 
|10.13         |  | PSS World Medical Inc. Amended and Restated Officer Deferred Compensation Plan, as amended and restated effective January 1, 2009                                               
|              | 
|10.14         |  | PSS World Medical Inc. Amended and Restated ELITe Deferred Compensation Plan, as amended and restated effective January 1, 2009                                                 
|              | 
|10.15         |  | PSS World Medical Inc. Amended and Restated Leaders Deferral Plan, as amended and restated effective January 1, 2009                                                           
|              | 
|10.16         |  | Amendment to the PSS World Medical 2006 Incentive Plan                                                                                                                          
|              | 
|31.1          |  | Rule 13a-14(a) Certification of the Chief Executive Officer.                                                                                                                    
|              | 
|31.2          |  | Rule 13a-14(a) Certification of the Chief Financial Officer.                                                                                                                    
|              | 
|32.1          |  | Section 1350 Certification of the Chief Executive Officer.                                                                                                                      
|              | 
|32.2          |  | Section 1350 Certification of the Chief Financial Officer.                                                                                                                      



|(1) | Incorporated by Reference to the Companys Current Report on Form 8-K filed December 17, 2008
|--- | ---------------------------------------------------------------------------------------------



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jacksonville,
State of Florida, on February 11, 2009.



PSS WORLD MEDICAL, INC.By:

/s/ David M. BronsonDavid M. BronsonExecutive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)




35