Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# x Annual	Report	Pursuant	to	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934

For	the	Fiscal	Year	Ended	September	30,	2005

¨ Transition	Report	Pursuant	to	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934

# AMERISOURCEBERGEN	CORPORATION

# (Exact	name	of	registrant	as	specified	in	its	charter)

Common	Stock,	$.01	par	value	per	share

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90 days.	Yes	x				No	¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of the	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10- K.	x

Indicate	by	check	mark	whether	the	registrant	is	an	accelerated	filer	(as	defined	in	Rule	12b-2	of	the	Securities	Exchange	Act	of	1934).	Yes	x				No	¨

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Securities	Exchange	Act	of	1934).	Yes	¨				No	x

The	aggregate	market	value	of	voting	stock	held	by	non-affiliates	of	the	registrant	on	March	31,	2005,	based	upon	the	closing	price	of	such	stock	on	the	New York	Stock	Exchange	on	March	31,	2005,	was	$4,216,774,879.

The	number	of	shares	of	common	stock	of	AmerisourceBergen	Corporation	outstanding	as	of	November	30,	2005	was	104,260,664.

Documents	Incorporated	by	Reference

Portions	of	the	following	document	are	incorporated	by	reference	in	the	Part	of	this	report	indicated	below:

Part	III	-	Registrant's	Proxy	Statement	for	the	2006	Annual	Meeting	of	Stockholders.

|  | PART	I |  |
| :--- | :--- | :--- |
| 1. | Business | 3 |
| 2. | Properties | 15 |
| 3. | Legal\tProceedings | 16 |
| 4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 16 |
|  | Executive\tOfficers\tof\tthe\tRegistrant | 17 |
|  | PART\tII |  |
| 5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 18 |
| 6. | Selected\tFinancial\tData | 20 |
| 7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 21 |
| 7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 41 |
| 8. | Financial\tStatements\tand\tSupplementary\tData | 42 |
| 9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 82 |
| 9A. | Controls\tand\tProcedures | 82 |
| 9B. | Other\tInformation | 84 |
|  | PART\tIII |  |
| 10. | Directors\tand\tExecutive\tOfficers\tof\tthe\tRegistrant | 84 |
| 11. | Executive\tCompensation | 84 |
| 12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 84 |
| 13. | Certain\tRelationships\tand\tRelated\tTransactions | 84 |
| 14. | Principal\tAccountant\tFees\tand\tServices | 84 |
|  | PART\tIV |  |
| 15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 85 |
|  | Signatures | 90 |

# PART	I

# ITEM	1. BUSINESS

AmerisourceBergen	Corporation	("AmerisourceBergen"	or	the	"Company")	is	one	of	the	largest	pharmaceutical	services	companies	in	the	United	States.	Serving both	pharmaceutical	manufacturers	and	healthcare	providers	in	the	pharmaceutical	supply	channel,	the	Company	provides	drug	distribution	and	related	services designed	to	reduce	costs	and	improve	patient	outcomes.	More	specifically,	we	distribute	a	comprehensive	offering	of	brand	name	and	generic	pharmaceuticals,	over-the- counter	healthcare	products,	and	home	healthcare	supplies	and	equipment	to	a	wide	variety	of	healthcare	providers	located	throughout	the	United	States,	including	acute care	hospitals	and	health	systems,	independent	and	chain	retail	pharmacies,	mail	order	facilities,	physicians,	clinics	and	other	alternate	site	facilities,	and	skilled	nursing and	assisted	living	centers.	We	also	provide	pharmaceuticals	and	pharmacy	services	to	long-term	care,	workers'	compensation	and	specialty	drug	patients.	Additionally, we	furnish	healthcare	providers	and	pharmaceutical	manufacturers	with	an	assortment	of	related	services,	including	pharmacy	automation,	supply	management	software, pharmaceutical	packaging,	inventory	management,	reimbursement	and	pharmaceutical	consulting	services,	logistics	services,	and	physician	education,	all	of	which	are designed	to	reduce	costs	and	improve	patient	outcomes.

# Industry	Overview

We	have	benefited	from	the	significant	growth	of	the	pharmaceutical	industry	in	the	United	States.	According	to	IMS	Healthcare,	Inc.,	an	independent	third	party provider	of	information	to	the	pharmaceutical	and	healthcare	industry,	industry	sales	in	the	United	States	are	expected	to	grow	between	8%	and	9%	in	2006	and	annually between	7%	and	10%	through	2009.

The	factors	contributing	to	the	growth	of	the	pharmaceutical	industry	in	the	United	States,	and	other	industry	trends,	include:

Aging	Population.	The	number	of	individuals	over	age	55	in	the	United	States	grew	from	approximately	52	million	in	1990	to	approximately	59	million	in	2000 and	is	projected	to	increase	to	more	than	75	million	by	the	year	2010.	This	age	group	suffers	from	chronic	illnesses	and	disabilities	more	than	the	rest	of	the	population and	is	estimated	to	account	for	approximately	two-thirds	of	total	healthcare	expenditures	in	the	United	States.

Introduction	of	New	Pharmaceuticals.	Traditional	research	and	development,	as	well	as	the	advent	of	new	research,	production	and	delivery	methods,	such	as biotechnology	and	gene	research	and	therapy,	continue	to	generate	new	compounds	and	delivery	methods	that	are	more	effective	in	treating	diseases.	These	compounds have	been	responsible	for	significant	increases	in	pharmaceutical	sales.	We	believe	ongoing	research	and	development	expenditures	by	the	leading	pharmaceutical manufacturers	will	contribute	to	continued	growth	of	the	industry.

Increased	Use	of	Drug	Therapies.	In	response	to	rising	healthcare	costs,	governmental	and	private	payors	have	adopted	cost	containment	measures	that	encourage the	use	of	efficient	drug	therapies	to	prevent	or	treat	diseases.	While	national	attention	has	been	focused	on	the	overall	increase	in	aggregate	healthcare	costs,	we	believe drug	therapy	has	had	a	beneficial	impact	on	overall	healthcare	costs	by	reducing	expensive	surgeries	and	prolonged	hospital	stays.	Pharmaceuticals	currently	account	for approximately	10%	of	overall	healthcare	costs.	Pharmaceutical	manufacturers'	continued	emphasis	on	research	and	development	is	expected	to	result	in	the	continuing introduction	of	cost-effective	drug	therapies.

Pharmaceutical	Supply	Channel	Changes.	Historically,	we	and	our	major	pharmaceutical	distribution	competitors	derived	a	significant	portion	of	our pharmaceutical	distribution	gross	margin	from	manufacturer	price	increases,	which	have	historically	equaled	or	exceeded	the	overall	Consumer	Price	Index.	We	believe these	increases	were	due	in	large	part	to	the	relatively	inelastic	demand	for	brand	name	drugs	notwithstanding	higher	prices	charged	for	patented	drugs	as	pharmaceutical manufacturers	attempted	to	recoup	costs	associated	with	the	development,	clinical	testing	and	regulatory	approval	of	new	products.	Recently,	pharmaceutical manufacturers	have	been	under	significant	pressure	to	reduce	the	rate	of	pharmaceutical	price	increases.	While	we	expect	such	price	increases	to	occur	in	the	future,	we cannot	predict	the	rate	at	which	such	prices	will	increase	or	the	frequency	of	increases.

Our	industry	is	in	a	transition	to	a	fee-for-service	model	whereby	we	and	our	major	competitors	are	compensated	for	the	services	provided	to	manufacturers	versus one	that	is	dependent	upon	manufacturer	price	increases.	There	can	be	no	assurance	that	the	fee-for-service	transition	will	be	successful	or	that	our	profitability	will	not be	significantly	reduced	by	the	transition	(see	further	description	of	business	model	transition	on	page	6	under	the	section	titled	"Suppliers").

Medicare	and	Medicaid	Legislative	Developments.	Medicare	reimbursement	rates	for	certain	pharmaceuticals	were	impacted	by	implementation	of	the	Medicare Prescription	Drug	Improvement	and	Modernization	Act	of	2003	("Medicare	Modernization	Act")	by	the	U.S.	Department	of	Health	and	Human	Services	("HHS"),	and further	Medicare	reimbursement	reductions	and	policy	changes	are	scheduled	to	be	implemented	in	the	future.	In	addition,	the	U.S.	Congress	is	considering	reductions	in Medicaid	reimbursement	for	certain	prescription	drugs.	These	policies	may	adversely	affect	our	specialty	distribution	and	our	long-term	care	institutional	pharmacy businesses	directly	and	our	wholesale	drug	distribution	and	specialty	distribution	businesses	indirectly.

Expiration	of	Patents	for	Brand	Name	Pharmaceuticals.	A	significant	number	of	patents	for	widely-used	brand	name	pharmaceutical	products	will	expire	during the	next	several	years.	These	products	are	expected	to	be	marketed	by	generic	pharmaceutical	manufacturers	and	distributed	by	distributors	like	us.	We	consider	this	a favorable	trend	because	generic	products	have	historically	provided	a	greater	gross	profit	margin	opportunity	than	brand	name	products.

# The	Company

The	Company	was	formed	by	the	merger	of	AmeriSource	Health	Corporation	("AmeriSource")	and	Bergen	Brunswig	Corporation	("Bergen")	in	August	2001. We	currently	serve	our	customers,	including	healthcare	providers,	pharmaceutical	manufacturers,	and	patients	throughout	the	United	States	and	Puerto	Rico	and recently,	Canada,	through	a	geographically	diverse	network	of	distribution	and	service	centers.	We	typically	are	the	primary	source	of	supply	for	pharmaceutical	and related	products	to	our	healthcare	provider	customers	and	certain	patients.	We	offer	a	broad	range	of	services	to	our	customers	designed	to	enhance	the	efficiency	and effectiveness	of	their	operations,	thereby	allowing	them	to	improve	the	delivery	of	healthcare	to	patients	and	to	lower	overall	costs	in	the	pharmaceutical	supply	channel.

# Strategy

Our	business	strategy	is	focused	solely	on	the	pharmaceutical	supply	channel	where	we	provide	value-added	distribution	and	service	solutions	to	healthcare providers	and	pharmaceutical	manufacturers	that	increase	channel	efficiencies	and	improve	patient	outcomes.	Implementing	this	disciplined,	focused	strategy	has allowed	us	to	significantly	expand	our	business,	and	we	believe	we	are	well-positioned	to	continue	to	grow	revenue	and	increase	operating	income	through	the	execution of	the	following	key	elements	of	our	business	strategy:

•	 Optimize	and	Grow	Our	Distribution	Business.	We	believe	we	are	well-positioned	in	size	and	market	breadth	to	continue	to	grow	our	distribution	business	as we	invest	to	improve	our	operating	and	capital	efficiencies.	Distribution	anchors	our	growth	and	position	in	the	pharmaceutical	supply	channel	as	we	provide superior	distribution	services	and	deliver	value-added	solutions	which	improve	the	efficiency	and	competitiveness	of	both	healthcare	providers	and pharmaceutical	manufacturers,	thus	allowing	the	pharmaceutical	supply	channel	to	better	deliver	healthcare	to	patients.

In	an	effort	to	supplement	our	organic	growth,	we	continue	to	utilize	a	disciplined	approach	to	seek	acquisitions	that	will	assist	us	with	our	overall	strategic growth	plans.	In	October	2005,	we	acquired	Trent	Drugs	(Wholesale)	Ltd	("Trent"),	a	Canadian	wholesaler	of	pharmaceutical	products.	The	acquisition	of Trent	provides	the	Company	a	solid	foundation	to	expand	its	pharmaceutical	distribution	capability	into	the	Canadian	marketplace.	We	believe	the	Canadian market	is	well-positioned	for	future	growth,	and	we	anticipate	capitalizing	on	that	growth	with	our	recent	acquisition	of	Trent.

We	believe	we	have	one	of	the	lowest	cost	operating	structures	among	our	major	national	competitors,	and	to	further	improve	our	position	we	launched	our Optimiz™	program	in	fiscal	2001	for	AmerisourceBergen	Drug	Corporation.	As	revised,	the	Optimiz™	program	consists	of	reducing	the	distribution	facility network	from	51	facilities	in	2001	to	a	distribution	facility	network	numbering	in	the	mid-20's	within	the	next	two	years.	The	plan	includes	building	six	new facilities	(four	of	which	were	operational	as	of	September	30,	2005),	closing	facilities	(twenty-three	of	which	have	been	closed)	and	implementing	a	new warehouse	operating	system.	The	fifth	new	facility	opened	in	October	2005	and	the	sixth	facility	is	scheduled	to	open	during	fiscal	2006.	We	closed	six facilities	in	fiscal	2005	and	anticipate	closing	six	additional	facilities	during	fiscal	2006,	thereby	reducing	the	total	number	of	distribution	facilities	to	28	by the	end	of	fiscal	2006.	These	measures	have	been	designed	to	reduce	operating	costs,	to	provide	greater	access	to	financing	sources	and	to	reduce	our	cost	of capital.	In	addition,	we	believe	we	will	continue	to	achieve	productivity	and	operating	income	gains	as	we	invest	in	and	continue	to	implement	warehouse automation	technology,	adopt	"best	practices"	in	warehousing	activities,	and	increase	operating	leverage	by	increasing	volume	per	full-service	distribution facility.

•	 Grow	Our	Specialty	Pharmaceutical	Business.	Representing	more	than	$7.4	billion	in	annual	operating	revenue,	our	specialty	pharmaceuticals	business	has	a significant	presence	in	this	rapidly	growing	part	of	the	pharmaceutical	supply	channel.	With	distribution	and	value-added	services	to	physicians	who specialize	in	a	variety	of	disease	states	and	a	broad	array	of	commercialization	services	for	manufacturers,	our	specialty	pharmaceuticals	business	is	a	well- developed	platform	for	growth.	We	are	the	leader	in	distribution	and	physician	services	to	community	oncologists	and	have	leading	positions	in	nephrology and	rheumatology.	We	also	distribute	vaccines	and	blood	plasma	and	are	well-positioned	to	service	and	support	many	of	the	new	biotech	therapies	which	will be	coming	to	market	in	the	near	future.

We	expect	to	continue	to	expand	our	manufacturer	services,	which	help	pharmaceutical	manufacturers,	especially	in	the	biotechnology	sector, commercialize	their	products	in	the	channel.	We	believe	we	are	the	largest	provider	of	reimbursement	services	that	assist	pharmaceutical	companies	launch drugs	with	targeted	populations	and	support	the	products	in	the	channel.	We	provide	physician	education	services,	third	party	logistics	and	specialty pharmacy	services	to	help	speed	products	to	market.	We	expect	to	seek	opportunities	to	enhance	and	expand	the	specialty	pharmaceutical	business.

•	 Expand	Services	in	the	Pharmaceutical	Supply	Channel.	We	offer	value-added	services	and	solutions	to	assist	manufacturers	and	healthcare	providers	to improve	their	efficiency	and	their	patient	outcomes.	Programs	for	manufacturers	such	as	assistance	with	rapid	new	product	launches,	promotional	and marketing	services	to	accelerate	product	sales,	custom	packaging,	product	data	reporting,	logistical	support,	and	workers'	compensation	are	all	examples	of value-added	solutions	we	currently	offer.	We	are	continually	seeking	to	expand	our	offerings.

Our	provider	solutions	include:	our	Good	Neighbor	Pharmacy®	program,	which	enables	independent	community	pharmacies	and	small	chain	drugstores	to compete	more	effectively	through	pharmaceutical	benefit	and	merchandising	programs;	best-priced	generic	product	purchasing	services;	hospital	pharmacy consulting	designed	to	improve	operational	efficiencies;	scalable	automated	pharmacy	dispensing	equipment;	and	packaging	services	that	deliver	unit	dose, punch	card	and	other	compliance	packaging	for	institutional	and	retail	pharmacy	customers.	We	also	continue	to	pursue	enhancements	to	our	services	and programs.

# Operations

Operating	Structure.	We	are	organized	based	upon	the	products	and	services	we	provide	to	our	customers,	and	substantially	all	of	our	operations	are	in	the	United States.	The	Company's	operations	are	comprised	of	two	reportable	segments:	Pharmaceutical	Distribution	and	PharMerica.

The	Pharmaceutical	Distribution	segment	includes	the	operations	of	AmerisourceBergen	Drug	Corporation	("ABDC")	and	the	AmerisourceBergen	Specialty	and Packaging	groups.	The	operations	of	the	former	AmerisourceBergen	Technology	Group	became	a	part	of	the	overall	ABDC	operations	in	fiscal	2005.	The Pharmaceutical	Distribution	segment's	operations	provide	drug	distribution	and	related	services	throughout	the	United	States,	Puerto	Rico	and	Canada	(as	a	result	of	the Trent	acquisition).	ABDC	distributes	a	comprehensive	offering	of	brand	name	and	generic	pharmaceuticals,	over-the-counter	healthcare	products,	and	home	healthcare supplies	and	equipment	to	a	wide	variety	of	healthcare	providers,	including	acute	care	hospitals	and	health	systems,	independent	and	chain	retail	pharmacies,	mail	order facilities,	physicians,	clinics	and	other	alternate	site	facilities.	ABDC	also	provides	scalable	automated	pharmacy	dispensing	equipment,	medication	and	supply dispensing	cabinets	and	supply	management	software	to	a	variety	of	retail	and	institutional	healthcare	providers.	AmerisourceBergen	Specialty	Group	("ABSG"), through	a	number	of	individual	operating	businesses,	provides	distribution	and	other	services,	including	group	purchasing	services	to	physicians	and	alternate	care providers	who	specialize	in	a	variety	of	disease	states,	including	oncology,	nephrology,	and	rheumatology.	ABSG	also	distributes	vaccines,	other	injectables,	plasma	and other	blood	products.	In	addition,	through	its	manufacturer	services	and	physician	and	patient	services	businesses,	ABSG	provides	a	number	of	commercialization,	third party	logistics	and	other	services	for	biotech	and	other	pharmaceutical	manufacturers,	reimbursement	consulting,	practice	management,	and	physician	education.	The AmerisourceBergen	Packaging	Group	consists	of	American	Health	Packaging	and	Anderson	Packaging	("Anderson").	American	Health	Packaging	delivers	unit	dose, punch	card,	unit-of-use	and	other	packaging	solutions	to	institutional	and	retail	healthcare	providers.	Anderson	is	a	leading	provider	of	contracted	packaging	services	for pharmaceutical	manufacturers.	The	drug	distribution	operations	of	ABDC	and	ABSG	comprised	over	90%	of	the	segment's	operating	revenue	and	over	80%	of	the segment's	operating	income	in	the	fiscal	year	ended	September	30,	2005.

The	PharMerica	segment	includes	the	operations	of	the	PharMerica	long-term	care	business	("Long-Term	Care")	and	a	workers'	compensation-related	business ("Workers'	Compensation").	Long-Term	Care	is	a	leading	national	provider	of	pharmacy	products	and	services	to	patients	in	long-term	care	and	alternate	site	settings, including	skilled	nursing	facilities,

assisted	living	facilities	and	residential	living	communities.	Long-Term	Care's	institutional	pharmacy	business	involves	the	purchase	of	bulk	quantities	of	prescription and	nonprescription	pharmaceuticals,	principally	from	our	Pharmaceutical	Distribution	segment,	and	the	dispensing	of	those	products	to	residents	in	long-term	care	and alternate	site	facilities.	Unlike	hospitals,	most	long-term	and	alternate	care	facilities	do	not	have	onsite	pharmacies	to	dispense	prescription	drugs,	but	depend	instead	on institutional	pharmacies,	such	as	Long-Term	Care,	to	provide	the	necessary	pharmacy	products	and	services	and	to	play	an	integral	role	in	monitoring	patient medication.	Long-Term	Care	pharmacies	dispense	pharmaceuticals	in	patient	specific	packaging	in	accordance	with	physician	orders.	In	addition,	Long-Term	Care provides	infusion	therapy	services	and	Medicare	Part	B	products,	as	well	as	formulary	management	and	other	pharmacy	consulting	services.	Workers'	Compensation provides	mail	order	and	on-line	pharmacy	services	to	chronically	and	catastrophically	ill	patients	under	workers'	compensation	programs,	and	provides	pharmaceutical claims	administration	services	for	payors.	Workers'	Compensation	services	include	home	delivery	of	prescription	drugs,	medical	supplies	and	equipment,	and	an	array	of computer	software	solutions	to	reduce	the	payors'	administrative	costs.

Sales	and	Marketing.	ABDC	has	a	sales	force	organized	regionally	and	specialized	by	healthcare	provider	type.	Customer	service	representatives	are	located	in distribution	facilities	in	order	to	respond	to	customer	needs	in	a	timely	and	effective	manner.	ABDC	also	has	support	professionals	focused	on	its	various	technologies and	service	offerings.	Our	Specialty	and	Packaging	groups	and	the	PharMerica	businesses	each	have	independent	sales	forces	that	specialize	in	its	respective	product	and service	offerings.	Our	corporate	marketing	department	designs	and	develops	an	array	of	AmerisourceBergen	value-added	healthcare	provider	solutions	and	marketing materials.	Tailored	to	specific	groups,	these	programs	and	materials	can	be	further	customized	at	the	distribution	facility	level	to	adapt	to	local	market	conditions. Corporate	sales	and	marketing	also	serves	national	account	customers	through	close	coordination	with	local	distribution	centers	and	with	the	management	of	the Specialty	and	Packaging	groups.	Corporate	sales	and	marketing	ensures	that	our	customers	are	receiving	the	mix	of	service	offerings	that	meet	their	needs.

Customers.	We	have	a	diverse	customer	base	that	includes	institutional	and	retail	healthcare	providers	as	well	as	pharmaceutical	manufacturers.	Institutional healthcare	providers	include	acute	care	hospitals,	health	systems,	mail	order	pharmacies,	long-term	and	alternate	care	facilities,	and	physician	offices.	Retail	healthcare providers	include	national	and	regional	retail	drugstore	chains,	independent	community	pharmacies	and	pharmacy	departments	of	supermarkets	and	mass	merchandisers. We	are	typically	the	primary	source	of	supply	for	our	customers.	In	addition,	we	offer	a	broad	range	of	value-added	solutions	designed	to	enhance	the	operating efficiencies	and	competitive	positions	of	our	customers,	thereby	allowing	them	to	improve	the	delivery	of	healthcare	to	patients	and	consumers.	During	fiscal	2005, operating	revenue	for	our	Pharmaceutical	Distribution	segment	was	comprised	of	57%	institutional	and	43%	retail.

Our	top	ten	customers	represented	approximately	31%	of	fiscal	2005	operating	revenue.	Our	largest	non-bulk	customer	represented	7.5%	of	our	operating	revenue in	fiscal	2005.	Revenues	generated	from	sales	to	Medco	Health	Solutions,	Inc.	("Medco")	accounted	for	approximately	93%	of	bulk	deliveries	to	customer	warehouses and	approximately	6%	of	operating	revenue	in	fiscal	2005.	Other	than	our	largest	non-bulk	customer	and	Medco,	no	individual	customer	accounted	for	more	than	5%	of our	fiscal	2005	operating	revenue.	In	addition,	we	have	contracts	with	group	purchasing	organizations	("GPOs"),	each	of	which	functions	as	a	purchasing	agent	on behalf	of	its	members,	who	are	healthcare	providers.	Approximately	13%	of	our	operating	revenue	in	fiscal	2005	was	derived	from	our	three	largest	GPO	relationships (Novation,	LLC,	United	Drugs	and	Premier	Purchasing	Partners,	L.P.).	The	loss	of	any	major	customer	or	GPO	relationship	could	adversely	affect	future	operating revenue.	In	October	2005,	ABDC	received	notice	of	termination	of	its	GPO	contract	with	United	Drugs	effective	mid-December	2005.	United	Drugs	is	a	GPO	for independent	retail	pharmacies.	We	expect	that	a	substantial	majority	of	the	members	of	United	Drugs	will	terminate	their	affiliation	with	United	Drugs	and	elect	to continue	to	do	business	with	us.	Among	other	things,	the	majority	of	the	members	of	United	Drugs	are	participants	in	one	or	more	of	our	retail	programs,	including	Good Neighbor	Pharmacy®,	Performance	Plus	Network®	and	Diabetes	Shoppe®,	and	a	number	of	them	also	have	separate	contracts	directly	with	us.	However,	there	can	be	no assurance	that	we	will	retain	a	substantial	majority	of	the	members	of	United	Drugs	as	customers	following	the	termination	of	our	contract	with	United	Drugs.	Purchases by	the	members	of	United	Drugs	represented	approximately	4%	of	the	Company's	operating	revenues	for	the	fiscal	year	ended	September	30,	2005.

Suppliers.	We	obtain	pharmaceutical	and	other	products	from	manufacturers,	none	of	which	accounted	for	more	than	approximately	7%	of	our	purchases	in	fiscal 2005.	The	loss	of	a	supplier	could	adversely	affect	our	business	if	alternate	sources	of	supply	are	unavailable.	We	believe	that	our	relationships	with	our	suppliers	are generally	good.	The	ten	largest	suppliers	in	fiscal	2005	accounted	for	approximately	42%	of	our	purchases.	Effective	October	1,	2005,	the	Company	voluntarily	made	a decision	to	purchase	all	pharmaceuticals	directly	from	manufacturers	in	an	effort	to	further	protect	the	integrity	of	the	supply	channel.

ABDC	is	in	a	business	model	transition	with	respect	to	how	manufacturers	compensate	us	for	our	services.	Historically,	supplier	arrangements	allowed	us	to generate	gross	profit	in	several	ways,	including	cash	discounts	for	prompt	payments,

inventory	buying	opportunities,	rebates,	inventory	management	and	other	agreements,	vendor	program	arrangements,	negotiated	deals	and	other	promotional opportunities.	A	significant	portion	of	ABDC's	gross	margin	had	been	derived	from	our	ability	to	purchase	merchandise	inventories	in	advance	of	pharmaceutical manufacturer	price	increases	and	to	hold	these	inventories	until	pharmaceutical	prices	increase,	thereby	generating	a	larger	gross	margin	upon	sale	of	the	inventories. Over	the	last	two	years,	pharmaceutical	manufacturers	have	been	increasing	their	control	over	the	pharmaceutical	supply	channel	by	using	product	allocation	methods, including	the	imposition	of	inventory	management	agreements	("IMAs").	Under	a	typical	IMA	arrangement,	the	Company	is	compensated	based	on	specific	contract defined	formulas	for	maintaining	a	certain	level	of	inventory	for	a	pre-defined	period	prior	to,	as	of,	or	subsequent	to	the	date	of	a	manufacturer	price	increase.	The payment	from	the	manufacturer	to	us	is	triggered	upon	the	manufacturer	price	increase.	Because	the	payment	trigger	is	the	date	of	the	manufacturer	price	increase	and the	size	of	the	payment	is	typically	dependent	on	the	percentage	price	increase,	changes	in	manufacturers'	pricing	patterns	can	cause	significant	volatility	to	the Company's	periodic	earnings.	Additionally,	pharmaceutical	manufacturers	have	been	imposing	restrictions	on	our	ability	to	purchase	their	products	from	alternate sources	and	have	been	requesting	more	product	and	distribution	sales	data	from	us.

All	of	the	above	has	led	to	significant	volatility	in	ABDC's	gross	margin	and,	therefore,	we	are	continuing	our	efforts	to	shift	our	pharmaceutical	distribution business	to	a	fee-for-service	model	where	we	are	compensated	for	the	services	we	provide	manufacturers	rather	than	one	that	is	dependent	upon	manufacturer	price increases	(as	is	the	case	with	the	IMA	model).	We	continue	to	work	with	our	pharmaceutical	manufacturer	partners	to	define	fee-for-service	terms	that	will	adequately compensate	us	for	our	services,	such	as	our	distribution	services,	inventory	management,	service	level	management,	and	other	services.	Under	a	typical	fee-for-service agreement,	the	Company	is	compensated	for	its	services	based	on	a	percentage	of	purchases	over	a	defined	time	period,	with	payment	of	fees	being	made	directly	or through	a	combination	of	direct	payments	and	price	increase	entitlements.	As	of	September	30,	2005,	we	have	signed	agreements	with	a	number	of	the	large	branded pharmaceutical	manufacturers	that	we	consider	fee-for-service	arrangements	as	well	as	some	that	we	consider	hybrid	agreements	with	some	attributes	of	IMAs	and	some attributes	of	fee-for-service	arrangements.	We	believe	the	transition	to	a	fee-for-service	model	will	improve	the	efficiency	of	the	supply	channel	and	may	establish	a more	predictable	earnings	pattern	for	ABDC,	while	expanding	our	service	relationship	with	pharmaceutical	manufacturers.	The	fee-for-service	arrangements	may establish	a	more	predictable	earnings	pattern	because	under	many	of	the	agreements	the	Company	earns	a	fee	for	its	services	performed	on	a	monthly	basis	in	contrast	to the	IMA	model	where	earnings	are	largely	predicated	upon	the	timing	and	amount	of	pharmaceutical	price	increases.	We	continue	to	have	discussions	with pharmaceutical	manufacturers	regarding	fee-for-service	arrangements	and	expect	to	have	agreements	in	place	with	a	substantial	majority	of	the	large	branded manufacturers	by	the	end	of	calendar	2005.	During	fiscal	2006,	we	expect	that	more	than	75%	of	ABDC's	brand	name	manufacturer	gross	margin	will	not	be	contingent on	manufacturer	price	increases.	However,	there	can	be	no	assurance	that	this	business	model	transition	will	provide	all	of	the	desired	benefits	or	that	the	Company	will be	able	to	retain	those	benefits.

Information	Systems.	ABDC's	information	systems	provide	for,	among	other	things,	electronic	order	entry	by	customers,	invoice	preparation	and	purchasing,	and inventory	tracking.	As	a	result	of	electronic	order	entry,	the	cost	of	receiving	and	processing	orders	has	not	increased	as	rapidly	as	sales	volume.	ABDC's	customized systems	strengthen	customer	relationships	by	allowing	the	customer	to	lower	its	operating	costs	and	by	providing	a	platform	for	a	number	of	the	value-added	services offered	to	our	customers,	including	marketing,	product	demand	data,	inventory	replenishment,	single-source	billing,	computer	price	updates	and	price	labels.

ABDC	operates	its	full-service	wholesale	pharmaceutical	distribution	facilities	on	two	different	centralized	information	systems,	while	continuing	to	migrate	to one	system	and	maintaining	our	customers'	access	through	either	order-entry	system.	ABDC	plans	to	complete	its	migration	to	one	system	in	the	first	quarter	of	fiscal 2006.

ABDC	plans	to	continue	to	make	system	investments	to	further	improve	its	information	capabilities	and	meet	its	customer	and	operational	needs.	ABDC continues	to	expand	its	electronic	interface	with	its	suppliers	and	currently	processes	a	substantial	portion	of	its	purchase	orders,	invoices	and	payments	electronically. ABDC	is	implementing	a	new	warehouse	operating	system	that	is	expected	to	improve	its	productivity	and	operating	leverage.	ABDC	will	continue	to	invest	in advanced	information	systems	and	automated	warehouse	technology.	As	of	September	30,	2005,	approximately	one-third	of	our	distribution	facilities	have	successfully implemented	the	new	warehouse	operating	system.

In	an	effort	to	maintain	and	improve	its	information	technology	infrastructure,	the	Company	decided	to	outsource	a	significant	portion	of	its	corporate	and	ABDC information	technology	activities	and	entered	into	a	ten-year	commitment,	effective	July	1,	2005,	with	IBM	Global	Services	("IBM"),	which	will	assume	responsibility for	performing	the	outsourced	information	technology	activities	following	the	completion	of	certain	transition	matters.	The	Company	estimates	that	it	will	incur approximately	$20	million	to	$25	million	of	transition	costs	in	connection	with	this	plan.	These	transition	costs	will	include	employee	severance	and	other	contract expenses.	The	Company	incurred	approximately	one-half	of	these	costs	in	the	fourth	quarter	of	fiscal	2005.	The	minimum	commitment	under	the	outsourcing arrangement	is	approximately	$200	million	(excluding

the	above-mentioned	transition	costs)	over	a	ten-year	period;	however,	the	Company	believes	it	will	likely	spend	between	$300	million	and	$400	million	under	the outsourcing	arrangement	to	maintain	and	improve	its	information	technology	infrastructure	during	that	period.

ABSG	operates	its	specialty	distribution	business	on	a	common,	centralized	ERP	platform	resulting	in	operating	efficiencies	as	well	as	the	ability	to	rapidly deploy	new	capabilities.	The	convenience	of	ordering	via	the	Internet	is	very	important	to	ABSG's	customers.	Over	the	last	three	years,	we	have	introduced	and enhanced	our	web	capabilities	such	that	currently	more	than	30%	of	orders	are	initiated	on	the	web.

PharMerica's	Long-Term	Care	business	operates	a	proprietary	information	technology	infrastructure	that	automates	order	entry	of	medications,	dispensing	of medications,	invoicing,	and	payment	processing.	These	systems	provide	medical	records,	consulting	drug	review,	and	regulatory	compliance	information	to	help	ensure patient	safety.	PharMerica's	Workers'	Compensation	business	provides	proprietary	information	technology	for	workers'	compensation	solutions.	These	systems	provide eligibility	authorization	and	reimbursement	payments	to	participating	pharmacies.	They	also	provide	order	taking,	shipment	and	collection	of	service	fees	for medications	and	specialty	services.	The	systems	also	provide	billing	and	reimbursement	for	other	services	rendered.	PharMerica	continues	to	invest	in	technologies	that help	improve	data	integrity,	critical	information	access	and	system	availability.

# Competition

We	face	a	highly	competitive	environment	in	the	distribution	of	pharmaceuticals	and	related	healthcare	solutions.	ABDC	competes	with	both	national	and regional	distributors	within	pharmaceutical	distribution.	Our	national	competitors	include	Cardinal	Health,	Inc.	and	McKesson	Corporation.	In	addition,	we	compete with	regional	and	local	distributors,	direct-selling	manufacturers,	warehousing	chain	drugstores,	specialty	distributors,	and	packaging	and	healthcare	technology companies.	The	provider	and	alternate	site	product	distribution	channels	serviced	by	ABSG	are	also	highly	competitive.	Specialty	distribution	channel	competitors include	Oncology	Therapeutics	Network,	FFF	Enterprises,	Henry	Schein,	Inc.,	Med-Path,	and	Priority	Healthcare	Corporation,	among	others.	Competitors	in	the business	of	providing	specialty	pharmaceutical	services	to	manufacturers	include	US	Oncology,	Inc.,	Covance	Inc.,	and	UPS	Logistics,	among	others.	In	all	areas, competitive	factors	include	price,	value-added	service	programs,	product	offerings,	service	and	delivery,	credit	terms,	and	customer	support.

PharMerica's	competitors	principally	include	Omnicare,	Inc.,	a	national	competitor,	which	is	significantly	larger	than	PharMerica,	as	well	as	regional	and	local pharmacies	that	specialize	in	long-term	care.	We	believe	that	the	competitive	factors	most	important	in	PharMerica's	lines	of	business	are	quality	and	range	of	service offered,	pricing,	reputation	with	referral	sources,	ease	of	doing	business	with	the	provider,	and	the	ability	to	develop	and	maintain	relationships	with	referral	sources.	In addition,	there	are	relatively	few	barriers	to	entry	in	the	local	markets	served	by	PharMerica	and	it	may	encounter	substantial	competition	from	local	market	entrants. PharMerica	also	competes	with	numerous	billing	companies	in	connection	with	the	portion	of	its	business	that	electronically	adjudicates	workers'	compensation	claims for	payors.

# Intellectual	Property

We	use	a	number	of	trademarks	and	service	marks.	All	of	the	principal	trademarks	and	service	marks	used	in	the	course	of	our	business	have	been	registered	in the	United	States	or	are	the	subject	of	pending	applications	for	registration.

We	have	developed	or	acquired	various	proprietary	products,	processes,	software	and	other	intellectual	property	that	are	used	either	to	facilitate	the	conduct	of	our business	or	that	are	made	available	as	products	or	services	to	customers.	We	generally	seek	to	protect	such	intellectual	property	through	a	combination	of	trade	secret, patent	and	copyright	laws	and	through	confidentiality	and	other	contractually	imposed	protections.

We	hold	patents	and	have	patent	applications	pending	that	relate	to	certain	of	our	products,	particularly	our	automated	pharmacy	dispensing	equipment	and	our medication	and	supply	dispensing	equipment.	We	seek	patent	protection	for	our	proprietary	intellectual	property	from	time	to	time	as	appropriate.

Although	we	believe	that	our	patents	or	other	proprietary	products	and	processes	do	not	infringe	upon	the	intellectual	property	rights	of	any	third	parties,	third parties	may	assert	infringement	claims	against	us	from	time	to	time.

# Employees

As	of	September	30,	2005,	we	employed	approximately	13,400	persons,	of	which	approximately	12,300	were	full-time	employees.	Approximately	5%	of	full	and part-time	employees	are	covered	by	collective	bargaining	agreements.	The	Company	believes	that	its	relationship	with	its	employees	is	good.

# Government	Regulation

The	U.S.	Drug	Enforcement	Administration	("DEA"),	the	U.S.	Food	and	Drug	Administration	("FDA")	and	various	state	regulatory	authorities	regulate	the distribution	of	pharmaceutical	products	and	controlled	substances.	Wholesale	distributors	of	these	substances	are	required	to	register	for	permits,	meet	various	security and	operating	standards,	and	comply	with	regulations	governing	their	sale,	marketing,	packaging,	holding	and	distribution.	The	FDA,	DEA	and	state	regulatory authorities	have	broad	enforcement	powers,	including	the	ability	to	seize	or	recall	products	and	impose	significant	criminal,	civil	and	administrative	sanctions	for violations	of	these	laws	and	regulations.	As	a	wholesale	distributor	of	pharmaceuticals	and	certain	related	products,	we	are	subject	to	these	regulations.	We	have	received all	necessary	regulatory	approvals	and	believe	that	we	are	in	substantial	compliance	with	all	applicable	pharmaceutical	wholesale	distribution	requirements.

We	and	our	customers	are	subject	to	fraud	and	abuse	laws	which	prohibit,	among	other	things,	(a)	persons	from	soliciting,	offering,	receiving	or	paying	any remuneration	in	order	to	induce	the	referral	of	a	patient	for	treatment	or	for	inducing	the	ordering	or	purchasing	of	items	or	services	that	are	in	any	way	paid	for	by Medicare,	Medicaid,	or	other	government	healthcare	programs	and	(b)	physicians	from	making	referrals	to	certain	entities	with	whom	they	have	a	financial	relationship. The	fraud	and	abuse	laws	and	regulations	are	broad	in	scope	and	are	subject	to	frequent	modification	and	varied	interpretation.	The	operations	of	PharMerica	and	the Specialty	Group	are	particularly	subject	to	these	laws	and	regulations,	as	are	certain	aspects	of	our	Pharmaceutical	Distribution	operations.

Under	the	Prospective	Payment	System	("PPS")	for	Medicare	patients	in	skilled	nursing	facilities,	Medicare	pays	a	federal	daily	rate	for	virtually	all	covered skilled	nursing	facility	services.	Under	PPS,	PharMerica's	Long-Term	Care	skilled	nursing	facility	customers	are	not	able	to	pass	through	to	Medicare	their	costs	for certain	products	and	services	provided	by	PharMerica.	Instead,	Medicare	provides	such	customers	a	federal	daily	rate	to	cover	the	costs	of	all	covered	goods	and	services provided	to	Medicare	patients,	which	may	include	certain	pharmaceutical	and	other	goods	and	services	provided	by	PharMerica.	Because	this	Medicare	reimbursement is	limited	by	PPS,	facility	customers	have	an	increased	incentive	to	negotiate	with	PharMerica	to	minimize	the	costs	of	providing	goods	and	services	to	patients	covered under	Medicare.	PharMerica	bills	skilled	nursing	facilities	based	on	a	negotiated	fee	schedule.

The	Medicare	Modernization	Act	reduced	Medicare	payments	for	most	Part	B	drugs	from	95	percent	to	85	percent	of	average	wholesale	price	("AWP")	for	2004, and	instituted	an	"average	sales	price"	or	"ASP"	methodology	beginning	in	2005.	Beginning	on	July	1,	2006,	physicians	will	have	the	option	of	continuing	to	obtain	Part B	reimbursed	drugs	under	the	traditional	"buy	and	bill"	approach	or	acquiring	drugs	through	a	new	competitive	acquisition	program	or	CAP.	It	is	currently	anticipated that	physicians	who	participate	in	CAP	will	bill	the	Medicare	program	only	for	the	drug	administration,	while	the	CAP	vendor	will	bill	Medicare	for	the	actual	CAP	drug and	also	will	collect	applicable	beneficiary	copayments.

The	Medicare	Modernization	Act	also	significantly	expanded	Medicare	coverage	for	outpatient	prescription	drugs.	Specifically,	on	January	1,	2006,	the	new, voluntary	Medicare	Part	D	prescription	drug	benefit	will	go	into	effect.	Beneficiaries	who	choose	to	participate	in	Part	D	will	select	from	a	range	of	stand-alone prescription	drug	plans	or	Medicare	Advantage	managed	care	plans	that	include	prescription	drug	coverage	along	with	other	Medicare	services	("Part	D	Plans").	The Part	D	Plans	will	be	required	to	make	available	certain	drugs	on	their	formularies.	Reimbursement	for	Part	D	drugs	will	be	negotiated	by	each	Part	D	Plan.

PharMerica's	Long-Term	Care	business	also	receives	reimbursement	directly	for	dispensed	pharmaceuticals	in	some	cases	under	state	Medicaid	programs.	Over the	last	several	years,	state	Medicaid	programs	have	lowered	reimbursement	through	a	variety	of	mechanisms,	principally	reductions	in	Average	Wholesale	Price	(AWP) levels,	expansion	of	Federal	Upper	Limit	(FUL)	pricing,	and	general	reductions	in	contract	payment	methodology	to	pharmacies.	Congress	also	is	considering	budget reconciliation	legislation	that	would	further	reduce	Medicaid	reimbursement	for	pharmaceuticals,	although	to	date	Congress	has	not	adopted	a	final	budget	package. Moreover,	Medicaid	drug	coverage	will	be	affected	by	the	new	Medicare	Part	D	drug	benefit	to	be	implemented	in	2006,	since	Medicare	Part	D,	not	Medicaid,	will cover	most	outpatient	drug	expenses	for	beneficiaries	who	qualify	for	both	Medicare	and	Medicaid	coverage	(so-called	"dual	eligibles"),	including	dual	eligibles	residing in	nursing	homes.

In	recent	years,	some	states	have	passed	or	have	proposed	laws	and	regulations	that	are	intended	to	protect	the	integrity	of	the	supply	channel.	For	example, Florida	and	other	states	are	implementing	pedigree	requirements	that	require	drugs	to	be	accompanied	by	paperwork	tracing	drugs	back	to	the	manufacturers.	These	and other	requirements	are	expected	to	increase	the	Company's	cost	of	operations.	Effective	October	1,	2005,	the	Company	voluntarily	made	a	decision	to	purchase	all pharmaceuticals	only	from	manufacturers	in	an	effort	to	further	protect	the	integrity	of	the	supply	channel.

As	a	result	of	political,	economic	and	regulatory	influences,	the	healthcare	delivery	industry	in	the	United	States	is	under	intense	scrutiny	and	subject	to fundamental	changes.	We	cannot	predict	which	reform	proposals	will	be	adopted,	when	they	may	be	adopted,	or	what	impact	they	may	have	on	us.

The	costs	associated	with	complying	with	federal	and	state	regulations	could	be	significant	and	the	failure	to	comply	with	any	such	legal	requirements	could	have a	significant	impact	on	the	Company's	results	of	operations	and	financial	condition.

See	"Certain	Risk	Factors"	for	a	discussion	of	additional	regulatory	developments	that	may	affect	the	Company's	results	of	operations	and	financial	condition.

# Health	Information	Practices

The	Health	Information	Portability	and	Accountability	Act	of	1996	("HIPAA")	and	the	regulations	promulgated	thereunder	by	HHS	set	forth	health	information standards	in	order	to	protect	security	and	privacy	in	the	exchange	of	individually	identifiable	health	information.	Significant	criminal	and	civil	penalties	may	be	imposed for	violation	of	these	standards.	We	have	a	HIPAA	compliance	program	to	facilitate	our	ongoing	effort	to	comply	with	the	HIPAA	regulations.

# Certain	Risk	Factors

The	following	discussion	describes	certain	risk	factors	that	we	believe	could	affect	our	business	and	prospects.	These	risk	factors	are	in	addition	to	those	set	forth elsewhere	in	this	report.

# Intense	competition	may	erode	our	profit	margins.

The	distribution	of	pharmaceuticals	and	related	healthcare	solutions	is	highly	competitive.	We	compete	with	national	wholesale	distributors	of	pharmaceuticals such	as	Cardinal	Health,	Inc.	and	McKesson	Corporation;	regional	and	local	distributors	of	pharmaceuticals;	chain	drugstores	that	warehouse	their	own	pharmaceuticals; manufacturers	who	distribute	their	products	directly	to	customers;	specialty	distributors;	and	other	healthcare	providers.	The	Long-Term	Care	and	Workers' Compensation	businesses	in	which	PharMerica	operates	also	are	highly	competitive.

Competitive	pressures	have	contributed	to	a	decline	in	our	gross	profit	margins	on	operating	revenue	from	5.42%	in	fiscal	2001	to	3.96%	in	fiscal	2005.	This	trend may	continue	and	our	business	could	be	adversely	affected	as	a	result.

# Our	operating	revenue	and	profitability	may	suffer	upon	the	loss	of	a	significant	customer.

Our	top	ten	customers	represented	approximately	31%	of	operating	revenue	for	the	fiscal	year	ended	September	30,	2005.	Our	largest	individual	customer accounted	for	approximately	7.5%	of	our	operating	revenue	for	the	fiscal	year	ended	September	30,	2005.	We	also	have	contracts	with	group	purchasing	organizations ("GPOs"),	each	of	which	functions	as	a	purchasing	agent	on	behalf	of	its	members,	who	are	hospitals,	pharmacies	or	other	healthcare	providers.	Approximately	13%	of our	operating	revenue	for	the	fiscal	year	ended	September	30,	2005	was	derived	from	our	three	largest	GPO	relationships	(Novation,	LLC,	United	Drugs	and	Premier Purchasing	Partners,	L.P.).	We	may	lose	a	significant	customer	or	GPO	relationship	if	any	existing	contract	with	such	customer	or	GPO	expires	without	being	extended, renewed,	renegotiated	or	replaced	or	is	terminated	by	the	customer	or	GPO	prior	to	expiration,	to	the	extent	such	early	termination	is	permitted	by	the	contract.	A	number of	our	contracts	with	significant	customers	or	GPOs	are	typically	subject	to	expiration	each	year	and	we	may	lose	any	of	these	customers	or	GPO	relationships	if	we	are unable	to	extend,	renew,	renegotiate	or	replace	the	contracts.	The	loss	of	any	significant	customer	or	GPO	relationship	could	adversely	affect	future	operating	revenue and	profitability.	In	October	2005,	ABDC	received	notice	of	termination	of	its	GPO	contract	with	United	Drugs	effective	mid-December	2005.	United	Drugs	is	a	GPO for	independent	retail	pharmacies.	We	expect	that	a	substantial	majority	of	the	members	of	United	Drugs	will	terminate	their	affiliation	with	United	Drugs	and	elect	to continue	to	do	business	with	us.	Among	other	things,	the	majority	of	the	members	of	United	Drugs	are	participants	in	one	or	more	of	our	retail	programs,	including	Good Neighbor	Pharmacy®,	Performance	Plus	Network®	and	Diabetes	Shoppe®,	and	a	number	of	them	also	have	separate	contracts	directly	with	us.	However,	there	can	be	no 10

assurance	that	we	will	retain	a	substantial	majority	of	the	members	of	United	Drugs	as	customers	following	the	termination	of	our	contract	with	United	Drugs.	Purchases by	the	members	of	United	Drugs	represented	approximately	4%	of	the	Company's	operating	revenues	for	the	fiscal	year	ended	September	30,	2005.

Approximately	11%	of	PharMerica's	operating	revenue	in	the	fiscal	year	ended	September	30,	2005	was	derived	from	Long-Term	Care's	contract	with	Beverly Enterprises,	Inc.	The	initial	term	of	this	contract	is	scheduled	to	expire	in	the	middle	part	of	fiscal	2006	and	the	contract	is	expected	to	be	renewed	at	or	before	the expiration	of	the	initial	term.	A	termination	of	this	contract	or	a	renewal	of	this	contract	on	significantly	less	favorable	economic	terms	would	adversely	affect PharMerica's	operating	revenue	and	results	of	operations.

Our	operating	revenue	and	profitability	may	suffer	upon	the	bankruptcy,	insolvency	or	other	credit	failure	of	a	significant	customer.

Most	of	our	customers	buy	pharmaceuticals	and	other	products	and	services	from	us	on	credit.	Credit	is	made	available	to	customers	based	on	our	assessment	and analysis	of	creditworthiness.	Although	we	often	try	to	obtain	a	security	interest	in	assets	and	other	arrangements	intended	to	protect	our	credit	exposure,	we	generally	are either	subordinated	to	the	position	of	the	primary	lenders	to	our	customers	or	substantially	unsecured.	The	bankruptcy,	insolvency	or	other	credit	failure	of	any	customer at	a	time	when	the	customer	has	a	substantial	account	payable	balance	due	to	us	could	have	a	material	adverse	affect	on	our	results	of	operations.	At	September	30, 2005,	the	largest	trade	receivable	due	from	a	single	customer	represented	approximately	13%	of	accounts	receivable,	net.

Our	results	of	operations	may	suffer	upon	the	bankruptcy,	insolvency	or	other	credit	failure	of	a	significant	supplier.

Our	relationships	with	pharmaceutical	suppliers	give	rise	to	substantial	amounts	that	are	due	to	us	from	the	suppliers,	including	amounts	due	to	us	for	returned goods	or	defective	goods	and	amounts	due	to	us	for	services	provided	to	the	suppliers.	The	bankruptcy,	insolvency	or	other	credit	failure	of	any	supplier	at	a	time	when the	supplier	has	a	substantial	account	payable	balance	due	to	us	could	have	a	material	adverse	affect	on	our	results	of	operations.

# The	Company's	Pharmaceutical	Distribution	segment	is	transitioning	its	business	model.

The	Company's	Pharmaceutical	Distribution	segment	is	in	a	business	model	transition	with	respect	to	how	it	is	compensated	for	services	it	provides	to pharmaceutical	manufacturers.	Historically,	supplier	arrangements	allowed	us	to	generate	gross	profit	in	several	ways,	including	cash	discounts	for	prompt	payments, inventory	buying	opportunities,	rebates,	inventory	management	and	other	agreements,	vendor	program	arrangements,	negotiated	deals	and	other	promotional opportunities.

A	significant	portion	of	the	gross	margin	for	our	pharmaceutical	business	had	been	derived	from	our	ability	to	purchase	merchandise	inventories	in	advance	of pharmaceutical	price	increases	and	then	hold	these	inventories	until	pharmaceutical	prices	increase,	thereby	generating	a	larger	gross	margin	upon	sale	of	the	inventories. Over	the	last	two	years,	however,	pharmaceutical	manufacturers	have	been	increasing	their	control	over	the	pharmaceutical	supply	channel	by	using	product	allocation methods,	including	imposition	of	inventory	management	agreements	("IMAs").	Under	most	IMAs	we	are	paid	for	not	speculating	with	respect	to	pharmaceutical	price increases.	However,	in	most	cases	our	compensation	under	IMAs	continues	to	be	predicated	upon	pharmaceutical	price	increases.	Additionally,	pharmaceutical manufacturers	have	imposed	restrictions	on	our	ability	to	purchase	their	products	from	alternate	sources.	Effective	October	1,	2005,	the	Company	voluntarily	made	a decision	to	purchase	all	pharmaceuticals	only	from	manufacturers	in	an	effort	to	further	protect	the	integrity	of	the	supply	channel.

All	of	the	above	has	resulted	in	significant	volatility	in	the	gross	margin	for	our	pharmaceutical	distribution	business	and,	therefore,	we	are	in	an	effort	to	shift	our business	to	a	fee-for-service	model	where	we	are	compensated	for	the	services	we	provide	manufacturers	rather	than	one	that	is	dependent	upon	manufacturer	price increases	(as	is	the	case	with	the	IMA	model).	We	have	been	and	are	continuing	to	work	with	our	pharmaceutical	manufacturer	partners	to	define	fee-for-service	terms that	will	adequately	compensate	us	for	our	services.	We	expect	to	have	agreements—either	fee-for-service	agreements	or	hybrid	agreements	that	have	some	attributes	of IMAs	and	some	attributes	of	fee-for-service	agreements—in	place	with	a	substantial	majority	of	the	large	branded	manufacturers	by	the	end	of	calendar	2005.	During fiscal	2006,	we	expect	that	more	than	75%	of	ABDC's	brand	name	manufacturer	gross	margin	will	not	be	contingent	on	manufacturer	price	increases.	There	can	be	no assurance	that	this	business	model	transition	will	be	successful	or	that	the	timing	of	that	transition	will	occur	as	anticipated	by	the	Company.	If	the	transition	does	not proceed	successfully,	the	Company	may	not	be	adequately	compensated	and	its	profitability	may	be	significantly	reduced.

# The	supply	channel	business	model	transition	may	reduce	our	profitability.

The	supply	channel	business	model	transition	described	above	has	the	potential	to	affect	the	profitability	of	customer	contracts	that	were	developed	under	a business	model	that	was	predicated	on	price	increases	and	high	inventory	levels.	Many	of	our	contracts	with	healthcare	providers	are	multi-year	contracts	that	cannot	be terminated	or	amended	in	the	event	of	such	changes	in	our	relationships	with	manufacturers.	Accordingly,	the	advent	of	such	changes	may	have	the	effect	of	reducing,	or even	eliminating,	our	profitability	on	such	contracts	through	the	end	of	the	applicable	contract	periods.

# Increasing	governmental	efforts	to	regulate	the	pharmaceutical	supply	channel	may	increase	our	costs	and	reduce	our	profitability.

The	healthcare	industry	is	highly	regulated	at	the	federal	and	state	level.	Consequently,	we	are	subject	to	the	risk	of	changes	in	various	federal	and	state	laws, which	include	operating	and	security	standards	of	the	DEA,	the	FDA,	various	state	boards	of	pharmacy	and	comparable	agencies.	In	recent	years,	some	states	have passed	or	have	proposed	laws	and	regulations,	including	pedigree	tracking	requirements,	that	are	intended	to	protect	the	integrity	of	the	supply	channel	but	that	also	may substantially	increase	the	costs	and	burden	of	pharmaceutical	distribution.

Legal	and	regulatory	changes	affecting	rates	of	reimbursement	for	pharmaceuticals	and/or	medical	treatments	or	services	may	reduce	our	profitability.

Both	our	own	profit	margins	and	the	profit	margins	of	our	customers	may	be	adversely	affected	by	laws	and	regulations	reducing	reimbursement	rates	for pharmaceuticals	and/or	medical	treatments	or	services	or	changing	the	methodology	by	which	reimbursement	levels	are	determined.	Many	of	our	contracts	with healthcare	providers	are	multi-year	contracts	from	which	we	derive	profit	based	upon	reimbursement	rates	and	methodology.	Many	of	these	contracts	cannot	be terminated	or	amended	in	the	event	of	such	legal	and	regulatory	changes.	Accordingly,	such	changes	may	have	the	effect	of	reducing,	or	even	eliminating,	our profitability	on	such	contracts	until	the	end	of	the	applicable	contract	periods.

ABSG's	business	may	be	adversely	affected	in	the	future	by	recent	and	proposed	changes	in	the	Medicare	reimbursement	rates	for	certain	pharmaceuticals, including	oncology	drugs.	The	reimbursement	changes	that	have	been	implemented	by	HHS	starting	in	January	2004	and	continuing	in	2005	pursuant	to	the	Medicare Modernization	Act,	along	with	additional	reforms	scheduled	to	go	into	effect	in	2006,	may	have	the	effect	of	reducing	the	amount	of	and/or	margins	on	medications purchased	by	physicians	for	administration	in	their	offices	and	may	force	patients	to	other	healthcare	providers.	In	particular,	under	the	upcoming	competitive acquisition	program	or	CAP,	physicians	may	choose	to	forgo	purchasing	drugs	for	Medicare	patients	and	instead	opt	to	obtain	products	from	a	CAP	vendor	that	bills Medicare	directly.	Since	ABSG	provides	a	number	of	services	to	or	through	physicians,	patient	shifts	from	physicians	to	other	healthcare	providers	may	result	in	slower growth	or	lower	revenues	for	ABSG.	Although	ABSG	has	contingency	plans	to	enable	it	to	retain	and	grow	the	business	it	conducts	with	and	through	physicians,	there can	be	no	assurance	that	it	will	retain	or	replace	all	of	the	revenue	currently	going	through	the	physician	channel	or	that	such	revenue	will	be	as	profitable.

The	Medicare	Modernization	Act	also	includes	a	major	expansion	of	the	Medicare	prescription	drug	benefit	under	the	new	Medicare	Part	D.	Beginning	in	2006, Medicare	beneficiaries	will	be	eligible	to	enroll	in	prescription	drug	plans	that	will	be	offered	by	private	entities	and	will	be	eligible	for	varying	levels	of	coverage	for outpatient	prescription	drugs.	Medicare	beneficiaries	who	will	have	all	or	a	substantial	portion	of	their	prescription	drug	costs	covered	by	the	new	Medicare	drug	benefit include	those	nursing	home	residents	served	by	the	Long-Term	Care	business	whose	drug	costs	are	currently	covered	by	state	Medicaid	programs.	In	January	2005,	the Centers	for	Medicare	&	Medicaid	Services	("CMS")	of	HHS	published	final	rules	for	the	new	voluntary	prescription	drug	benefit	program.	While	these	rules	established a	framework	for	the	new	benefit,	further	information	and	guidance	continues	to	be	provided	by	CMS.	The	rules	permit	long-term	care	pharmacies	to	provide	covered Medicare	Part	D	drugs	to	enrollees	of	the	new	Medicare	Part	D	plans.	Under	the	rules,	long-term	care	pharmacies	will	be	able	to	participate	on	an	in-network	basis	by contracting	directly	with	the	plan	sponsor.	The	changes	contemplated	by	the	rules	are	expected	to	take	full	effect	in	2006.	At	this	time,	we	cannot	determine	the	future impact	of	Medicare	Part	D	on	the	Long-Term	Care	business,	but	the	implementation	of	Medicare	Part	D	could	have	an	adverse	effect	on	the	Long-Term	Care	business.

Long-Term	Care	receives	rebates	from	pharmaceutical	manufacturers	for	undertaking	certain	activities	that	the	manufacturers	believe	may	increase	the	likelihood that	their	respective	products	will	be	dispensed.	In	answer	to	a	frequently	asked	question	("FAQ"),	CMS	recently	indicated	that	it	is	examining	whether	long-term	care pharmacies	should	be	permitted	to	receive	"access/performance"	rebates	from	pharmaceutical	manufacturers	with	respect	to	prescriptions	covered	under	the	Medicare Part	D	benefit.	CMS	defined	these	as	rebates	that	manufacturers	provide	to	long-term	pharmacies	that	are	designed	to	"prefer,	protect	or	maintain"	that	manufacturers' product	selection	by	the	long-term	care	pharmacy	or	to	increase	the	volume	of	the	manufacturers'	products	that	are	dispensed	by

the	pharmacy	under	its	formulary.	CMS	subsequently	withdrew	the	FAQ	and,	to	date,	has	not	provided	any	additional	guidance	on	this	issue.	The	elimination	of manufacturer	rebates	could	have	an	adverse	effect	on	the	Long-Term	Care	business.	Long-Term	Care's	business	could	be	adversely	affected	if	CMS	should	take	any action	that	has	the	effect	of	eliminating	or	significantly	reducing	the	rebates	that	Long-Term	Care	receives	from	manufacturers.

# The	changing	United	States	healthcare	environment	may	negatively	impact	our	revenue	and	income.

Our	products	and	services	are	intended	to	function	within	the	structure	of	the	healthcare	financing	and	reimbursement	system	currently	existing	in	the	United States.	In	recent	years,	the	healthcare	industry	has	undergone	significant	changes	in	an	effort	to	reduce	costs	and	government	spending.	These	changes	include	an increased	reliance	on	managed	care;	cuts	in	Medicare	funding	affecting	our	healthcare	provider	customer	base;	consolidation	of	competitors,	suppliers	and	customers; and	the	development	of	large,	sophisticated	purchasing	groups.	We	expect	the	healthcare	industry	to	continue	to	change	significantly	in	the	future.	Some	of	these potential	changes,	such	as	a	reduction	in	governmental	support	of	healthcare	services	or	adverse	changes	in	legislation	or	regulations	governing	prescription	drug	pricing, healthcare	services	or	mandated	benefits,	may	cause	healthcare	industry	participants	to	reduce	the	amount	of	our	products	and	services	they	purchase	or	the	price	they are	willing	to	pay	for	our	products	and	services.	Changes	in	pharmaceutical	manufacturers'	pricing	or	distribution	policies	could	also	significantly	reduce	our	income.

If	we	fail	to	comply	with	laws	and	regulations	in	respect	of	healthcare	fraud,	we	could	suffer	penalties	or	be	required	to	make	significant	changes	to	our operations.

We	are	subject	to	extensive	and	frequently	changing	federal	and	state	laws	and	regulations	relating	to	healthcare	fraud.	The	federal	government	continues	to strengthen	its	position	and	scrutiny	over	practices	involving	healthcare	fraud	affecting	the	Medicare,	Medicaid	and	other	government	healthcare	programs.	Our relationships	with	pharmaceutical	manufacturers	and	healthcare	providers	subject	our	business	to	laws	and	regulations	on	fraud	and	abuse	which,	among	other	things, (i)	prohibit	persons	from	soliciting,	offering,	receiving	or	paying	any	remuneration	in	order	to	induce	the	referral	of	a	patient	for	treatment	or	for	inducing	the	ordering	or purchasing	of	items	or	services	that	are	in	any	way	paid	for	by	Medicare,	Medicaid	or	other	government-sponsored	healthcare	programs	and	(ii)	impose	a	number	of restrictions	upon	referring	physicians	and	providers	of	designated	health	services	under	Medicare	and	Medicaid	programs.	Legislative	provisions	relating	to	healthcare fraud	and	abuse	give	federal	enforcement	personnel	substantially	increased	funding,	powers	and	remedies	to	pursue	suspected	fraud	and	abuse.	While	we	believe	that	we are	in	substantial	compliance	with	all	applicable	laws,	many	of	the	regulations	applicable	to	us,	including	those	relating	to	marketing	incentives	offered	by pharmaceutical	suppliers,	are	vague	or	indefinite	and	have	not	been	interpreted	by	the	courts.	They	may	be	interpreted	or	applied	by	a	prosecutorial,	regulatory	or judicial	authority	in	a	manner	that	could	require	us	to	make	changes	in	our	operations.	If	we	fail	to	comply	with	applicable	laws	and	regulations,	we	could	suffer	civil and	criminal	penalties,	including	the	loss	of	licenses	or	our	ability	to	participate	in	Medicare,	Medicaid	and	other	federal	and	state	healthcare	programs.

We	may	not	realize	all	of	the	anticipated	benefits	of	our	integration	plan	to	consolidate	our	distribution	network	and	eliminate	duplicative	administrative functions.

We	are	proceeding	with	an	integration	plan	to	consolidate	our	ABDC	distribution	facilities	from	51	to	a	distribution	facility	network	numbering	in	the	mid-20's within	the	next	two	years;	implement	new	warehouse	information	technology	systems	and	eliminate	duplicative	administrative	functions.	The	program	is	designed	to focus	capacity	on	growing	markets,	significantly	increase	warehouse	efficiencies	and	streamline	our	transportation	activities.	The	plan	includes	building	six	new facilities	(four	of	which	were	operational	as	of	September	30,	2005),	closing	facilities	(twenty-three	of	which	have	been	closed	as	of	September	30,	2005)	and implementing	a	new	warehouse	operating	system.	The	fifth	new	facility	opened	in	October	2005	and	the	sixth	facility	is	scheduled	to	open	during	fiscal	2006.	We	closed a	total	of	six	facilities	during	fiscal	2005	and	we	expect	to	close	an	additional	six	facilities	during	fiscal	2006,	thereby	reducing	the	total	number	of	distribution	facilities to	28	by	the	end	of	fiscal	2006.	We	believe	our	enhanced	distribution	network	will	result	in	the	lowest	costs	in	pharmaceutical	distribution	and	the	highest	accuracy	and speed	of	customer	order	fulfillment.	We	may	not	realize	all	of	the	anticipated	benefits	of	enhancing	our	distribution	network	if	we	experience	delays	in	building	the	new facilities	or	closing	existing	facilities,	we	incur	significant	cost	overruns	associated	with	the	program,	or	the	new	warehouse	information	technology	systems	do	not function	as	planned.

Effective	July	1,	2005,	we	outsourced	a	significant	portion	of	our	information	technology	activities	to	IBM	as	part	of	the	integration	plan.	There	can	be	no assurance	that	our	business	operations	will	not	be	affected	adversely	by	the	outsourcing	of	such	activities	or	that	IBM	will	perform	satisfactorily.

Our	operating	results	and/or	financial	condition	may	be	adversely	affected	if	we	undertake	acquisitions	of	businesses	that	do	not	perform	as	we	expect	or	that	are difficult	for	us	to	integrate.

We	expect	to	continue	to	implement	our	growth	strategy,	in	part,	by	acquiring	companies.	At	any	particular	time,	we	may	be	in	various	stages	of	assessment, discussion	and	negotiation	with	regard	to	one	or	more	potential	acquisitions,	not	all	of	which	will	be	consummated.	We	make	public	disclosure	of	pending	and completed	acquisitions	when	appropriate	and	required	by	applicable	securities	laws	and	regulations.

Acquisitions	involve	numerous	risks	and	uncertainties.	If	we	complete	one	or	more	acquisitions,	our	results	of	operations	and	financial	condition	may	be adversely	affected	by	a	number	of	factors,	including:	the	failure	of	the	acquired	businesses	to	achieve	the	results	we	have	projected	in	either	the	near	or	long	term;	the assumption	of	unknown	liabilities;	the	difficulties	of	imposing	adequate	financial	and	operating	controls	on	the	acquired	companies	and	their	management	and	the potential	liabilities	that	might	arise	pending	the	imposition	of	adequate	controls;	the	difficulties	in	the	integration	of	the	operations,	technologies,	services	and	products of	the	acquired	companies;	and	the	failure	to	achieve	the	strategic	objectives	of	these	acquisitions.

# Our	operating	results	and	our	financial	condition	may	be	adversely	affected	by	foreign	operations.

We	recently	acquired	a	pharmaceutical	distributor	based	in	Canada	and	expect	to	consider	additional	foreign	acquisitions	in	the	future.	Our	existing	foreign operations	and	any	operations	we	may	acquire	in	the	future	carry	risks	in	addition	to	the	risks	of	acquisition,	as	described	above.	At	any	particular	time,	foreign operations	may	encounter	risks	and	uncertainties	regarding	the	governmental,	political,	economic,	business	and	competitive	environment	within	the	countries	in	which those	operations	are	based.	Additionally,	foreign	operations	expose	us	to	foreign	currency	fluctuations	that	could	impact	our	results	of	operations	and	financial	condition based	on	the	movements	of	the	applicable	foreign	currency	exchange	rates	in	relation	to	the	U.S.	Dollar.

If	we	fail	to	maintain	an	effective	system	of	internal	controls,	we	may	not	be	able	to	accurately	report	our	financial	results,	our	management	may	not	be	able	to provide	its	report	on	the	effectiveness	of	our	internal	controls	over	financial	reporting	in	our	Annual	Report	on	Form	10-K	for	the	fiscal	year	ending	September	30,	2006 as	required	pursuant	to	Section	404	of	the	Sarbanes-Oxley	Act	of	2002,	and	our	independent	registered	public	accounting	firm	may	not	be	able	to	provide	an unqualified	attestation,	or	any	attestation,	on	management's	assessment	of	the	operating	effectiveness	of	our	internal	controls	over	financial	reporting.

Pursuant	to	Section	404	of	the	Sarbanes-Oxley	Act,	our	management	will	be	required	to	deliver	a	report	in	our	Annual	Report	on	Form	10-K	for	the	fiscal	year ending	September	30,	2006,	similar	to	the	one	delivered	herein,	that	assesses	the	effectiveness	of	our	internal	control	over	financial	reporting.	We	also	will	be	required	to deliver	an	attestation	report,	similar	to	the	one	delivered	herein,	of	our	independent	registered	public	accounting	firm	on	our	management's	assessment	of,	and	operating effectiveness	of,	internal	controls.	We	have	undertaken	substantial	effort	to	assess,	enhance	and	document	our	internal	control	systems,	financial	processes	and information	systems	and	expect	to	continue	to	do	so	during	fiscal	2006	in	preparation	for	the	required	annual	evaluation	process.	Significant	use	of	resources,	both internal	and	external,	will	be	required	to	make	the	requisite	evaluation	of	the	annual	effectiveness	of	the	Company's	internal	controls.	While	the	Company	believes	it	has adequate	internal	controls	and	will	meet	its	obligations,	there	can	be	no	assurance	that	the	Company	will	be	able	to	complete	the	work	necessary	for	the	Company's management	to	issue	its	report	in	a	timely	manner	or	that	management	or	the	Company's	independent	registered	public	accounting	firm	will	conclude	that	the Company's	internal	controls	are	effective.

Risks	generally	associated	with	the	Company's	sophisticated	information	systems	may	adversely	affect	the	Company's	operating	results.

The	Company	relies	on	sophisticated	information	systems	in	its	business	to	obtain,	rapidly	process,	analyze,	and	manage	data	to	facilitate	the	purchase	and distribution	of	thousands	of	inventory	items	from	numerous	distribution	centers;	receive,	to	process,	and	ship	orders	on	a	timely	basis;	to	manage	the	accurate	billing	and collections	for	thousands	of	customers;	and	to	process	payments	to	suppliers.	The	Company's	business	and	results	of	operations	may	be	adversely	affected	if	these systems	are	interrupted	or	damaged	by	unforeseen	events	or	if	they	fail	for	any	extended	period	of	time,	including	due	to	the	actions	of	third	parties.	A	third	party	service provider	is	responsible	for	managing	a	significant	portion	of	the	Company's	information	systems.	The	Company's	business	and	results	of	operations	may	be	adversely affected	if	the	third	party	service	provider	does	not	perform	satisfactorily.

# Available	Information

For	more	information	about	us,	visit	our	website	at	www.amerisourcebergen.com.	The	contents	of	the	website	are	not	part	of	this	Form	10-K.	Our	electronic filings	with	the	Securities	and	Exchange	Commission	(including	all	Forms	10-K,	10-Q	and	8-K,	and	any	amendments	to	these	reports)	may	be	viewed	using	their website	at	www.sec.gov	and	are	available	free	of	charge	through	the	"Investors"	section	of	our	website	immediately	after	we	electronically	file	with	or	furnish	them	to the	Securities	and	Exchange	Commission.

# ITEM	2. PROPERTIES

As	of	September	30,	2005,	we	conducted	our	business	from	office	and	operating	facilities	at	owned	and	leased	locations	throughout	the	United	States	and	Puerto Rico.	In	the	aggregate,	our	facilities	occupy	approximately	8.1	million	square	feet	of	office	and	warehouse	space,	which	is	either	owned	or	leased	under	agreements	that expire	from	time	to	time	through	2018.

Our	32	full-service	ABDC	wholesale	pharmaceutical	distribution	facilities	range	in	size	from	approximately	39,000	square	feet	to	314,000	square	feet,	with	an aggregate	of	approximately	5.0	million	square	feet.	Our	six	new	distribution	facilities,	including	office	space,	will	each	have	approximately	300,000	square	feet.	Leased facilities	are	located	in	Puerto	Rico	plus	the	following	states:	Arizona,	California,	Colorado,	Florida,	Hawaii,	Illinois,	Minnesota,	Missouri,	North	Carolina,	New	Jersey, Utah,	and	Washington.	Owned	facilities	are	located	in	the	following	states:	Alabama,	California,	Georgia,	Illinois,	Indiana,	Kentucky,	Massachusetts,	Michigan, Mississippi,	Missouri,	Ohio,	Oklahoma,	Pennsylvania,	Tennessee,	Texas	and	Virginia.	We	consider	our	operating	properties	to	be	in	satisfactory	condition.	The	current leases	expire	through	2018.	See	Optimize	and	Grow	Our	Distribution	Business	on	Page	4	for	a	discussion	of	our	facility	consolidation	and	expansion	plan.

As	of	September	30,	2005,	the	other	business	units	within	the	Pharmaceutical	Distribution	segment	(including	the	Specialty	and	Packaging	Groups	and	our	other operations)	were	located	in	fifty-two	leased	locations	and	four	owned	locations.	The	locations	range	in	size	from	approximately	300	square	feet	to	310,000	square	feet and	have	a	combined	area	of	approximately	1.8	million	square	feet,	of	which	the	Packaging	Group,	due	to	the	nature	of	its	operations,	occupies	approximately 0.9	million	square	feet.	The	leases	expire	through	2015.

As	of	September	30,	2005,	our	PharMerica	operations	were	located	in	96	leased	locations	(92	of	which	are	pharmacies)	ranging	in	size	from	approximately	100 square	feet	to	111,000	square	feet	and	had	a	combined	area	of	approximately	1.0	million	square	feet.	The	leases	expire	through	2010.

We	lease	approximately	134,000	square	feet	of	general	and	executive	offices	in	Chesterbrook,	Pennsylvania	and	own	and	lease	approximately	186,000	square feet	of	administrative	and	data	processing	offices	in	Orange,	California	and	Montgomery,	Alabama.	The	leases	expire	through	2010.

# ITEM	3. LEGAL	PROCEEDINGS

In	the	ordinary	course	of	its	business,	the	Company	becomes	involved	in	lawsuits,	administrative	proceedings	and	governmental	investigations,	including antitrust,	environmental,	product	liability,	regulatory	and	other	matters.	Significant	damages	or	penalties	may	be	sought	from	the	Company	in	some	matters,	and	some matters	may	require	years	for	the	Company	to	resolve.	The	Company	establishes	reserves	based	on	its	periodic	assessment	of	estimates	of	probable	losses.	There	can	be no	assurance	that	an	adverse	resolution	of	one	or	more	matters	during	any	subsequent	reporting	period	will	not	have	a	material	adverse	effect	on	the	Company's	results of	operations	for	that	period.	However,	on	the	basis	of	information	furnished	by	counsel	and	others	and	taking	into	consideration	the	reserves	established	for	pending matters,	the	Company	does	not	believe	that	the	resolution	of	currently	pending	matters	(including	those	matters	specifically	described	below),	individually	or	in	the aggregate,	will	have	a	material	adverse	effect	on	the	Company's	financial	condition.	(See	Note	12	to	the	Consolidated	Financial	Statements).

# Stockholder	Derivative	Lawsuit

The	Company	has	been	named	as	a	nominal	defendant	in	a	stockholder	derivative	action	on	behalf	of	the	Company	under	Delaware	law	that	was	filed	in	March 2004	in	the	U.S.	District	Court	for	the	Eastern	District	of	Pennsylvania.	Also	named	as	defendants	in	the	action	are	all	of	the	individuals	who	were	serving	as	directors	of the	Company	prior	to	the	date	of	filing	of	the	action	and	certain	current	and	former	officers	of	the	Company	and	its	predecessors.	The	derivative	action	alleged,	among other	things,	breach	of	fiduciary	duty,	abuse	of	control	and	gross	mismanagement	against	all	the	individual	defendants.	It	further	alleged,	among	other	things,	waste	of corporate	assets,	unjust	enrichment	and	usurpation	of	corporate	opportunity	against	certain	of	the	individual	defendants.	The	derivative	action	sought	compensatory	and punitive	damages	in	favor	of	the	Company,	attorneys'	fees	and	costs,	and	further	relief	as	may	be	determined	by	the	court.	The	defendants	believe	that	this	derivative action	is	wholly	without	merit.	In	May	2004,	the	defendants	filed	a	motion	to	dismiss	the	action	on	both	procedural	and	substantive	grounds.	In	February	2005,	the District	Court	granted	the	defendants'	motion	to	dismiss	the	entire	action.	Following	the	dismissal	of	the	action,	the	derivative	plaintiff	made	demand	upon	the	Company to	inspect	the	Company's	books	and	records.	The	Company	believes	that	the	demand	is	improper	under	Delaware	law	and	has	refused	to	allow	the	inspection.	The derivative	plaintiff	obtained	the	right	from	the	District	Court	to	file	an	amended	complaint	within	30	days	after	resolution	of	the	inspection	demand	and,	thereafter,	filed a	complaint	in	the	Delaware	Chancery	Court	seeking	to	compel	inspection	of	certain	of	the	Company's	books	and	records.	On	November	30,	2005,	the	Delaware Chancery	Court	denied	the	plaintiff's	request	to	inspect	the	Company's	books	and	records.

# New	York	Attorney	General	Subpoena

In	April	2005,	the	Company	received	a	subpoena	from	the	Office	of	the	Attorney	General	of	the	State	of	New	York	(the	"NYAG")	requesting	documents	and responses	to	interrogatories	concerning	the	manner	and	degree	to	which	the	Company	purchases	pharmaceuticals	from	other	wholesalers,	often	referred	to	as	the alternate	source	market,	rather	than	directly	from	manufacturers.	Similar	subpoenas	have	been	issued	by	the	NYAG	to	other	pharmaceutical	distributors.	The	Company has	not	been	advised	of	any	allegations	of	misconduct	by	the	Company.	The	Company	has	engaged	in	discussions	with	the	NYAG,	initially	to	clarify	the	scope	of	the subpoena	and	subsequently	to	provide	background	information	requested	by	the	NYAG.	The	Company	continues	to	produce	responsive	information	and	documents	and to	cooperate	with	the	NYAG.	The	Company	believes	that	it	has	not	engaged	in	any	wrongdoing,	but	cannot	predict	the	outcome	of	this	matter.

# ITEM	4. SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY	HOLDERS

There	were	no	matters	submitted	to	a	vote	of	security	holders	for	the	quarter	ended	September	30,	2005.

# EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

The	following	is	a	list	of	the	Company's	principal	executive	officers,	their	ages	and	their	positions,	as	of	December	1,	2005.	Each	executive	officer	serves	at	the pleasure	of	the	Company's	board	of	directors.

Terrance	P.	Haas 40 Senior	Vice	President	and	President,	AmerisourceBergen	Drug	Corporation

Unless	indicated	to	the	contrary,	the	business	experience	summaries	provided	below	for	the	Company's	executive	officers	describe	positions	held	by	the	named individuals	during	the	last	five	years.

Mr.	Yost	has	been	Chief	Executive	Officer	and	a	Director	of	the	Company	since	August	2001	and	was	President	of	the	Company	until	October	2002.	He	was Chairman	and	Chief	Executive	Officer	of	AmeriSource	from	December	2000	until	August	2001.	Mr.	Yost	previously	served	as	President	and	Chief	Executive	Officer	of AmeriSource	from	May	1997	to	December	2000.	Mr.	Yost	served	as	a	director	of	AmeriSource	from	1997	until	August	2001.

Mr.	Hilzinger	was	elected	to	the	Company's	Board	of	Directors	in	March	2004.	He	was	named	President	and	Chief	Operating	Officer	of	the	Company	in	October 2002.	Prior	to	that	date,	he	was	the	Company's	Executive	Vice	President	and	Chief	Operating	Officer	since	August	2001;	the	President	and	Chief	Operating	Officer	of AmeriSource	from	December	2000	until	August	2001;	the	Senior	Vice	President	and	Chief	Operating	Officer	of	AmeriSource	from	January	1999	to	December	2000; and	the	Senior	Vice	President,	Chief	Financial	Officer	of	AmeriSource	from	1997	to	1999.

Mr.	DiCandilo	has	been	Chief	Financial	Officer	of	the	Company	since	March	2002.	Since	May	2005,	he	has	been	an	Executive	Vice	President	of	the	Company. From	March	2002	to	May	2005,	Mr.	DiCandilo	was	a	Senior	Vice	President.	Previously,	he	was	the	Company's	Vice	President	and	Controller	since	August	2001	and AmeriSource's	Vice	President	and	Controller	from	1995	to	August	2001.

Mr.	Collis	has	been	a	Senior	Vice	President	of	the	Company	and	President	of	AmerisourceBergen	Specialty	Group	since	August	2001.	He	was	Senior	Executive Vice	President	of	Bergen	from	February	2000	until	August	2001	and	President	of	ASD	Specialty	Healthcare,	Inc.	from	September	2000	until	August	2001.	Mr.	Collis was	also	Executive	Vice	President	of	ASD	Specialty	Healthcare,	Inc.	from	1996	to	August	2000.

Mr.	Haas	was	named	Senior	Vice	President,	and	President	of	AmerisourceBergen	Drug	Corporation	in	February	2004.	He	was	Senior	Vice	President,	Operations from	February	2003	to	February	2004.	Previously,	he	was	Senior	Vice	President,	Integration	since	October	2001	and	Senior	Vice	President,	Supply	Chain	Management from	August	2001	to	October	2001.	Prior	to	August	2001,	Mr.	Haas	served	as	AmeriSource's	Senior	Vice	President,	Supply	Chain	Management	since	November	2000 and	Senior	Vice	President,	Operations	of	AmeriSource	from	1999	to	2000.

# PART	II

# ITEM	5. MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY SECURITIES

The	Company's	common	stock	is	traded	on	the	New	York	Stock	Exchange	under	the	trading	symbol	"ABC."	As	of	November	30,	2005,	there	were	2,974	record holders	of	the	Company's	common	stock.	The	following	table	sets	forth	the	high	and	low	closing	sale	prices	of	the	Company's	common	stock	for	the	periods	indicated.

# PRICE	RANGE	OF	COMMON	STOCK

|  | High | Low |
| :--- | :--- | :--- |
| Fiscal\tYear\tEnded\tSeptember\t30,\t2005 |  |  |
| First\tQuarter | $63.68 | $50.45 |
| Second\tQuarter | \t 62.78 | \t 54.03 |
| Third\tQuarter | \t 69.15 | \t 56.36 |
| Fourth\tQuarter | \t 78.43 | \t 69.20 |
| Fiscal\tYear\tEnded\tSeptember\t30,\t2004 |  |  |
| First\tQuarter | \t 65.89 | \t 55.00 |
| Second\tQuarter | \t 59.15 | \t 52.56 |
| Third\tQuarter | \t 61.64 | \t 54.20 |
| Fourth\tQuarter | \t 56.58 | \t 49.91 |

The	Company	has	paid	quarterly	cash	dividends	of	$0.025	per	share	on	its	common	stock	since	the	first	quarter	of	fiscal	2002.	On	November	15,	2005,	the Company's	board	of	directors	increased	the	quarterly	dividend	by	100%	and	declared	a	dividend	of	$0.05	per	share,	which	will	be	paid	on	December	12,	2005	to stockholders	of	record	as	of	close	of	business	on	November	25,	2005.	The	Company	anticipates	that	it	will	continue	to	pay	quarterly	cash	dividends	in	the	future. However,	the	payment	and	amount	of	future	dividends	remain	within	the	discretion	of	the	Company's	board	of	directors	and	will	depend	upon	the	Company's	future earnings,	financial	condition,	capital	requirements	and	other	factors.

Additionally,	on	November	15,	2005,	the	Company	declared	a	two-for-one	stock	split	of	the	Company's	outstanding	shares	of	common	stock.	The	stock	split	will occur	in	the	form	of	a	stock	dividend,	where	each	stockholder	receives	one	additional	share	for	each	share	owned.	The	stock	dividend	is	payable	on	December	28,	2005 to	stockholders	of	record	at	the	close	of	business	on	December	13,	2005.	Subsequent	quarterly	cash	dividends	will	be	adjusted	to	reflect	the	two-for-one	stock	split.

# ISSUER	PURCHASES	OF	EQUITY	SECURITIES

In	May	2005,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	$450	million	of	its	outstanding	shares	of	common	stock,	subject	to market	conditions	and	to	compliance	with	the	stock	repurchase	restrictions	contained	in	the	indentures	governing	the	Company's	senior	notes	and	in	the	credit	agreement for	the	Company's	senior	credit	facility.	Through	June	30,	2005,	the	Company	had	purchased	$94.2	million	of	its	common	stock	under	this	program	for	a	weighted average	price	of	$65.50.	In	August	2005,	the	Company's	board	of	directors	authorized	an	increase	in	the	amount	available	under	this	program	by	approximately	$394 million,	bringing	the	total	remaining	availability	to	$750	million,	and	the	total	repurchase	program	to	approximately	$844	million.	The	increase	in	repurchase	authority was	subject	to	the	completion	of	the	tender	and	repurchase	of	the	Company's	$500	million	principal	amount	8.125%	senior	notes	due	2008	and	$300	million	principal amount	7.25%	senior	notes	due	2012	and	the	offering	and	sale	of	$400	million	principal	amount	5.625%	senior	notes	due	2012	and	$500	million	principal	amount 5.875%	senior	notes	due	2015	(collectively,	the	"Refinancing").	The	Refinancing	was	completed	in	September	2005.	As	of	September	30,	2005,	the	Company	has	$750 million	of	remaining	authorization	to	repurchase	its	common	stock	under	this	program.

In	February	2005,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	5.7	million	shares	of	its	outstanding	common	stock,	subject	to market	conditions.	The	Company	completed	the	purchase	of	all	the	shares	authorized	under	this	program	for	a	total	of	$319.7	million	in	March	2005.	In	April	2005,	the Company	paid	$16.6	million	to	settle	the	purchase	of	the	5.7	million	shares.	See	Note	7	(Stockholders'	Equity	and	Earnings	Per	Share)	of	the	Notes	to	the	Consolidated Financial	Statements	set	forth	under	Item	8	of	Part	II	of	this	report.

In	August	2004,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	$500	million	of	its	outstanding	shares	of	common	stock,	subject	to market	conditions.	The	Company	completed	the	purchase	of	$500	million	of	its	common	stock	under	this	program	in	February	2005	for	a	weighted	average	price	of $53.81.

The	following	tables	set	forth	the	number	of	shares	purchased	during	the	fiscal	year	ended	September	30,	2005,	the	average	price	paid	per	share,	and	the	dollar value	that	may	yet	be	purchased	under	these	programs.

# $844	Million	Repurchase	Program:

| Period | Total<br>Number	of<br>Shares<br>Purchased | Average<br>Price	Paid<br>per	Share | Total	Number	of	Shares<br>Purchased	as	Part	of	the<br>$844	Million	Repurchase<br>Program | Maximum	Dollar	Value	of<br>Shares	that	May	Yet	Be<br>Purchased	Under	the	$844<br>Million	Repurchase	Program |
| :--- | :--- | :--- | :--- | :--- |
| May\t1\tto\tMay\t31 | 443,000 | $64.92 | 443,000 | $815,411,688 |
| June\t1\tto\tJune\t30 | 994,700 | $65.76 | 1,437,700 | 750,000,000 |
| Total | 1,437,700 | $65.50 | 1,437,700 | 750,000,000 |

# 5.7	Million	Share	Repurchase	Program:

| Period | Total<br>Number	of<br>Shares<br>Purchased | Average<br>Price	Paid<br>per	Share | Total	Number	of	Shares<br>Purchased	as	Part	of	the<br>5.7	Million	Share<br>Repurchase	Program | Maximum	number	of	Shares<br>that	May	Yet	Be	Purchased<br>Under	the	5.7	Million<br>Repurchase	Program |
| :--- | :--- | :--- | :--- | :--- |
| February\t1\tto\tFebruary\t28 | 435,600 | $59.46 | 435,600 | 5,264,400 |
| March\t1\tto\tMarch\t31 | 5,264,400 | $55.80 | 5,700,000 | — |
| Total | 5,700,000 | $56.08 | 5,700,000 | — |

# $500	Million	Repurchase	Program:

| Period | Total<br>Number	of<br>Shares<br>Purchased | Average<br>Price	Paid<br>per	Share | Total	Number	of	Shares<br>Purchased	as	Part	of	the<br>$500	Million	Repurchase<br>Program | Maximum	Dollar	Value	of<br>Shares	that	May	Yet	Be<br>Purchased	Under	the	$500<br>Million	Repurchase	Program |
| :--- | :--- | :--- | :--- | :--- |
| October\t1\tto\tOctober\t31 | 4,818,000 | $52.52 | 7,579,500 | $102,280,881 |
| January\t1\tto\tJanuary\t31 | 100,000 | $55.99 | 7,679,500 | 96,681,403 |
| February\t1\tto\tFebruary\t28 | 1,612,850 | $59.94 | 9,292,350 | — |
|  | 6,530,850 | $54.41 | 9,292,350 | — |

# ITEM	6. SELECTED	FINANCIAL	DATA

On	August	29,	2001,	AmeriSource	and	Bergen	merged	to	form	the	Company.	The	merger	was	accounted	for	as	an	acquisition	of	Bergen	under	the	purchase method	of	accounting.	Accordingly,	the	financial	data	for	the	fiscal	year	ended	September	30,	2001	reflects	the	operating	results	for	the	full	year	of	AmeriSource	and approximately	one	month	of	Bergen,	and	the	financial	position	of	the	combined	company.	The	following	table	should	be	read	in	conjunction	with	the	Consolidated Financial	Statements,	including	the	notes	thereto,	and	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	beginning	on	the	next page	of	this	report.

| (amounts	in	thousands,	except	per	share	amounts) | 2005	(a) | 2004	(b) | 2003	(c) | 2002	(d) | 2001	(e) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Statement\tof\tOperations\tData: |  |  |  |  |  |
| Operating\trevenue | $50,012,598 | $48,812,452 | $45,463,400 | $40,163,387 | $15,768,511 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | 4,564,723 | 4,308,339 | 4,120,639 | 4,994,080 | 368,718 |
| Total\trevenue | 54,577,321 | 53,120,791 | 49,584,039 | 45,157,467 | 16,137,229 |
| Gross\tprofit | 1,980,184 | 2,166,430 | 2,225,613 | 2,009,821 | 692,265 |
| Operating\texpenses | 1,343,238 | 1,265,471 | 1,339,484 | 1,294,209 | 431,452 |
| Operating\tincome | 636,946 | 900,959 | 886,129 | 715,612 | 260,813 |
| Income\tfrom\tcontinuing\toperations | 291,922 | 474,874 | 443,065 | 343,243 | 124,683 |
| Net\tincome | 264,645 | 468,390 | 441,229 | 344,941 | 123,796 |
| Earnings\tper\tshare\tfrom\tcontinuing\toperations\t–\tdiluted\t(f)\t(g) | 2.73 | 4.12 | 3.91 | 3.14 | 2.11 |
| Earnings\tper\tshare\t–\tdiluted\t(f)\t(g) | 2.48 | 4.06 | 3.89 | 3.16 | 2.10 |
| Cash\tdividends\tdeclared\tper\tcommon\tshare | $0.10 | $0.10 | $0.10 | $0.10 | $— |
| Weighted\taverage\tcommon\tshares\tOutstanding\t-\tdiluted | 107,770 | 117,779 | 115,954 | 112,228 | 62,807 |
| Balance\tSheet\tData: |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $1,315,683 | $871,343 | $800,036 | $663,340 | $297,626 |
| Accounts\treceivable\t-\tnet\t(h) | 2,640,646 | 2,260,973 | 2,295,437 | 2,222,156 | 2,142,663 |
| Merchandise\tinventories\t(h) | 4,003,690 | 5,135,830 | 5,733,837 | 5,437,878 | 5,056,257 |
| Property\tand\tequipment\t-\tnet | 514,758 | 465,264 | 353,170 | 282,578 | 289,569 |
| Total\tassets | 11,381,174 | 11,654,003 | 12,040,125 | 11,213,012 | 10,291,245 |
| Accounts\tpayable | 5,292,253 | 4,947,037 | 5,393,769 | 5,367,837 | 4,991,884 |
| Long-term\tdebt,\tincluding\tcurrent\tportion | 952,711 | 1,438,471 | 1,784,154 | 1,817,313 | 1,874,379 |
| Stockholders'\tequity | 4,280,357 | 4,339,045 | 4,005,317 | 3,316,338 | 2,838,564 |
| Total\tliabilities\tand\tstockholders'\tequity | 11,381,174 | 11,654,003 | 12,040,125 | 11,213,012 | 10,291,245 |

(a) Includes	$14.0	million	of	facility	consolidations	and	employee	severance	costs,	net	of	income	tax	benefit	of	$8.7	million,	a	$71.4	million	loss	on	early	retirement of	debt,	net	of	income	tax	benefit	of	$40.5	million,	a	$24.7	million	gain	from	antitrust	litigation	settlements,	net	of	income	tax	expense	of	$15.4	million	and	an impairment	charge	of	$3.2	million,	net	of	income	tax	benefit	of	$2.1	million.

(b) Includes	$4.6	million	of	facility	consolidations	and	employee	severance	costs,	net	of	income	tax	benefit	of	$2.9	million,	a	$14.5	million	loss	on	early	retirement	of debt,	net	of	income	tax	benefit	of	$9.1	million,	and	a	$23.4	million	gain	from	an	antitrust	litigation	settlement,	net	of	income	tax	expense	of	$14.6	million.

(c) Includes	$5.4	million	of	facility	consolidations	and	employee	severance	costs,	net	of	income	tax	benefit	of	$3.5	million	and	a	$2.6	million	loss	on	early	retirement of	debt,	net	of	income	tax	benefit	of	$1.6	million.

(d) Includes	$14.6	million	of	merger	costs,	net	of	income	tax	benefit	of	$9.6	million.

(e) Includes	$8.0	million	of	merger	costs,	net	of	income	tax	benefit	of	$5.1	million,	$6.8	million	of	costs	related	to	facility	consolidations	and	employee	severance, net	of	income	tax	benefit	of	$4.1	million,	and	a	$1.7	million	reduction	in	an	environmental	liability,	net	of	income	tax	expense	of	$1.0	million.

(f) Effective	October	1,	2004,	the	Company	changed	its	method	of	recognizing	cash	discounts	and	other	related	manufacturer	incentives.	The	Company	recorded	a $10.2	million	charge	for	the	cumulative	effect	of	change	in	accounting	(net	of	income	tax	benefit	of	$6.3	million)	in	the	consolidated	statement	of	operations	for the	fiscal	year	ended	September	30,	2005.	This	$10.2	million	cumulative	effect	charge	reduced	diluted	earnings	per	share	by	$0.09	for	the	fiscal	year	ended September	30,	2005.

Had	the	Company	used	its	current	method	of	accounting	for	recognizing	cash	discounts	and	other	related	manufacturer	incentives	for	each	of	the	four	fiscal	years ended	September	30,	2004,	diluted	earnings	per	share	from	continuing	operations	would	have	been	higher	by	$0.05	for	fiscal	2001,	higher	by	$0.02	for	fiscal 2002,	lower	by	$0.08	for	fiscal	2003,	and	lower	by	$0.02	for	fiscal	2004.

(g) Includes	the	amortization	of	goodwill,	net	of	income	taxes,	during	fiscal	2001.	Had	the	Company	not	amortized	goodwill,	diluted	earnings	per	share	would	have been	$0.02	higher	in	fiscal	2001.

(h) Balances	as	of	September	30,	2004	reflect	a	change	in	accounting	to	accrue	for	customer	sales	returns.	The	impact	of	the	accrual	was	to	decrease	accounts receivable,	increase	merchandise	inventories,	and	decrease	operating	revenue	and	cost	of	goods	sold	by	$316.8	million.	The	accrual	for	customer	sales	returns	had no	impact	on	net	income.

# ITEM	7. MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

The	following	discussion	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	notes	thereto	contained	herein.

The	Company	is	a	national	pharmaceutical	services	company	providing	drug	distribution	and	related	healthcare	services	and	solutions	to	its	customers.	The Company	also	provides	pharmaceuticals	to	long-term	care	and	workers'	compensation	patients.

The	Company	is	organized	based	upon	the	products	and	services	it	provides	to	its	customers,	and	substantially	all	of	its	operations	are	located	in	the	United	States. The	Company's	operations	are	comprised	of	two	reportable	segments:	Pharmaceutical	Distribution	and	PharMerica.

# Pharmaceutical	Distribution

The	Pharmaceutical	Distribution	reportable	segment	includes	the	operations	of	AmerisourceBergen	Drug	Corporation	("ABDC")	and	the	AmerisourceBergen Specialty	and	Packaging	groups.	The	operations	of	the	former	AmerisourceBergen	Technology	Group	became	a	part	of	the	overall	ABDC	operations	in	fiscal	2005.	The Pharmaceutical	Distribution	reportable	segment	is	comprised	of	two	operating	segments:	ABDC	and	AmerisourceBergen	Specialty	Group	("ABSG").	The	ABDC operating	segment	includes	the	operations	of	the	AmerisourceBergen	Packaging	Group.	Servicing	both	pharmaceutical	manufacturers	and	healthcare	providers	in	the pharmaceutical	supply	channel,	the	Pharmaceutical	Distribution	segment's	operations	provide	drug	distribution	and	related	services	designed	to	reduce	costs	and improve	patient	outcomes	throughout	the	United	States	and	Puerto	Rico.	The	drug	distribution	operations	of	ABDC	and	ABSG	comprised	over	90%	of	the	segment's operating	revenue	and	over	80%	of	the	segment's	operating	income	in	fiscal	2005.

ABDC	distributes	a	comprehensive	offering	of	brand	name	and	generic	pharmaceuticals,	over-the-counter	healthcare	products,	and	home	healthcare	supplies	and equipment	to	a	wide	variety	of	healthcare	providers,	including	acute	care	hospitals	and	health	systems,	independent	and	chain	retail	pharmacies,	mail	order	facilities, physicians,	clinics	and	other	alternate	site	facilities.

ABDC	is	in	a	business	model	transition	with	respect	to	how	manufacturers	compensate	us	for	our	services.	Historically,	supplier	arrangements	allowed	us	to generate	gross	profit	in	several	ways,	including	cash	discounts	for	prompt	payments,	inventory	buying	opportunities,	rebates,	inventory	management	and	other agreements,	vendor	program	arrangements,	negotiated	deals	and	other	promotional	opportunities.	A	significant	portion	of	ABDC's	gross	margin	had	been	derived	from our	ability	to	purchase	merchandise	inventories	in	advance	of	pharmaceutical	price	increases	and	then	hold	these	inventories	until	pharmaceutical	prices	increase, thereby	generating	a	larger	gross	margin	upon	sale	of	the	inventories.	Over	the	last	two	years,	pharmaceutical	manufacturers	have	been	increasing	their	control	over	the pharmaceutical	supply	channel	by	using	product	allocation	methods,	including	the	imposition	of	inventory	management	agreements	("IMAs").	Under	a	typical	IMA arrangement,	the	Company	is	compensated	based	on	specific	contract	defined	formulas	for	maintaining	a	certain	level	of	inventory	for	a	pre-defined	period	prior	to,	as of,	or	subsequent	to	the	date	of	a	manufacturer	price	increase.	The	payment	is	triggered	upon	the	manufacturer	price	increase	and	is	recognized	as	a	reduction	of	cost	of goods	sold	over	the	longer	of	the	product	sell-through	period	or	post-price	increase	monitoring	period.	Because	the	payment	trigger	is	the	date	of	the	manufacturer	price increase	and	the	size	of	the	payment	is	typically	dependent	on	the	percentage	price	increase,	changes	in	manufacturers'	pricing	patterns	can	cause	significant	volatility	to the	Company's	periodic	earnings.	Additionally,	pharmaceutical	manufacturers	imposed	restrictions	on	our	ability	to	purchase	their	products	from	alternate	sources	and have	been	requesting	more	product	and	distribution	sales	data	from	us.	Effective	October	1,	2005,	the	Company	voluntarily	made	a	decision	to	purchase	all pharmaceuticals	only	from	manufacturers	in	an	effort	to	further	protect	the	integrity	of	the	supply	channel.

All	of	the	above	has	led	to	significant	volatility	in	ABDC's	gross	margin	and,	therefore,	we	are	continuing	our	efforts	to	shift	our	pharmaceutical	distribution business	to	a	fee-for-service	model	where	we	are	compensated	for	the	services	we	provide	manufacturers	versus	one	that	is	dependent	upon	manufacturer	price	increases (as	is	the	case	with	the	IMA	model).	We	continue	to	work	with	our	pharmaceutical	manufacturer	partners	to	define	fee-for-service	terms	that	will	adequately	compensate us	for	our	services,	such	as	our	distribution	services,	inventory	management,	service	level	management,	and	other	services.	Under	a	typical	fee-for-service	agreement, the	Company	is	compensated	for	its	services	based	on	a	percentage	of	purchases	over	a	defined	time	period.	Amounts	due	for	services	rendered	in	the	current	period would	typically	be	earned	in	the	following	month	as	a	reduction	of	cost	of	goods	sold	as	the	related	product	is	sold.	As	of	September	30,	2005,	we	have	signed agreements	with	a	number	of	the

large	branded	pharmaceutical	manufacturers	that	we	consider	fee-for-service	arrangements	as	well	as	some	that	we	consider	hybrid	agreements	with	some	attributes	of IMAs	and	some	attributes	of	fee-for-service	arrangements.	We	believe	the	transition	to	a	fee-for-service	model	will	improve	the	efficiency	of	the	supply	channel	and may	establish	a	more	predictable	earnings	pattern	for	ABDC,	while	expanding	our	service	relationship	with	pharmaceutical	manufacturers.	The	fee-for-service arrangements	may	establish	a	more	predictable	earnings	pattern	because	under	many	of	the	agreements	the	Company	earns	a	fee	for	its	services	performed	on	a	monthly basis	in	contrast	to	the	IMA	model	where	earnings	are	largely	predicated	upon	the	timing	and	amount	of	pharmaceutical	price	increases.	We	continue	to	have	discussions with	pharmaceutical	manufacturers	regarding	fee-for-service	arrangements	and	expect	to	have	agreements	in	place	with	a	substantial	majority	of	the	large	branded manufacturers	by	the	end	of	calendar	2005.	During	fiscal	2006,	we	expect	that	more	than	75%	of	ABDC's	brand	name	manufacturer	gross	margin	will	not	be	contingent on	manufacturer	price	increases.	The	business	model	transition	has	had	the	effect	of	reducing	merchandise	inventories	because	IMA	and	fee-for-service	agreements	both limit	the	amount	of	inventory	we	can	carry	and,	as	a	result,	we	have	experienced	a	significant	increase	in	cash	flow	from	operations.	The	majority	of	the	reduction	in merchandise	inventories	has	been	realized	as	of	September	30,	2005	as	days	held	in	inventory	have	decreased	from	50	days	during	the	fourth	quarter	of	fiscal	2003	to	42 days	during	the	fourth	quarter	of	fiscal	2004	to	32	days	during	the	fourth	quarter	of	fiscal	2005.	In	fiscal	2006,	we	would	expect	merchandise	inventories	to	stabilize	as the	large	majority	of	branded	manufacturers	are	expected	to	be	under	some	form	of	fee-for-service	contract	and,	as	a	result,	we	would	expect	future	cash	flow	from operations	to	track	more	closely	to	net	income.

ABDC	also	provides	scalable	automated	pharmacy	dispensing	equipment,	medication	and	supply	dispensing	cabinets	and	supply	management	software	to	a variety	of	retail	and	institutional	healthcare	providers.

ABSG,	through	a	number	of	individual	operating	businesses,	provides	distribution	and	other	services,	including	group	purchasing	services,	to	physicians	and alternate	care	providers	who	specialize	in	a	variety	of	disease	states,	including	oncology,	nephrology,	and	rheumatology.	ABSG	also	distributes	vaccines,	other injectables,	plasma	and	other	blood	products.	In	addition,	through	its	manufacturer	services	and	physician	and	patient	services	businesses,	ABSG	provides	a	number	of commercialization,	third	party	logistics,	and	other	services	for	biotech	and	other	pharmaceutical	manufacturers,	reimbursement	consulting,	practice	management,	and physician	education.

ABSG's	business	may	be	adversely	impacted	in	the	future	by	changes	in	the	Medicare	reimbursement	rates	for	certain	pharmaceuticals,	including	oncology	drugs. The	reimbursement	changes	that	have	been	implemented	by	the	U.S.	Department	of	Health	and	Human	Services	("HHS")	pursuant	to	the	Medicare	Prescription	Drug, Improvement	and	Modernization	Act	of	2003	("Medicare	Modernization	Act"),	and	that	are	scheduled	to	be	implemented	in	the	future,	may	have	the	effect	of	reducing the	amount	and/or	margins	of	medications	purchased	by	physicians	for	administration	in	their	offices	and	may	force	patients	to	other	healthcare	providers.	Since	ABSG provides	a	number	of	services	to	or	through	physicians,	patient	shifts	from	physicians	to	other	healthcare	providers	may	result	in	slower	or	reduced	growth	in	revenues for	ABSG.	Although	ABSG	has	contingency	plans	to	enable	it	to	retain	and	grow	the	business	it	conducts	with	and	through	physicians,	there	can	be	no	assurance	that	it will	retain	or	replace	all	of	the	revenue	currently	going	through	the	physician	channel	or	that	such	revenue	will	be	as	profitable.

The	AmerisourceBergen	Packaging	Group	consists	of	American	Health	Packaging	and	Anderson	Packaging	("Anderson").	American	Health	Packaging	delivers unit	dose,	punch	card,	unit-of-use	and	other	packaging	solutions	to	institutional	and	retail	healthcare	providers.	Anderson	is	a	leading	provider	of	contracted	packaging services	for	pharmaceutical	manufacturers.

# PharMerica

The	PharMerica	segment	includes	the	operations	of	the	PharMerica	long-term	care	business	("Long-Term	Care")	and	a	workers'	compensation-related	business ("Workers'	Compensation").	The	PharMerica	reportable	segment	encompasses	only	the	PharMerica	operating	segment.

Long-Term	Care	is	a	leading	national	provider	of	pharmacy	products	and	services	to	patients	in	long-term	care	and	alternate	site	settings,	including	skilled	nursing facilities,	assisted	living	facilities	and	residential	living	communities.	Long-Term	Care's	institutional	pharmacy	business	involves	the	purchase	of	bulk	quantities	of prescription	and	nonprescription	pharmaceuticals,	principally	from	our	Pharmaceutical	Distribution	segment,	and	the	distribution	of	those	products	to	residents	in	long- term	care	and	alternate	site	facilities.	Unlike	hospitals,	most	long-term	and	alternate	care	facilities	do	not	have	onsite	pharmacies	to	dispense	prescription	drugs,	but depend	instead	on	institutional	pharmacies,	such	as	Long-Term	Care,	to	provide	the	necessary	pharmacy	products	and	services	and	to	play	an	integral	role	in	monitoring patient	medication.	Long-Term	Care	pharmacies	dispense	pharmaceuticals	in	patient-specific	packaging	in	accordance	with	physician	orders.	In	addition,	Long-Term Care	provides	infusion	therapy	services	and	Medicare	Part	B	products,	as	well	as	formulary	management	and	other	pharmacy	consulting	services.

The	Company	is	currently	evaluating	the	effect	that	the	Medicare	Modernization	Act	may	have	on	the	Long-Term	Care	business.	The	ongoing	implementation	of Medicare	Part	D	(including	coverage	and	reimbursement	changes	associated	with	the	voluntary	drug	benefit	program	for	seniors)	could	have	an	adverse	effect	on	the Long-Term	Care	business.	At	this	time,	the	future	impact	of	the	Medicare	Modernization	Act	on	the	Long-Term	Care	business	cannot	be	determined.

Workers'	Compensation	provides	mail	order	and	on-line	pharmacy	services	to	chronically	and	catastrophically	ill	patients	under	workers'	compensation programs,	and	provides	pharmaceutical	claims	administration	services	for	payors.	Workers'	Compensation	services	include	home	delivery	of	prescription	drugs,	medical supplies	and	equipment	and	an	array	of	computer	software	solutions	to	reduce	the	payor's	administrative	costs.

# Summary	Segment	Information

| (dollars	in	thousands) | 2005 | Operating	Revenue<br>Fiscal	year	ended	September	30,<br>2004 | 2003 | 2005<br>vs.<br>2004<br>Change | 2004<br>vs.<br>2003<br>Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $49,319,371 | $48,113,015 | $44,657,911 | 3% | 8% |
| PharMerica | 1,571,369 | 1,575,255 | 1,608,203 | — | (2) |
| Intersegment\teliminations | (878,142) | (875,818) | (802,714) | — | (9) |
| Total | $50,012,598 | $48,812,452 | $45,463,400 | 2% | 7% |

| (dollars	in	thousands) | 2005 | Operating	Income<br>Fiscal	year	ended	September	30,<br>2004 | 2003 | 2005<br>vs.<br>2004<br>Change | 2004<br>vs.<br>2003<br>Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $532,887 | $748,625 | $791,216 | (29)% | (5)% |
| PharMerica | 91,947 | 121,846 | 103,843 | (25) | 17 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | (22,723) | (7,517) | (8,930) | (202) | 16 |
| Gain\ton\tlitigation\tsettlements | 40,094 | 38,005 | — | 5 | n/a |
| Impairment\tcharge | (5,259) | — | — | n/a | n/a |
| Total | $636,946 | $900,959 | $886,129 | (29)% | 2% |
| Percentages\tof\toperating\trevenue: |  |  |  |  |  |
| Pharmaceutical\tDistribution |  |  |  |  |  |
| Gross\tprofit | 3.03% | 3.43% | 3.81% |  |  |
| Operating\texpenses | 1.95% | 1.87% | 2.03% |  |  |
| Operating\tincome | 1.08% | 1.56% | 1.77% |  |  |
| PharMerica |  |  |  |  |  |
| Gross\tprofit | 28.40% | 30.45% | 32.69% |  |  |
| Operating\texpenses | 22.54% | 22.72% | 26.23% |  |  |
| Operating\tincome | 5.85% | 7.74% | 6.46% |  |  |
| AmerisourceBergen\tCorporation |  |  |  |  |  |
| Gross\tprofit | 3.96% | 4.44% | 4.90% |  |  |
| Operating\texpenses | 2.69% | 2.59% | 2.95% |  |  |
| Operating\tincome | 1.27% | 1.85% | 1.95% |  |  |

# Year	ended	September	30,	2005	compared	with	Year	ended	September	30,	2004

# Consolidated	Results

Operating	revenue,	which	excludes	bulk	deliveries,	for	the	fiscal	year	ended	September	30,	2005	increased	2%	to	$50.0	billion	from	$48.8	billion	in	the	prior fiscal	year.	This	increase	was	primarily	due	to	increased	operating	revenue	in	the	Pharmaceutical	Distribution	segment.

The	Company	reports	as	revenue	bulk	deliveries	to	customer	warehouses,	whereby	the	Company	acts	as	an	intermediary	in	the	ordering	and	delivery	of pharmaceutical	products.	Bulk	delivery	transactions	are	arranged	by	the	Company	at	the	express	direction	of	the	customer,	and	involve	either	shipments	from	the supplier	directly	to	customers'	warehouse	sites	or	shipments	from	the	supplier	to	the	Company	for	immediate	shipment	to	the	customers'	warehouse	sites.	Bulk deliveries	for	the	fiscal	year	ended	September	30,	2005	increased	6%	to	$4.6	billion	from	$4.3	billion	in	the	prior	fiscal	year	due	to	an	increase	in	demand	from	the Company's	largest	bulk	customer.	The	Company	is	a	principal	to	these	transactions	because	it	is	the	primary	obligor	and	has	general	inventory	risk,	physical	loss inventory	risk,	and	customer	credit	risk.	As	a	result,	and	in	accordance	with	the	Emerging	Issues	Task	Force	No.	99-19,	"Reporting	Revenue	Gross	as	a	Principal	versus Net	as	an	Agent,"	the	Company	records	bulk	deliveries	to	customer	warehouses	as	gross	revenues.	Due	to	the	insignificant	service	fees	generated	from	bulk	deliveries, fluctuations	in	volume	have	no	significant	impact	on	operating	margins.	However,	revenue	from	bulk	deliveries	has	a	positive	impact	on	the	Company's	cash	flows	due to	favorable	timing	between	the	customer	payments	to	the	Company	and	payments	by	the	Company	to	its	suppliers.

In	connection	with	the	transition	to	a	fee-for-service	model,	we	changed	our	method	of	recognizing	cash	discounts	and	other	related	manufacturer	incentives, effective	October	1,	2004.	ABDC	previously	recognized	cash	discounts	as	a	reduction	of	cost	of	goods	sold	when	earned,	which	was	primarily	upon	payment	of	vendor invoices.	ABDC	now	records	cash	discounts	as	a	component	of	inventory	cost	and	recognizes	such	discounts	as	a	reduction	of	cost	of	goods	sold	upon	the	sale	of	the inventory.	We	believe	the	change	in	accounting	method	provides	a	more	objectively	determinable	method	of	recognizing	cash	discounts	and	a	better	matching	of inventory	cost	to	revenue,	as	inventory	turnover	rates	are	expected	to	continue	to	improve.

We	recorded	a	$10.2	million	charge	for	the	cumulative	effect	of	change	in	accounting	(net	of	tax	of	$6.3	million)	in	the	consolidated	statement	of	operations	for the	fiscal	year	ended	September	30,	2005.	This	$10.2	million	cumulative	effect	charge	reduced	diluted	earnings	per	share	by	$0.09	for	the	fiscal	year	ended September	30,	2005.	The	accounting	change	is	incorporated	in	our	results	of	operations	for	the	fiscal	year	ended	September	30,	2005.	The	change	improved	earnings from	continuing	operations	in	the	fiscal	year	ended	September	30,	2005	by	approximately	$11.5	million,	net	of	tax,	or	$0.11	per	diluted	share	from	continuing operations.	The	accounting	change	had	the	effect	of	increasing	gross	profit	and	operating	income	by	$18.5	million	for	the	fiscal	year	ended	September	30,	2005.

Gross	profit	of	$1,980.2	million	in	the	fiscal	year	ended	September	30,	2005	decreased	9%	from	$2,166.4	million	in	the	prior	fiscal	year.	During	the	fiscal	years ended	September	30,	2005	and	2004,	the	Company	recognized	gains	of	$40.1	million	and	$38.0	million,	respectively,	from	antitrust	litigation	settlements	with pharmaceutical	manufacturers.	These	gains	were	recorded	as	reductions	to	cost	of	goods	sold	and	contributed	2%	of	gross	profit	for	the	fiscal	years	ended	September	30, 2005	and	2004.	As	a	percentage	of	operating	revenue,	gross	profit	in	the	fiscal	year	ended	September	30,	2005	was	3.96%,	as	compared	to	the	prior-year	percentage	of 4.44%.	The	decrease	in	gross	profit	and	gross	profit	percentage	in	comparison	with	the	prior	fiscal	year	reflects	declines	in	both	the	Pharmaceutical	Distribution	and PharMerica	segments	due	to	a	decline	in	profits	related	to	pharmaceutical	price	increases	and	other	buy-side	profits,	changes	in	customer	mix	and	competitive	selling price	pressures.

Distribution,	selling	and	administrative	expenses,	depreciation	and	amortization	("DSAD&A")	of	$1,315.3	million	in	the	fiscal	year	ended	September	30,	2005 reflects	an	increase	of	4.6%	from	$1,258.0	million	in	the	prior	fiscal	year.	As	a	percentage	of	operating	revenue,	DSAD&A	in	the	fiscal	year	ended	September	30,	2005 was	2.63%,	compared	to	2.58%	in	the	prior	fiscal	year.	The	increase	in	the	DSAD&A	and	the	DSAD&A	percentage	in	the	fiscal	year	ended	September	30,	2005	from the	prior	fiscal	year	was	due	to	an	increase	in	the	Pharmaceutical	Distribution	segment	DSAD&A,	including	bad	debt	expenses.	Total	bad	debt	expense	increased	to $33.4	million	in	the	fiscal	year	ended	September	30,	2005	from	a	benefit	of	$10.3	million	in	the	prior	fiscal	year.	This	increase	was	primarily	due	to	a	$15.5	million increase	in	bad	debt	expense	relating	to	one	of	the	operating	companies	within	the	Specialty	Group.	Additionally,	the	prior	year's	bad	debt	expense	was	favorably impacted	by	$26.6	million	of	customer	recoveries.

In	2001,	the	Company	developed	an	integration	plan	to	consolidate	its	distribution	network	and	eliminate	duplicative	administrative	functions.	During	the	fiscal year	ended	September	30,	2005,	the	Company	decided	to	outsource	a	significant

portion	of	its	information	technology	activities	as	part	of	the	integration	plan.	The	Company's	plan,	as	revised,	is	to	have	a	distribution	facility	network	numbering	in	the mid-20s	within	the	next	two	years	and	to	have	successfully	completed	the	outsourcing	of	such	information	technology	activities	by	the	end	of	fiscal	2006.	The	plan includes	building	six	new	facilities	(four	of	which	were	operational	as	of	September	30,	2005)	and	closing	facilities	(twenty-three	of	which	have	been	closed	through September	30,	2005).	The	fifth	facility	opened	in	October	2005	and	the	sixth	facility	is	scheduled	to	open	during	fiscal	2006,	thereby	reducing	the	total	number	of distribution	facilities	to	28	by	the	end	of	fiscal	2006.	During	fiscal	2005	and	2004,	the	Company	closed	six	and	four	distribution	facilities,	respectively.	The	Company anticipates	closing	six	additional	facilities	in	fiscal	2006.

During	the	fiscal	year	ended	September	30,	2003,	the	Company	closed	six	distribution	facilities	and	eliminated	certain	administrative	and	operational	functions ("the	fiscal	2003	initiatives").	During	the	fiscal	years	ended	September	30,	2004	and	2003,	the	Company	recorded	$0.9	million	and	$10.3	million,	respectively,	of employee	severance	costs	relating	to	the	fiscal	2003	initiatives.	Through	September	30,	2004,	approximately	780	employees	received	termination	notices	as	a	result	of the	fiscal	2003	initiatives,	of	which	substantially	all	have	been	terminated.	During	the	fiscal	year	ended	September	30,	2003,	severance	accruals	of	$1.8	million	recorded in	September	2001	were	reversed	into	income	because	certain	employees	who	were	expected	to	be	severed	either	voluntarily	left	the	Company	or	were	retained	in	other positions	within	the	Company.

During	the	fiscal	year	ended	September	30,	2004,	the	Company	closed	four	distribution	facilities	and	eliminated	duplicative	administrative	functions	("the	fiscal 2004	initiatives").	During	the	fiscal	year	ended	September	30,	2004,	the	Company	recorded	$5.4	million	of	employee	severance	costs	in	connection	with	the	fiscal	2004 initiatives.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	announced	plans	to	continue	to	consolidate	and	eliminate	certain	administrative	functions,	and	to outsource	a	significant	portion	of	the	Company's	information	technology	activities	(the	"fiscal	2005	initiatives").

As	of	September	30,	2005,	approximately	700	employees	had	received	termination	notices	as	a	result	of	the	2004	and	2005	initiatives,	of	which	approximately 630	have	been	terminated.	Additional	amounts	for	integration	initiatives	will	be	recognized	in	subsequent	periods	as	facilities	to	be	consolidated	are	identified	and specific	plans	are	approved	and	announced.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	recorded	$13.3	million	of	employee	severance	and	lease	cancellation	costs	primarily	related	to	the 2005	initiatives	and	$9.4	million	of	transition	costs	associated	with	the	outsourcing	of	information	technology	activities.

The	Company	paid	a	total	of	$13.5	million	and	$9.5	million	for	employee	severance,	lease	cancellation	and	other	costs	in	the	fiscal	years	ended	September	30, 2005	and	2004,	respectively,	related	to	the	aforementioned	integration	plan.	Remaining	unpaid	amounts	of	$12.3	million	for	employee	severance,	lease	cancellation	and other	costs	are	included	in	accrued	expenses	and	other	in	the	accompanying	consolidated	balance	sheet	at	September	30,	2005.	Most	employees	receive	their	severance benefits	over	a	period	of	time,	generally	not	to	exceed	12	months,	while	others	may	receive	a	lump-sum	payment.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	recorded	an	impairment	charge	of	$5.3	million	relating	to	certain	intangible	assets	within	the technology	operations	of	ABDC.

Operating	income	of	$636.9	million	for	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	29%	compared	to	$901.0	million	in	the	prior	fiscal	year. The	Company's	operating	income	as	a	percentage	of	operating	revenue	was	1.27%	in	the	fiscal	year	ended	September	30,	2005	compared	to	1.85%	in	the	prior	fiscal year.	The	decline	in	operating	income	was	primarily	due	to	the	decline	in	gross	profit.	The	gain	on	litigation	settlements,	less	the	costs	of	facility	consolidations, employee	severance	and	other,	and	the	impairment	charge	increased	operating	income	by	$12.1	million	in	the	fiscal	year	ended	September	30,	2005.	The	gain	on litigation	settlement,	less	the	costs	of	facility	consolidations,	employee	severance	and	other,	increased	operating	income	by	$30.5	million	in	the	fiscal	year	ended September	30,	2004.

During	the	fiscal	year	ended	September	30,	2004,	a	technology	company	in	which	the	Company	had	an	equity	investment	sold	substantially	all	of	its	assets	and paid	a	liquidating	dividend.	As	a	result,	the	Company	recorded	a	gain	of	$8.4	million	in	other	income	during	the	fiscal	year	ended	September	30,	2004.

Interest	expense,	net,	decreased	49%	in	the	fiscal	year	ended	September	30,	2005	to	$57.2	million	from	$112.7	million	in	the	prior	fiscal	year	due	to	a	net	decline in	average	borrowings.	Average	borrowings,	net	of	cash,	under	the	Company's	debt	facilities	during	the	fiscal	year	ended	September	30,	2005	were	$183.1	million	as compared	to	average	borrowings,	net	of	cash,	of	$1.1	billion	in	the	prior	fiscal	year.	The	reductions	in	average	borrowings,	net	of	cash,	were	achieved	due	to	the Company's

strong	cash	flows	generated	from	operations,	including	reduced	merchandise	inventories	resulting	from	the	aforementioned	business	model	transition.

During	the	fiscal	years	ended	September	30,	2005	and	2004,	the	Company	recorded	$111.9	million	and	$23.6	million,	respectively,	in	losses	resulting	from	the early	retirement	of	debt.

Income	tax	expense	of	$176.9	million	in	the	fiscal	year	ended	September	30,	2005	reflects	an	effective	income	tax	rate	of	37.7%,	versus	38.4%	in	the	prior	fiscal year.	The	reduction	in	tax	rates	resulted	from	the	resolution	of	certain	federal	and	state	income	tax	issues	during	the	fiscal	year	ended	September	30,	2005.	The	Company expects	to	have	an	effective	income	tax	rate	in	the	range	of	approximately	38%	in	future	periods.

Income	from	continuing	operations	of	$291.9	million	for	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	39%	from	$474.9	million	in	the	prior fiscal	year	primarily	due	to	the	decline	in	operating	income	and	the	loss	from	the	early	retirement	of	debt	partially	offset	by	the	decrease	in	interest	expense.	Diluted earnings	per	share	from	continuing	operations	of	$2.73	in	the	fiscal	year	ended	September	30,	2005	reflects	a	34%	decrease	from	$4.12	per	diluted	share	in	the	prior fiscal	year.	The	gain	on	litigation	settlements	less	the	costs	of	facility	consolidations,	employee	severance	and	other,	the	impairment	charge	and	the	loss	on	early retirement	of	debt	decreased	income	from	continuing	operations	by	$64.2	million	and	decreased	diluted	earnings	per	share	from	continuing	operations	by	$0.60	for	the fiscal	year	ended	September	30,	2005.	The	gain	on	litigation	settlement	less	the	costs	of	facility	consolidations,	employee	severance	and	other	and	the	loss	on	early retirement	of	debt	increased	income	from	continuing	operations	by	$4.2	million	and	increased	diluted	earnings	per	share	from	continuing	operations	by	$0.04	for	the fiscal	year	ended	September	30,	2004.

Loss	from	discontinued	operations,	net	of	tax,	for	the	fiscal	years	ended	September	30,	2005	and	2004,	relates	to	the	December	2004	sale	of	the	Company's	Rita Ann	cosmetics	distribution	business	as	well	as	the	sale	of	substantially	all	of	the	assets	of	Bridge	Medical,	Inc.	("Bridge")	in	July	2005.	The	Company	incurred	a	$6.5 million	loss,	net	of	tax,	on	the	sale	of	the	Rita	Ann	business,	and	a	$4.6	million	loss,	net	of	tax,	on	the	sale	of	the	Bridge	business,	both	of	which	are	reflected	in	the	loss from	discontinued	operations	in	the	fiscal	year	ended	September	30,	2005.

Net	income	of	$264.6	million	for	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	43%	from	$468.4	million	in	the	prior	fiscal	year.	Diluted earnings	per	share	of	$2.48	in	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	39%	as	compared	to	$4.06	per	share	in	the	prior	fiscal	year.	The	decline	in diluted	earnings	per	share	was	less	than	the	decline	in	net	income	due	to	the	reduced	number	of	weighted	average	common	shares	outstanding	resulting	from	the Company's	purchase	of	its	common	stock	in	connection	with	its	stock	buyback	programs	(see	Liquidity	and	Capital	Resources)	offset	in	part	by	the	increase	in	the number	of	stock	option	exercises.

# Segment	Information

# Pharmaceutical	Distribution	Segment	Results

Pharmaceutical	Distribution	operating	revenue	of	$49.3	billion	for	the	fiscal	year	ended	September	30,	2005	increased	3%	from	$48.1	billion	in	the	prior	fiscal year.	In	fiscal	2004,	the	Company	discontinued	servicing	the	U.S.	Department	of	Veterans	Affairs	("VA")	and	AdvancePCS.	These	former	customers	contributed	4.8% and	4.4%,	respectively,	of	the	segment's	operating	revenue	in	the	fiscal	year	ended	September	30,	2004.	The	lost	business	was	offset	by	the	above	market	growth	of	the specialty	pharmaceutical	distribution	business	and	the	market	growth	of	ABDC.	During	the	fiscal	year	ended	September	30,	2005,	57%	of	operating	revenue	was	from sales	to	institutional	customers	and	43%	was	from	sales	to	retail	customers;	this	compared	to	a	customer	mix	in	the	prior	fiscal	year	of	59%	institutional	and	41%	retail. In	comparison	with	the	prior-year	results,	sales	to	institutional	customers	were	flat	primarily	due	to	the	above	market	growth	of	the	specialty	pharmaceutical	distribution business,	offset	by	the	loss	of	the	VA	and	AdvancePCS	business.	Sales	to	retail	customers	increased	7%	over	the	prior-year	primarily	due	to	market	growth	and	an increase	in	sales	to	one	of	the	Company's	larger	retail	customers.

This	segment's	growth	largely	reflects	U.S.	pharmaceutical	industry	conditions,	including	increases	in	prescription	drug	utilization	and	higher	pharmaceutical prices	offset,	in	part,	by	the	increased	use	of	lower-priced	generics.	The	segment's	growth	has	also	been	impacted	by	industry	competition	and	changes	in	customer	mix. Industry	sales	in	the	United	States,	as	estimated	by	industry	data	firm	IMS	Healthcare,	Inc.,	are	expected	to	grow	between	8%	and	9%	in	2006	and	annually	between	7% and	10%	through	2009.	Future	operating	revenue	growth	will	continue	to	be	affected	by	competition	within	the	industry,	customer	consolidation,	changes	in pharmaceutical	manufacturer	pricing	and	distribution	policies	and	practices,	changes	in	Federal	government	rules	and	regulations	and	industry	growth	trends,	such	as	the likely	increase	in	the	number	of	generic	drugs	that	will	be	available	over	the	next	few	years	as	a	result	of	the	expiration	of	certain	drug	patents	held	by	brand manufacturers.	The	Company's	Specialty	Group	has	been	growing	at	rates	in	excess	of	overall	pharmaceutical	market	growth.	The	majority	of	this	Group's	revenue	is generated

from	the	distribution	of	pharmaceuticals	to	physicians	who	specialize	in	a	variety	of	disease	states,	such	as	oncology,	nephrology,	and	rheumatology.	Additionally,	the Specialty	Group	distributes	vaccines	and	blood	plasma.	The	Specialty	Group's	oncology	business	has	continued	to	outperform	the	market	and	continues	to	be	the Specialty	Group's	most	significant	contributor	to	revenue	growth.	The	Specialty	Group's	business	may	be	adversely	impacted	in	the	future	by	changes	in	the	Medicare reimbursement	rates	for	certain	pharmaceuticals,	including	oncology	drugs.	The	reimbursement	changes	that	have	been	implemented	by	HHS	pursuant	to	the	Medicare Modernization	Act,	or	that	may	be	proposed	or	implemented	in	the	future,	may	have	the	effect	of	reducing	the	amount	and/or	margins	of	medications	purchased	by physicians	for	administration	in	their	offices	and	may	force	patients	to	other	healthcare	providers.	Since	the	Specialty	Group	provides	a	number	of	services	to	or	through physicians,	patient	shifts	from	physicians	to	other	healthcare	providers	may	result	in	slower	or	reduced	growth	in	revenues	for	the	Specialty	Group.	Although	the Specialty	Group	has	contingency	plans	to	enable	it	to	retain	and	grow	the	business	it	conducts	with	and	through	physicians,	there	can	be	no	assurance	that	it	will	retain	or replace	all	of	the	revenue	currently	going	through	the	physician	channel	or	that	such	revenue	will	be	as	profitable.

Pharmaceutical	Distribution	gross	profit	of	$1,493.9	million	in	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	9%	from	$1,648.7	million	in	the prior	fiscal	year.	As	a	percentage	of	operating	revenue,	gross	profit	in	the	fiscal	year	ended	September	30,	2005	was	3.03%,	as	compared	to	3.43%	in	the	prior	fiscal year.	The	decline	in	gross	profit	was	primarily	due	to	a	decrease	in	the	buy-side	component	of	the	gross	margin,	including	a	decline	in	inventory	appreciation	profits, fewer	alternate	source	and	deal	opportunities	and	the	loss	of	the	VA	business	in	fiscal	2004.	Contributing	to	the	decline	in	inventory	appreciation	profits	were	lower levels	of	inventory	on-hand	during	the	current	fiscal	year	as	a	result	of	the	business	model	transition,	and	fewer	than	expected	manufacturer	price	increases	prior	to	the national	election	in	November	2004.	The	Company's	cost	of	goods	sold	includes	a	last-in,	first-out	("LIFO")	provision	that	is	affected	by	changes	in	inventory quantities,	product	mix,	and	manufacturer	pricing	practices,	which	may	be	impacted	by	market	and	other	external	influences.	During	the	fiscal	years	ended September	30,	2005	and	2004,	inventory	balances	declined,	which	resulted	in	liquidation	of	LIFO	layers	carried	at	lower	costs	prevailing	in	prior	years.	The	effects	of the	liquidations	in	fiscal	2005	and	fiscal	2004	were	to	decrease	cost	of	goods	sold	by	$30.6	million	and	$10.3	million,	respectively.

Pharmaceutical	Distribution	operating	expenses	of	$961.0	million	in	the	fiscal	year	ended	September	30,	2005	reflect	an	increase	of	7%	from	$900.1	million	in the	prior	fiscal	year.	As	a	percentage	of	operating	revenue,	operating	expenses	in	the	fiscal	year	ended	September	30,	2005	were	1.95%,	as	compared	to	1.87%	in	the prior	fiscal	year.	The	increases	were	primarily	due	to	an	increase	in	bad	debt	expense	of	$49.2	million	(which	included	a	$15.5	million	increase	in	bad	debt	relating	to one	of	the	operating	companies	within	the	Specialty	Group)	and	fiscal	2005	start-up	costs	incurred	in	connection	with	the	new	distribution	facilities	which	were primarily	offset	by	continued	productivity	gains	achieved	throughout	the	Company's	distribution	network.	Additionally,	prior	year's	bad	debt	expense	was	favorably impacted	by	a	$17.5	million	recovery	from	a	large	former	customer.

Pharmaceutical	Distribution	operating	income	of	$532.9	million	in	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	29%	from	$748.6	million	in	the prior	fiscal	year.	As	a	percentage	of	operating	revenue,	operating	income	in	the	fiscal	year	ended	September	30,	2005	was	1.08%,	as	compared	to	1.56%	in	the	prior fiscal	year.	The	decline	from	the	prior-year	percentage	was	primarily	due	to	a	reduction	in	gross	profit.	While	management	historically	has	been	able	to	lower	expense ratios,	this	did	not	occur	in	the	fiscal	year	ended	September	30,	2005	and	there	can	be	no	assurance	that	reductions	will	occur	in	the	future,	or	that	expense	ratio reductions,	if	they	should	occur,	will	offset	possible	declines	in	gross	margins.

# PharMerica	Segment	Results

PharMerica	operating	revenue	of	$1,571.4	million	for	the	fiscal	year	ended	September	30,	2005	was	flat	compared	to	$1,575.3	million	in	the	prior	fiscal	year. PharMerica's	operating	revenue	was	impacted	by	competitive	pressures	that	affected	both	the	Long-Term	Care	and	Workers'	Compensation	businesses	and	increasing reductions	in	Medicaid	reimbursement	rates.	The	future	operating	revenue	growth	rate	will	likely	continue	to	be	impacted	by	competitive	pressures,	changes	in	the regulatory	environment	(including	the	reimbursement	changes	that	have	been	implemented	pursuant	to	the	Medicare	Modernization	Act	as	well	as	the	implementation	of the	voluntary	prescription	drug	benefit	program	for	seniors	thereunder)	and	the	pharmaceutical	inflation	rate.

PharMerica	gross	profit	of	$446.2	million	for	the	fiscal	year	ended	September	30,	2005	reflects	a	decrease	of	7%	from	$479.7	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	gross	profit	in	the	fiscal	year	ended	September	30,	2005	was	28.40%,	as	compared	to	30.45%	in	the	prior	fiscal	year.	The	decline	in gross	profit	was	primarily	due	to	industry	competitive	pressures,	and	a	reduction	in	the	rates	of	reimbursement	for	the	services	provided	by	PharMerica,	which	continue to	adversely	affect	gross	profit	margins	in	both	the	Workers'	Compensation	and	Long-Term	Care	businesses.

PharMerica	operating	expenses	of	$354.3	million	for	the	fiscal	year	ended	September	30,	2005	decreased	1%	from	$357.9	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	operating	expenses	decreased	slightly	to	22.54%	in

the	fiscal	year	ended	September	30,	2005	from	22.72%	in	the	prior	fiscal	year.	PharMerica's	fiscal	2005	operating	expenses	were	favorably	impacted	by	aggressive	cost reductions	in	response	to	the	decline	in	operating	revenue,	including	the	consolidation	of	local	pharmacy	administrative	functions	to	regional	centers	for	the	Long-Term Care	business,	a	reduction	in	bad	debt	expense	of	$5.5	million	due	to	continued	improvements	made	in	credit	and	collection	practices,	and	continued	improvements	in operating	practices	of	both	the	Workers'	Compensation	and	Long-Term	Care	businesses.	The	prior	year's	operating	expenses	were	favorably	impacted	by	a	$12.1 million	reduction	in	sales	and	use	tax	liability	due	to	favorable	audit	experience	and	other	settlements.

PharMerica	operating	income	of	$91.9	million	for	the	fiscal	year	ended	September	30,	2005	decreased	25%	from	$121.8	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	operating	income	in	the	fiscal	year	ended	September	30,	2005	was	5.85%,	as	compared	to	7.74%	in	the	prior	fiscal	year.	The	decline was	due	to	the	aforementioned	reduction	in	the	gross	profit	margin.	While	management	historically	has	been	able	to	lower	expense	ratios	there	can	be	no	assurance	that reductions	will	occur	in	the	future,	or	that	expense	ratio	reductions	will	exceed	possible	further	declines	in	gross	margins.

# Intersegment	Eliminations

These	amounts	represent	the	elimination	of	the	Pharmaceutical	Distribution	segment's	sales	to	PharMerica.	ABDC	is	the	principal	supplier	of	pharmaceuticals	to PharMerica.

Operating	revenue,	which	excludes	bulk	deliveries,	for	the	fiscal	year	ended	September	30,	2004	increased	7%	to	$48.8	billion	from	$45.5	billion	in	the	prior fiscal	year.	This	increase	was	primarily	due	to	increased	operating	revenue	in	the	Pharmaceutical	Distribution	segment,	offset	slightly	by	a	decline	in	operating	revenue in	the	PharMerica	segment.

The	Company's	customer	sales	return	policy	generally	allows	customers	to	return	products	only	if	the	products	can	be	resold	at	full	value	or	returned	to	suppliers for	full	credit.	During	the	fiscal	year	ended	September	30,	2004,	the	Company	changed	its	accounting	policy	for	customer	sales	returns	to	reflect	an	accrual	for	estimated customer	returns	at	the	time	of	sale	to	the	customer.	Previously,	the	Company	accounted	for	customer	sales	returns	as	a	reduction	of	sales	and	cost	of	goods	sold	at	the time	of	the	return.	As	a	result	of	this	accounting	policy	change,	operating	revenue	and	cost	of	goods	sold	were	each	reduced	by	$316.8	million	for	the	fiscal	year	ended September	30,	2004.

Gross	profit	of	$2,166.4	million	in	the	fiscal	year	ended	September	30,	2004	decreased	3%	from	$2,225.6	million	in	the	prior	fiscal	year.	During	the	fiscal	year ended	September	30,	2004,	the	Company	recognized	a	$38.0	million	gain	from	an	antitrust	litigation	settlement	with	a	pharmaceutical	manufacturer.	This	gain	was recorded	as	a	reduction	of	cost	of	goods	sold	and	contributed	2%	of	gross	profit	for	the	fiscal	year	ended	September	30,	2004.	As	a	percentage	of	operating	revenue, gross	profit	in	the	fiscal	year	ended	September	30,	2004	was	4.44%,	as	compared	to	the	prior-year	percentage	of	4.90%.	The	decrease	in	gross	profit	percentage	in comparison	with	the	prior	fiscal	year	reflects	declines	in	both	the	Pharmaceutical	Distribution	and	PharMerica	segments	due	to	a	decline	in	profits	related	to pharmaceutical	manufacturer	price	increases,	changes	in	customer	mix	and	competitive	selling	price	pressures,	offset	in	part	by	the	antitrust	litigation	settlement.

DSAD&A	of	$1,258.0	million	in	the	fiscal	year	ended	September	30,	2004	reflects	a	decrease	of	5%	compared	to	$1,330.6	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	DSAD&A	in	the	fiscal	year	ended	September	30,	2004	was	2.58%	compared	to	2.93%	in	the	prior	fiscal	year.	The	decline	in	the DSAD&A	percentage	from	the	prior	fiscal	year

reflects	improvements	in	both	the	Pharmaceutical	Distribution	and	PharMerica	segments	due	to:	(a)	a	$56.3	million	reduction	of	bad	debt	expense	primarily	due	to	a $17.5	million	recovery	from	a	former	customer	in	the	Pharmaceutical	Distribution	segment,	a	$9.1	million	recovery	from	a	customer	in	the	PharMerica	segment,	and	the continued	improvements	made	in	the	credit	and	collection	practices	in	both	segments	(see	further	discussion	below);	(b)	a	$12.1	million	reduction	in	PharMerica's	sales and	use	tax	liability;	(c)	a	reduction	in	employee	headcount	resulting	from	our	integration	efforts;	and	(d)	operational	efficiencies	primarily	derived	from	our	integration plan.

Within	Pharmaceutical	Distribution,	credit	and	collection	practices	improved	following	the	consolidation	and	relocation	of	the	national	account	credit	and collection	process	from	Orange,	California	to	the	Company's	executive	headquarters	in	Chesterbrook,	Pennsylvania	in	early	2004.	This	consolidation	led	to	increased management	control	and	facilitated	the	favorable	resolution	of	certain	long-standing	disputes	with	major	national	account	customers.	Additionally,	the	Company	placed significant	emphasis	on	reducing	past	due	and	disputed	receivables	that	had	accumulated	at	one	of	our	distribution	centers	as	a	result	of	a	systems	conversion	in	fiscal 2003.	PharMerica's	credit	and	collection	practices	were	improved	by	consolidating	all	of	its	billing	and	collections	onto	one	pharmacy	system,	establishing	consistent billing	and	collection	policies	and	procedures,	and	centralizing	its	collection	efforts	for	national	accounts.	Additionally,	improvements	in	the	financial	strength	of	the nursing	home	industry	had	a	favorable	impact	on	PharMerica's	bad	debt	expense.

In	2001,	the	Company	developed	an	integration	plan	to	consolidate	its	distribution	network	and	eliminate	duplicative	administrative	functions.	As	of September	30,	2004,	this	plan	resulted	in	synergies	of	approximately	$150	million	on	an	annual	basis.	The	Company's	plan,	as	revised,	is	to	have	a	distribution	facility network	numbering	in	the	mid-20's	within	the	next	two	years.	The	plan	includes	building	six	new	facilities	and	closing	facilities.	During	fiscal	2004	and	2003,	the Company	closed	four	and	six	distribution	facilities,	respectively.

During	the	fiscal	year	ended	September	30,	2004,	the	Company	closed	four	distribution	facilities	and	eliminated	duplicative	administrative	functions	("the	fiscal 2004	initiatives").	During	the	fiscal	year	ended	September	30,	2004,	the	Company	recorded	$5.4	million	of	employee	severance	costs	in	connection	with	the	termination of	230	employees	relating	to	the	fiscal	2004	initiatives.	As	of	September	30,	2004,	approximately	190	employees	had	been	terminated	and	the	remainder	were terminated	in	fiscal	2005.

The	Company	paid	a	total	of	$9.5	million	and	$13.8	million	for	employee	severance	and	lease	and	contract	cancellation	costs	in	the	fiscal	years	ended September	30,	2004	and	2003,	respectively,	related	to	the	aforementioned	integration	plan.	Remaining	unpaid	amounts	of	$3.1	million	for	employee	severance	and	lease cancellation	costs	are	included	in	accrued	expenses	and	other	in	the	accompanying	consolidated	balance	sheet	at	September	30,	2004.	Most	employees	receive	their severance	benefits	over	a	period	of	time,	generally	not	to	exceed	12	months,	while	others	may	receive	a	lump-sum	payment.

Operating	income	of	$901.0	million	for	the	fiscal	year	ended	September	30,	2004	increased	slightly	compared	to	$886.1	million	in	the	prior	fiscal	year.	The	gain on	litigation	settlement	less	costs	of	facility	consolidations	and	employee	severance	increased	the	Company's	operating	income	by	$30.5	million	in	the	fiscal	year	ended September	30,	2004	and	costs	of	facility	consolidations	and	employee	severance	reduced	the	Company's	operating	income	by	$8.9	million	in	the	prior	fiscal	year.	The Company's	operating	income	as	a	percentage	of	operating	revenue	was	1.85%	in	the	fiscal	year	ended	September	30,	2004	compared	to	1.95%	in	the	prior	fiscal	year. The	gain	on	litigation	settlement	contributed	approximately	8	basis	points	to	the	Company's	operating	income	as	a	percentage	of	operating	revenue	for	the	fiscal	year ended	September	30,	2004.	The	contribution	provided	by	the	litigation	settlement	was	offset	by	a	decrease	in	gross	margin	in	excess	of	the	aforementioned	DSAD&A expense	percentage	reduction.

During	the	fiscal	year	ended	September	30,	2004,	a	technology	company	in	which	the	Company	had	an	equity	investment	sold	substantially	all	of	its	assets	and paid	a	liquidating	dividend.	As	a	result,	the	Company	recorded	a	gain	of	$8.4	million	in	other	income	during	the	fiscal	year	ended	September	30,	2004.	During	the	fiscal year	ended	September	30,	2003,	the	Company	recorded	losses	of	$8.0	million,	which	primarily	consisted	of	a	$5.5	million	charge	related	to	the	decline	in	fair	value	of its	equity	investment	in	the	technology	company	because	the	decline	was	judged	to	be	other-than-temporary.

Interest	expense,	net,	decreased	22%	in	the	fiscal	year	ended	September	30,	2004	to	$112.7	million	from	$144.7	million	in	the	prior	fiscal	year.	Average borrowings,	net	of	cash,	under	the	Company's	debt	facilities	during	the	fiscal	year	ended	September	30,	2004	were	$1.1	billion	as	compared	to	average	borrowings,	net of	cash,	of	$2.3	billion	in	the	prior	fiscal	year.	The	reduction	in	average	borrowings,	net	of	cash,	was	achieved	due	to	lower	inventory	levels	in	the	fiscal	year	ended September	30,	2004	due	to	the	impact	of	inventory	management	agreements,	reductions	in	buy-side	purchasing	opportunities	and	the	reduced	number	of	distribution facilities	as	a	result	of	the	Company's	integration	activities.

Income	tax	expense	of	$296.0	million	in	the	fiscal	year	ended	September	30,	2004	reflects	an	effective	income	tax	rate	of	38.4%,	versus	39.2%	in	the	prior	fiscal year.	The	Company	was	able	to	lower	its	effective	income	tax	rate	during	fiscal	2004	by	implementing	tax-planning	strategies.

Income	from	continuing	operations	of	$474.9	million	for	the	fiscal	year	ended	September	30,	2004	reflects	an	increase	of	7%	from	$443.1	million	in	the	prior fiscal	year.	Diluted	earnings	per	share	from	continuing	operations	of	$4.12	for	the	fiscal	year	ended	September	30,	2004	reflects	an	increase	of	5%	from	$3.91	per	share in	the	prior	fiscal	year.	The	gain	on	litigation	settlement	less	costs	of	facility	consolidations,	employee	severance	and	other,	and	the	loss	on	early	retirement	of	debt increased	income	from	continuing	operations	by	$4.2	million	and	increased	diluted	earnings	per	share	from	continuing	operations	by	$0.04	for	the	fiscal	year	ended September	30,	2004.	Costs	of	facility	consolidations	and	employee	severance	and	the	loss	on	early	retirement	of	debt	had	the	effect	of	decreasing	income	from continuing	operations	by	$8.0	million	and	reducing	diluted	earnings	per	share	from	continuing	operations	by	$0.07	for	the	fiscal	year	ended	September	30,	2003.

During	fiscal	2005,	the	Company	decided	to	discontinue	the	operations	of	its	patient	safety	software	and	cosmetics	distribution	businesses	as	a	result	of	their divestiture.	Loss	from	discontinued	operations,	net	of	tax,	was	$6.5	million	and	$1.8	million	for	the	fiscal	years	ended	September	30,	2004	and	2003,	respectively.

Net	income	of	$468.4	million	for	the	fiscal	year	ended	September	30,	2004	reflects	an	increase	of	6%	from	$441.2	million	in	the	prior	fiscal	year.	Diluted earnings	per	share	of	$4.06	in	the	fiscal	year	ended	September	30,	2004	reflects	a	4%	increase	as	compared	to	$3.89	per	share	in	the	prior	fiscal	year.	The	growth	in earnings	per	share	was	less	than	the	growth	in	net	income	for	the	fiscal	year	ended	September	30,	2004	due	to	the	effect	of	the	issuance	of	Company	common	stock	in connection	with	acquisitions	and	in	connection	with	the	exercise	of	stock	options.

# Pharmaceutical	Distribution	Segment

Pharmaceutical	Distribution	operating	revenue	of	$48.1	billion	for	the	fiscal	year	ended	September	30,	2004	reflects	an	increase	of	8%	from	$44.7	billion	in	the prior	fiscal	year.	The	Company's	change	in	accounting	for	customer	sales	returns	had	the	effect	of	reducing	operating	revenue	growth	by	1%	for	the	fiscal	year	ended September	30,	2004.	During	the	fiscal	year	ended	September	30,	2004,	59%	of	operating	revenue	was	from	sales	to	institutional	customers	and	41%	was	from	sales	to retail	customers;	this	compares	to	a	customer	mix	in	the	prior	fiscal	year	of	57%	institutional	and	43%	retail.

In	comparison	with	prior-year	results,	sales	to	institutional	customers	increased	12%	in	fiscal	2004	primarily	due	to	the	above	market	rate	growth	of	the	specialty pharmaceutical	business	and	higher	revenues	from	customers	engaged	in	the	mail	order	sale	of	pharmaceuticals,	which	was	offset	in	part	by	the	discontinuance	of servicing	the	VA	during	the	fiscal	year	ended	September	30,	2004	as	a	result	of	losing	a	competitive	bid	process.	The	VA	contract	was	terminated	in	May	2004	and contributed	4.8%	and	7.8%	of	the	segment's	operating	revenue	in	the	fiscal	years	ended	September	30,	2004	and	2003,	respectively.	In	March	2004,	Caremark	Rx,	Inc. acquired	Advance	PCS,	one	of	the	Company's	largest	customers.	As	a	result,	the	Company's	contract	with	Advance	PCS	was	terminated	in	August	2004.	Advance	PCS accounted	for	approximately	4.4%	and	4.8%	of	the	segment's	operating	revenue	in	the	fiscal	years	ended	September	30,	2004	and	2003,	respectively.

Sales	to	retail	customers	increased	2%	over	the	prior	fiscal	year.	The	independent	retail	sector	experienced	strong	double-digit	sales	growth	while	sales	in	the chain	retail	sector	decreased	by	6%	due	to	sales	declines	experienced	by	certain	large	regional	retail	chain	customers.	Additionally,	retail	sales	in	the	first-half	of	fiscal 2004	were	adversely	impacted	by	the	prior	fiscal	year	loss	of	a	large	customer.

This	segment's	growth	largely	reflects	U.S.	pharmaceutical	industry	conditions,	including	increases	in	prescription	drug	utilization	and	higher	pharmaceutical prices	offset,	in	part,	by	the	increased	use	of	lower-priced	generics.	The	segment's	growth

has	also	been	impacted	by	industry	competition	and	changes	in	customer	mix.	The	Company's	Specialty	Group	has	been	growing	at	rates	in	excess	of	overall pharmaceutical	market	growth.	The	majority	of	this	Group's	revenue	is	generated	from	the	distribution	of	pharmaceuticals	to	physicians	who	specialize	in	a	variety	of disease	states,	such	as	oncology,	nephrology,	and	rheumatology.	Additionally,	the	Specialty	Group	distributes	vaccines	and	blood	plasma.	The	Specialty	Group's oncology	business	has	continued	to	outperform	the	market	and	continues	to	be	the	Specialty	Group's	most	significant	contributor	to	revenue	growth.

Pharmaceutical	Distribution	gross	profit	of	$1,648.7	million	in	the	fiscal	year	ended	September	30,	2004	reflects	a	decrease	of	3%	from	$1,700.0	million	in	the prior	fiscal	year.	As	a	percentage	of	operating	revenue,	gross	profit	in	the	fiscal	year	ended	September	30,	2004	was	3.43%,	as	compared	to	3.81%	in	the	prior	fiscal year.	The	decline	in	gross	profit	as	a	percentage	of	operating	revenue	was	the	result	of:	a	reduction	in	profits	related	to	pharmaceutical	manufacturer	price	increases;	the VA	contract	loss;	the	continuing	competitive	environment,	which	has	led	to	a	number	of	contract	renewals	with	reduced	profitability;	and	the	negative	impact	of	a change	in	customer	mix	to	a	higher	percentage	of	large	institutional,	mail	order	and	chain	accounts.	The	Company's	cost	of	goods	sold	includes	a	last-in,	first-out ("LIFO")	provision	that	is	affected	by	changes	in	inventory	quantities,	product	mix,	and	manufacturer	pricing	practices,	which	may	be	impacted	by	market	and	other external	influences.

Pharmaceutical	Distribution	operating	expenses	of	$900.1	million	in	the	fiscal	year	ended	September	30,	2004	reflect	a	decrease	of	1%	from	$908.7	million	in	the prior	fiscal	year.	As	a	percentage	of	operating	revenue,	operating	expenses	in	the	fiscal	year	ended	September	30,	2004	were	1.87%,	as	compared	to	2.03%	in	the	prior fiscal	year,	an	improvement	of	16	basis	points.	The	decrease	in	the	operating	expense	percentage	reflects	the	changing	customer	mix	described	above,	efficiencies	of scale,	the	elimination	of	redundant	costs	through	the	integration	processes,	continued	emphasis	on	productivity	throughout	the	Company's	distribution	network,	and	a significant	reduction	in	bad	debt	expense	of	$33.9	million	(including	a	$17.5	million	reduction	of	a	previously	recorded	allowance	for	doubtful	account	as	a	result	of	a settlement	with	a	former	customer),	as	previously	discussed.

Pharmaceutical	Distribution	operating	income	of	$748.6	million	in	the	fiscal	year	ended	September	30,	2004	reflects	a	decrease	of	5%	from	$791.2	million	in	the prior	fiscal	year.	As	a	percentage	of	operating	revenue,	operating	income	in	the	fiscal	year	ended	September	30,	2004	was	1.56%,	as	compared	to	1.77%	in	the	prior fiscal	year.	The	decline	over	the	prior-year	percentage	was	due	to	a	reduction	in	gross	margin	in	excess	of	the	decline	in	the	operating	expense	ratio.

# PharMerica	Segment

PharMerica	operating	revenue	of	$1,575.3	million	for	the	fiscal	year	ended	September	30,	2004	reflects	a	decrease	of	2%	from	$1,608.2	million	in	the	prior	fiscal year.	PharMerica's	decline	in	operating	revenue	was	primarily	due	to	the	loss	of	two	significant	customers	in	the	Workers'	Compensation	business,	the	discontinuance	of the	sale	of	healthcare	products	within	the	Long-Term	Care	business	and	the	loss	of	a	Long-Term	Care	business	customer	because	it	was	acquired	by	a	customer	of	a competitor.

PharMerica	gross	profit	of	$479.7	million	for	the	fiscal	year	ended	September	30,	2004	reflects	a	decrease	of	9%	from	$525.6	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	gross	profit	in	the	fiscal	year	ended	September	30,	2004	was	30.45%,	as	compared	to	32.69%	in	the	prior	fiscal	year.	The	decline	in gross	profit	is	primarily	due	to	industry	competitive	pressures,	and	a	reduction	in	the	rates	of	reimbursement	for	the	services	provided	by	PharMerica,	which	continue	to adversely	affect	gross	profit	margins	in	both	the	Workers'	Compensation	business	and	the	Long-Term	Care	business.

PharMerica	operating	expenses	of	$357.9	million	for	the	fiscal	year	ended	September	30,	2004	reflect	a	decrease	of	15%	from	$421.8	million	in	the	prior	fiscal year.	As	a	percentage	of	operating	revenue,	operating	expenses	were	reduced	to	22.72%	in	the	fiscal	year	ended	September	30,	2004	from	26.23%	in	the	prior	fiscal	year. The	percentage	reduction	was	primarily	due	to	aggressive	cost	reductions	in	response	to	the	decline	in	operating	revenue,	a	significant	reduction	in	bad	debt	expense	of $22.4	million	(including	a	$9.1	million	recovery	from	a	customer)	due	to	continued	improvements	made	in	credit	and	collection	practices,	a	$12.1	million	reduction	in sales	and	use	tax	liability	due	to	favorable	audit	experience	and	other	settlements,	and	continued	improvements	in	operating	practices	of	both	the	Workers' Compensation	and	the	Long-Term	Care	businesses.

PharMerica	operating	income	of	$121.8	million	for	the	fiscal	year	ended	September	30,	2004	increased	by	17%	from	$103.8	million	in	the	prior	fiscal	year.	As	a percentage	of	operating	revenue,	operating	income	in	the	fiscal	year	ended	September	30,	2004	was	7.74%,	as	compared	to	6.46%	in	the	prior	fiscal	year.	The improvement	was	due	to	the	aforementioned	reduction	in	the	operating	expense	ratio,	which	was	greater	than	the	reduction	in	gross	profit	margin.

# Critical	Accounting	Policies	and	Estimates

Critical	accounting	estimates	are	those	accounting	estimates	and	assumptions	that	can	have	a	material	impact	on	the	Company's	financial	position	and	results	of operations	and	require	the	use	of	complex	and	subjective	estimates	based	upon	past	experience	and	management's	judgment.	Because	of	the	uncertainty	inherent	in	such estimates,	actual	results	may	differ	from	these	estimates.	Below	are	those	policies	applied	in	preparing	the	Company's	financial	statements	that	management	believes are	the	most	dependent	on	the	application	of	estimates	and	assumptions.	For	accounting	policies,	see	Note	1	of	"Notes	to	Consolidated	Financial	Statements."

# Allowance	for	Doubtful	Accounts

Trade	receivables	are	primarily	comprised	of	amounts	owed	to	the	Company	for	its	pharmaceutical	distribution	and	services	activities	and	are	presented	net	of	an allowance	for	doubtful	accounts	and	a	reserve	for	customer	sales	returns.	In	determining	the	appropriate	allowance	for	doubtful	accounts,	the	Company	considers	a combination	of	factors,	such	as	the	aging	of	trade	receivables,	industry	trends,	its	customers'	financial	strength	and	credit	standing,	and	payment	and	default	history. Changes	in	the	aforementioned	factors,	among	others,	may	lead	to	adjustments	in	the	Company's	allowance	for	doubtful	accounts.	The	calculation	of	the	required allowance	requires	judgment	by	Company	management	as	to	the	impact	of	these	and	other	factors	on	the	ultimate	realization	of	its	trade	receivables.	Each	of	the Company's	business	units	performs	ongoing	credit	evaluations	of	its	customers'	financial	condition	and	maintains	reserves	for	probable	bad	debt	losses	based	on historical	experience	and	for	specific	credit	problems	when	they	arise.	The	Company	writes	off	balances	against	the	reserves	when	collectibility	is	deemed	remote.	Each business	unit	performs	formal	documented	reviews	of	the	allowance	at	least	quarterly	and	the	Company's	largest	business	units	perform	such	reviews	monthly.	There were	no	significant	changes	to	this	process	during	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	and	bad	debt	expense	was	computed	in	a	consistent	manner during	these	periods.	The	bad	debt	expense	for	any	period	presented	is	equal	to	the	changes	in	the	period	end	allowance	for	doubtful	accounts,	net	of	write-offs	and recoveries.	Schedule	II	of	this	Form	10-K	sets	forth	a	rollforward	of	the	allowance	for	doubtful	accounts.

Bad	debt	expense	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	was	$33.4	million,	($10.3)	million	and	$46.0	million,	respectively.	During	the fiscal	year	ended	September	30,	2005,	bad	debt	expense	was	significantly	impacted	due	to	a	$15.5	million	increase	in	bad	debt	relating	to	one	of	the	operating companies	within	the	Specialty	Group.	During	the	fiscal	year	ended	September	30,	2004,	debt	expense	was	favorably	impacted	by	a	$17.5	million	recovery	from	a former	customer	in	the	Pharmaceutical	Distribution	segment,	a	$9.1	million	recovery	from	a	customer	in	the	PharMerica	segment,	and	the	continued	improvements made	in	the	credit	and	collection	practices	in	both	segments.	An	increase	or	decrease	of	0.1%	in	the	2005	allowance	as	a	percentage	of	trade	receivables	would	result	in an	increase	or	decrease	in	the	provision	on	accounts	receivable	of	approximately	$3.1	million.

# Supplier	Reserves

The	Company	establishes	reserves	against	amounts	due	from	its	suppliers	relating	to	various	price	and	rebate	incentives,	including	deductions	or	billings	taken against	payments	otherwise	due	them	from	the	Company.	These	reserve	estimates	are	established	based	on	the	judgment	of	Company	management	after	carefully considering	the	status	of	current	outstanding	claims,	historical	experience	with	the	suppliers,	the	specific	incentive	programs	and	any	other	pertinent	information available	to	the	Company.	The	Company	evaluates	the	amounts	due	from	its	suppliers	on	a	continual	basis	and	adjusts	the	reserve	estimates	when	appropriate	based	on changes	in	factual	circumstances.	An	increase	or	decrease	of	0.1%	in	the	2005	supplier	reserve	balances	as	a	percentage	of	trade	payables	would	result	in	an	increase	or decrease	in	cost	of	goods	sold	by	approximately	$5.3	million.	The	ultimate	outcome	of	any	outstanding	claim	may	be	different	than	the	Company's	estimate.

# Loss	Contingencies

The	Company	accrues	for	loss	contingencies	related	to	litigation	in	accordance	with	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	5,	"Accounting for	Contingencies."	An	estimated	loss	contingency	is	accrued	in	the	Company's	consolidated	financial	statements	if	it	is	probable	that	a	liability	has	been	incurred	and the	amount	of	the	loss	can	be	reasonably	estimated.	Assessing	contingencies	is	highly	subjective	and	requires	judgments	about	future	events.	The	Company	regularly

reviews	loss	contingencies	to	determine	the	adequacy	of	the	accruals	and	related	disclosures.	The	amount	of	the	actual	loss	may	differ	significantly	from	these	estimates.

# Merchandise	Inventories

Inventories	are	stated	at	the	lower	of	cost	or	market.	Cost	for	approximately	87%	and	92%	of	the	Company's	inventories	at	September	30,	2005	and	2004, respectively,	are	determined	using	the	last-in,	first-out	("LIFO")	method.	If	the	Company	had	used	the	first-in,	first-out	("FIFO")	method	of	inventory	valuation,	which approximates	current	replacement	cost,	inventories	would	have	been	approximately	$159.8	million	and	$166.1	million	higher	than	the	amounts	reported	at September	30,	2005	and	2004,	respectively.	During	the	fiscal	years	ended	September	30,	2005	and	2004,	inventory	balances	declined,	which	resulted	in	liquidation	of LIFO	layers	carried	at	lower	costs	prevailing	in	prior	years.	The	effect	of	the	liquidation	in	fiscal	2005	was	to	decrease	cost	of	goods	sold	by	$30.6	million	and	increase diluted	earnings	per	share	by	$0.17.	The	effect	of	the	liquidation	in	fiscal	2004	was	to	decrease	cost	of	goods	sold	by	$10.3	million	and	increase	diluted	earnings	per share	by	$0.05.

# Goodwill	and	Intangible	Assets

The	Company	accounts	for	purchased	goodwill	and	intangible	assets	in	accordance	with	Financial	Accounting	Standards	Board	("FASB")	SFAS	No.	142 "Goodwill	and	Other	Intangible	Assets."	Under	SFAS	No.	142,	purchased	goodwill	and	intangible	assets	with	indefinite	lives	are	not	amortized;	rather,	they	are	tested for	impairment	on	at	least	an	annual	basis.	Intangible	assets	with	finite	lives,	primarily	customer	relationships,	non-compete	agreements,	patents	and	software technology,	will	continue	to	be	amortized	over	their	useful	lives.

In	order	to	test	goodwill	and	intangible	assets	with	indefinite	lives	under	SFAS	No.	142,	a	determination	of	the	fair	value	of	the	Company's	reporting	units	and intangible	assets	with	indefinite	lives	is	required	and	is	based,	among	other	things,	on	estimates	of	future	operating	performance	of	the	reporting	unit	and/or	the component	of	the	entity	being	valued.	The	Company	is	required	to	complete	an	impairment	test	for	goodwill	and	intangible	assets	with	indefinite	lives	and	record	any resulting	impairment	losses	at	least	on	an	annual	basis.	The	Company	uses	an	income	approach	to	determine	the	fair	value	of	its	reporting	units	and	intangible	assets with	indefinite	lives.	Changes	in	market	conditions,	among	other	factors,	may	have	an	impact	on	these	fair	values.	The	Company	completed	its	required	annual impairment	tests	in	the	fourth	quarters	of	fiscal	2005	and	2004	and	determined	that	there	was	no	impairment.

During	the	second	quarter	of	fiscal	2005,	the	Company	performed	an	impairment	test	on	certain	intangible	assets	within	the	technology	operations	of	ABDC	due to	the	existence	of	impairment	indicators.	As	a	result,	the	Company	recorded	an	impairment	charge	of	$5.3	million	relating	to	certain	of	those	intangible	assets.	The charge	has	been	reflected	in	the	Company's	results	of	operations	for	the	fiscal	year	ended	September	30,	2005.

# Stock	Options

The	Company	may	elect	to	account	for	stock	options	using	either	Accounting	Principles	Board	Opinion	No.	25,	"Accounting	for	Stock	Issued	to	Employees," ("APB	25")	or	SFAS	No.	123,	"Accounting	for	Stock-Based	Compensation."	The	Company	has	elected	to	use	the	accounting	method	under	APB	25	and	the	related interpretations	to	account	for	its	stock	options.	Under	APB	25,	generally,	when	the	exercise	price	of	the	Company's	stock	options	equals	the	market	price	of	the underlying	stock	on	the	date	of	grant,	no	compensation	expense	is	recognized.	Had	the	Company	elected	to	use	SFAS	No.	123	to	account	for	its	stock	options	under	the fair	value	method,	it	would	have	been	required	to	record	compensation	expense	and	as	a	result,	diluted	earnings	per	share	for	the	fiscal	years	ended	September	30,	2005, 2004	and	2003	would	have	been	lower	by	$0.04,	$0.74	and	$0.16,	respectively.	Effective	September	1,	2004,	the	Company	vested	all	employee	options	then outstanding	with	an	exercise	price	in	excess	of	$54.10	(the	closing	stock	price	on	August	31,	2004).	The	accelerated	vesting	was	approved	by	the	Compensation	and Succession	Planning	Committee	of	the	Company's	board	of	directors	for	employee	retention	purposes	and	in	anticipation	of	the	requirements	of	SFAS	No.	123R.	As	a result	of	the	accelerated	vesting,	the	pro-forma	compensation	expense	and	the	corresponding	reduction	in	diluted	earnings	per	share	in	fiscal	2004	was	significantly greater	than	the	pro-forma	compensation	expense	and	the	corresponding	reduction	in	diluted	earnings	per	share	in	fiscal	2005	and	2003.

In	December	2004,	the	FASB	issued	SFAS	No.	123R,	"Share-Based	Payment,"	which	requires	companies	to	measure	compensation	cost	for	all	share-based payments	(including	employee	stock	options)	at	fair	value	for	interim	or	annual	periods	beginning	after	June	15,	2005.	In	April	2005,	the	U.S.	Securities	and	Exchange Commission	issued	a	new	rule	allowing	public	companies	to	delay	the	adoption	of	SFAS	No.	123R	to	annual	periods	beginning	after	June	15,	2005.	As	a	result,	the Company	will	adopt	SFAS	No.	123R,	using	the	modified-prospective	transition	method	beginning	on	October	1,	2005,	and	therefore,	will	begin	to	expense	the	fair	value of	all	outstanding	options	over	their	remaining	service	periods	to	the	extent	the	options	are	not	fully	vested	as	of	the	adoption	date	and	will	expense	the	fair	value	of	all future	options	granted	subsequent	to	September	30,	2005

over	their	service	periods.	The	Company	estimates	it	will	record	pre-tax	share-based	compensation	expense	of	approximately	$14	million	in	fiscal	2006.	This	estimate may	be	impacted	by	potential	changes	to	the	structure	of	the	Company's	share-based	compensation	plans	which	could	impact	the	number	of	stock	options	granted	in fiscal	2006,	changes	in	valuation	assumptions,	the	market	price	of	the	Company's	common	stock,	among	other	things	and,	as	a	result,	the	actual	pre-tax	share-based compensation	expense	in	fiscal	2006	may	differ	from	the	Company's	current	estimate.

# Liquidity	and	Capital	Resources

The	following	table	illustrates	the	Company's	debt	structure	at	September	30,	2005,	including	availability	under	revolving	credit	facilities	and	the	receivables securitization	facility	(in	thousands):

|  | Outstanding<br>Balance | Additional<br>Availability |
| :--- | :--- | :--- |
| Fixed-Rate\tDebt: |  |  |
| $400,000,\t5\t5/8%\tsenior\tnotes\tdue\t2012 | $398,010 | $— |
| $500,000,\t5\t7/8%\tsenior\tnotes\tdue\t2015 | 497,508 | — |
| Other | 2,193 | — |
| Total\tfixed-rate\tdebt | 897,711 | — |
| Variable-Rate\tDebt: |  |  |
| Blanco\trevolving\tcredit\tfacility\tdue\t2006 | 55,000 | — |
| Revolving\tcredit\tfacility\tdue\t2009 | — | 687,985 |
| Receivables\tsecuritization\tfacility\tdue\t2007 | — | 1,050,000 |
| Total\tvariable-rate\tdebt | 55,000 | 1,737,985 |
| Total\tdebt,\tincluding\tcurrent\tportion | $952,711 | $1,737,985 |

The	Company's	$1.7	billion	of	aggregate	availability	under	its	revolving	credit	facility	and	its	receivables	securitization	facility	provide	sufficient	sources	of capital	to	fund	the	Company's	working	capital	requirements.	The	Company's	aggregate	availability	was	reduced	to	$1.4	billion	as	of	October	31,	2005,	because	it elected	to	terminate	the	364-day	tranche	under	its	receivables	securitization	facility	(defined	below).

In	an	effort	to	reduce	its	interest	expense,	extend	maturities	of	its	long-term	debt	and	ease	its	debt	covenant	restrictions,	the	Company	refinanced	its	long-term debt	in	September	2005.	The	Company	issued	$400	million	of	5.625%	senior	notes	due	September	15,	2012	(the	"2012	Notes")	and	$500	million	of	5.875%	senior	notes due	September	15,	2015	(the	"2015	Notes").	The	2012	Notes	and	2015	Notes	each	were	sold	at	99.5%	of	principal	amount	and	have	an	effective	yield	of	5.71%	and 5.94%,	respectively.	Interest	on	the	2012	Notes	and	the	2015	Notes	is	payable	semiannually	in	arrears,	commencing	on	March	15,	2006.	Both	the	2012	Notes	and	the 2015	Notes	are	redeemable	at	the	Company's	option	at	a	price	equal	to	the	greater	of	100%	of	the	principal	amount	thereof,	or	the	sum	of	the	discounted	value	of	the remaining	scheduled	payments,	as	defined.	In	addition,	at	any	time	before	September	15,	2008,	the	Company	may	redeem	up	to	an	aggregate	of	35%	of	the	principal amount	of	the	2012	Notes	or	the	2015	Notes	at	redemption	prices	equal	to	105.625%	and	105.875%,	respectively,	of	the	principal	amounts	thereof,	plus	accrued	and unpaid	interest	and	liquidated	damages,	if	any,	to	the	date	of	redemption,	with	the	cash	proceeds	of	one	or	more	equity	issuances.	In	connection	with	the	issuance	of	the 2012	Notes	and	the	2015	Notes,	the	Company	incurred	approximately	$6.3	million	and	$7.9	million	of	costs,	respectively,	which	were	deferred	and	are	being	amortized over	the	terms	of	the	notes.

In	November	2005,	Standard	&	Poor's	Ratings	Services	("S&P")	announced	that	it	raised	its	corporate	credit	and	senior	unsecured	debt	ratings	on	the	Company to	'BBB-'	from	'BB+'.	As	a	result	of	the	upgrade,	the	Company	is	entitled	to	substantially	relaxed	covenants	under	the	indenture	governing	its	5.625%	senior	notes	due 2012	and	5.875%	senior	notes	due	2015,	and	to	a	lesser	extent	under	its	$700	million	senior	credit	facility.

In	July	2003,	the	Company	entered	into	a	$1.05	billion	receivables	securitization	facility	("Receivables	Securitization	Facility").	In	connection	with	the Receivables	Securitization	Facility,	ABDC	sells	on	a	revolving	basis	certain	accounts

receivable	to	Amerisource	Receivables	Financial	Corporation,	a	wholly	owned	special	purpose	entity,	which	in	turn	sells	a	percentage	ownership	interest	in	the receivables	to	commercial	paper	conduits	sponsored	by	financial	institutions.	ABDC	is	the	servicer	of	the	accounts	receivable	under	the	Receivables	Securitization Facility.	After	the	maximum	limit	of	receivables	sold	has	been	reached	and	as	sold	receivables	are	collected,	additional	receivables	may	be	sold	up	to	the	maximum amount	available	under	the	facility.	In	December	2004,	the	Company	amended	its	Receivables	Securitization	Facility	and	under	the	terms	of	the	amendment,	the	$550 million	(three-year	tranche)	originally	scheduled	to	expire	in	July	2006	was	increased	to	$700	million	and	the	expiration	date	was	extended	to	November	2007. Additionally,	the	$500	million	(364-day	tranche)	scheduled	to	expire	in	July	2005	was	reduced	to	$350	million	and	was	set	to	expire	in	December	2005.	In	September 2005,	the	Company	elected	to	terminate	the	364-day	tranche,	effective	October	31,	2005.	Interest	rates	are	based	on	prevailing	market	rates	for	short-term	commercial paper	plus	a	program	fee,	and	will	vary	based	on	the	Company's	debt	ratings.	In	April	2005,	the	Company's	debt	rating	was	raised	by	one	of	the	rating	agencies	and	in accordance	with	the	terms	of	the	Receivables	Securitization	Facility,	the	program	fees	were	lowered.	The	program	fee	was	60	basis	points	for	the	three-year	tranche	and 35	basis	points	for	the	364-day	tranche	as	of	September	30,	2005.	Additionally,	the	commitment	fee	on	any	unused	credit	was	reduced	to	20	basis	points	for	the	three- year	tranche	and	to	17.5	basis	points	for	the	364-day	tranche.	At	September	30,	2005,	there	were	no	borrowings	under	the	Receivables	Securitization	Facility.	In connection	with	entering	into	the	Receivables	Securitization	Facility	and	the	amendments	thereto,	the	Company	incurred	approximately	$2.8	million	of	costs,	which were	deferred	and	are	being	amortized	over	the	life	of	the	facility.	The	facility	is	a	financing	vehicle	utilized	by	the	Company	because	it	offers	an	attractive	interest	rate relative	to	other	financing	sources.	The	Company	securitizes	its	trade	accounts,	which	are	generally	non-interest	bearing,	in	transactions	that	are	accounted	for	as borrowings	under	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	140,	"Accounting	for	Transfers	and	Servicing	of	Financial	Assets	and	Extinguishments	of Liabilities."

In	December	2004,	the	Company	entered	into	a	$700	million	five-year	senior	unsecured	revolving	credit	facility	(the	"Senior	Revolving	Credit	Facility")	with	a syndicate	of	lenders.	The	Senior	Revolving	Credit	Facility	replaced	the	Senior	Credit	Agreement	(defined	below).	There	were	no	borrowings	outstanding	under	the Senior	Revolving	Credit	Facility	at	September	30,	2005.	Interest	on	borrowings	under	the	Senior	Revolving	Credit	Facility	accrues	at	specific	rates	based	on	the Company's	debt	rating.	In	April	2005,	the	Company's	debt	rating	was	raised	by	one	of	the	rating	agencies	and	in	accordance	with	the	terms	of	the	Senior	Revolving Credit	Facility,	interest	on	borrowings	accrue	at	either	80	basis	points	over	LIBOR	or	the	prime	rate	at	September	30,	2005.	Availability	under	the	Senior	Revolving Credit	Facility	is	reduced	by	the	amount	of	outstanding	letters	of	credit	($12.0	million	at	September	30,	2005).	The	Company	pays	quarterly	facility	fees	to	maintain	the availability	under	the	Senior	Revolving	Credit	Facility	at	specific	rates	based	on	the	Company's	debt	rating.	In	April	2005,	the	rate	payable	to	maintain	the	availability of	the	$700	million	commitment	was	reduced	to	20	basis	points	per	annum	resulting	from	the	Company's	improved	debt	rating.	In	connection	with	entering	into	the Senior	Revolving	Credit	Facility,	the	Company	incurred	approximately	$2.5	million	of	costs,	which	were	deferred	and	are	being	amortized	over	the	life	of	the	facility. The	Company	may	choose	to	repay	or	reduce	its	commitments	under	the	Senior	Revolving	Credit	Facility	at	any	time.	The	Senior	Revolving	Credit	Facility	contains covenants	that	impose	limitations	on,	among	other	things,	additional	indebtedness,	distributions	and	dividends	to	stockholders,	and	investments.	These	covenants	are less	restrictive	than	those	under	the	Senior	Credit	Agreement,	thereby	providing	the	Company	with	greater	financial	flexibility.	Additional	covenants	require	compliance with	financial	tests,	including	leverage	and	minimum	earnings	to	fixed	charges	ratios.

The	Senior	Credit	Agreement	consisted	of	a	$1.0	billion	revolving	credit	facility	(the	"Revolving	Facility")	and	a	$300	million	term	loan	facility	(the	"Term Facility"),	both	of	which	had	been	scheduled	to	mature	in	August	2006.	The	Term	Facility	had	scheduled	quarterly	maturities,	which	began	in	December	2002,	totaling $60	million	in	each	of	fiscal	2003	and	2004,	and	$80	million	and	$100	million	in	fiscal	2005	and	2006,	respectively.	The	scheduled	term	loan	payments	were	made	in fiscal	2004	and	2003.	In	December	2004,	in	connection	with	entering	into	the	new	Senior	Revolving	Credit	Facility,	as	defined	above,	the	Company	repaid	the remaining	$180	million	outstanding	under	the	Term	Facility	and	there	were	no	borrowings	outstanding	under	the	Revolving	Facility.	In	connection	with	the	early repayment	of	the	Term	Facility,	the	Company	incurred	a	loss	of	$1.0	million	relating	to	the	write-off	of	deferred	financing	costs.

On	October	3,	2005,	the	Company	entered	into	a	C$135	million	senior	unsecured	revolving	credit	facility	(the	"Canadian	Credit	Facility")	due	December	2009 with	a	syndicate	of	lenders	in	connection	with	the	Company's	acquisition	of	Trent	Drugs	(Wholesale)	Ltd	and	borrowed	approximately	C$92	million	to	complete	the transaction.	Interest	on	borrowings	under	the	Canadian	Credit	Facility	accrues	at	specific	rates	based	on	the	Company's	debt	rating	(0.675%	over	LIBOR	or	Bankers' Acceptance	Stamping	Fee	Spread	at	October	3,	2005).	The	Company	will	pay	quarterly	facility	fees	to	maintain	the	availability	under	the	Canadian	Credit	Facility	at specific	rates	based	on	the	Company's	debt	rating	(0.20%	at	October	3,	2005).	The	Company	may	choose	to	repay	or	reduce	its	commitments	under	the	Canadian	Credit Facility	at	any	time.	The	Canadian	Credit	Facility	contains	restrictions	on,	among	other	things,	additional	indebtedness,	distributions	and	dividends	to	stockholders, investments	and	capital	expenditures.	Additional	covenants	require	compliance	with	financial	tests,	including	leverage	and	minimum	earnings	to	fixed	charges	ratios.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	paid	$100	million	to	redeem	the	Bergen	7	1/4%	Senior	Notes	due	June	1,	2005,	upon	their maturity.

In	December	2000,	the	Company	issued	$300.0	million	of	5%	convertible	subordinated	notes	due	December	1,	2007.	The	notes	had	an	annual	interest	rate	of	5%, payable	semiannually,	and	were	convertible	into	common	stock	of	the	Company	at	$52.97	per	share	at	any	time	before	their	maturity	or	their	prior	redemption	or repurchase	by	the	Company.	In	December	2004,	the	Company	announced	that	it	would	redeem	its	5%	convertible	subordinated	notes	at	a	redemption	price	of	102.143% of	the	principal	amount	of	the	notes	plus	accrued	interest	through	the	redemption	date	of	January	3,	2005.	The	noteholders	were	given	the	option	to	accept	cash	or convert	the	notes	to	common	stock	of	the	Company.	The	notes	were	convertible	into	5,663,730	shares	of	common	stock,	which	translated	to	a	conversion	ratio	of 18.8791	shares	of	common	stock	for	each	$1,000	principal	amount	of	notes.	Through	January	3,	2005,	the	redemption	date,	the	Company	issued	5,663,144	shares	of common	stock	from	treasury	to	noteholders	to	redeem	substantially	all	of	the	notes	and	paid	$31,000	to	redeem	the	remaining	notes.	During	fiscal	2005,	the	Company subsequently	repurchased	5.7	million	shares	of	common	stock,	substantially	equivalent	to	the	number	of	common	stock	shares	issued	in	connection	with	the	conversion of	the	5%	notes.

The	Company's	operating	results	have	generated	cash	flow,	which,	together	with	availability	under	its	debt	agreements	and	credit	terms	from	suppliers,	has provided	sufficient	capital	resources	to	finance	working	capital	and	cash	operating	requirements,	and	to	fund	capital	expenditures,	acquisitions,	repayment	of	debt,	the payment	of	interest	on	outstanding	debt	and	repurchases	of	shares	of	the	Company's	common	stock.	Cash	flow	from	operations	for	the	fiscal	year	ended	September	30, 2005	was	$1.53	billion	primarily	due	to	the	significant	decline	in	merchandise	inventories	and	an	increase	in	accounts	payable	during	the	fiscal	year	ended September	30,	2005.	The	significant	decline	in	merchandise	inventories	during	the	fiscal	year	ended	September	30,	2005	reflected	the	impact	of	the	business	model transition,	including	increasing	compliance	under	current	inventory	management	and	fee-for-service	agreements.	We	do	not	anticipate	the	Company	will	experience similar	amounts	of	working	capital	reduction	in	future	years	as	the	Company	has	signed	fee-for-service	agreements	with	a	substantial	majority	of	manufacturers	as	of September	30,	2005.	The	Company	expects	cash	flow	from	operations	in	fiscal	2006	to	be	between	$500	million	and	$600	million.

The	Company's	primary	ongoing	cash	requirements	will	be	to	finance	working	capital,	fund	the	payment	of	interest	on	debt,	finance	merger	integration	initiatives and	fund	capital	expenditures	and	routine	growth	and	expansion	through	new	business	opportunities.	Significant	cash	flows	from	operations	primarily	resulting	from	the business	model	transition,	as	discussed	above,	has	resulted	in	a	near	record	low	debt-to-capital	ratio	of	18.2%	and	a	net	debt	to	total	capital	ratio	of	less	than	zero.	The Company	has	been	and	continues	to	actively	evaluate	its	alternatives	to	deploy	its	excess	capital.	For	example,	the	Company	plans	to	repurchase	$750	million	of	its common	stock	and	recently	announced	that	it	will	double	its	quarterly	cash	dividend.	Additionally,	on	October	5,	2005,	the	Company	acquired	Trent	Drugs	(Wholesale) Ltd	("Trent"),	one	of	the	largest	national	pharmaceutical	distributors	in	Canada,	for	a	purchase	price	of	$81.7	million,	which	included	the	assumption	of	debt	of	$41.3 million.	The	acquisition	of	Trent	provides	the	Company	a	solid	foundation	to	expand	its	pharmaceutical	distribution	capability	into	the	Canadian	marketplace.	The Company	expects	to	pursue	further	strategic	acquisitions.	Future	cash	flows	from	operations	and	borrowings	are	expected	to	be	sufficient	to	fund	the	Company's ongoing	cash	requirements.

Following	is	a	summary	of	the	Company's	contractual	obligations	for	future	principal	and	interest	payments	on	its	debt,	minimum	rental	payments	on	its noncancelable	operating	leases	and	minimum	payments	on	its	other	commitments	at	September	30,	2005	(in	thousands):

|  |  | Within	1 | 1-3 | 4-5 | After	5 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Total | year | years | years | years |
| Debt,\tincluding\tinterest\tpayments | $1,410,053 | $ 109,621 | $ 104,807 | $103,750 | $1,091,875 |
| Operating\tLeases | 239,803 | 64,259 | 86,839 | 49,012 | 39,693 |
| Other\tCommitments | 1,272,067 | 47,268 | 218,284 | 262,558 | 743,957 |
| Total | $2,921,923 | $ 221,148 | $ 409,930 | $415,320 | $1,875,525 |

The	$55	million	Blanco	revolving	credit	facility,	which	expires	in	April	2006,	is	included	in	the	"Within	1	year"	column	in	the	above	repayment	table.	However, this	borrowing	is	not	classified	in	the	current	portion	of	long-term	debt	on	the	consolidated	balance	sheet	at	September	30,	2005	because	the	Company	has	the	ability	and intent	to	refinance	it	on	a	long-term	basis.

In	December	2004,	the	Company	entered	into	a	distribution	agreement	with	a	Canadian	influenza	vaccine	manufacturer	to	distribute	product	through	March	31, 2015.	The	agreement	includes	a	commitment	to	purchase	at	least	12	million	doses	per	year	of	the	influenza	vaccine	provided	the	vaccine	is	approved	and	available	for distribution	in	the	United	States	by	the	Food	and	Drug	Administration	("FDA").	The	Company	will	be	required	to	purchase	the	annual	doses	at	market	prices,	as adjusted	for	inflation	and	other	factors.	We	expect	the	Canadian	manufacturer	will	receive	FDA	approval	by	the	2006/2007	influenza	season;	however,	FDA	approval may	be	received	earlier.	If	the	initial	year	of	the	purchase	commitment	begins	in	fiscal	2007,	then	the	Company	anticipates	its	purchase	commitment	for	that	year	will approximate	$66	million.	The	Company	anticipates	its	total	purchase	commitment	(assuming	the	commitment	commences	in	fiscal	2007)	will	be	approximately	$1.1 billion.	The	influenza	vaccine	commitment	is	included	in	Other	Commitments	in	the	above	table.

As	of	September	30,	2005,	the	Company	has	$7.1	million	of	remaining	commitments	relating	to	the	construction	of	one	of	its	new	distribution	facilities.	This facility	commitment	is	included	in	Other	Commitments	in	the	above	table.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	decided	to	outsource	a	significant	portion	of	its	corporate	and	ABDC	information	technology activities	and	entered	into	a	ten-year	commitment,	effective	July	1,	2005,	with	IBM	Global	Services,	which	will	assume	responsibility	for	performing	the	outsourced information	technology	activities	following	the	completion	of	certain	transition	matters.	The	Company	estimates	that	it	will	incur	approximately	$20	million	to	$25 million	of	transition	costs	in	connection	with	this	plan.	These	transition	costs	will	include	employee	severance	and	other	contract	expenses.	The	Company	incurred approximately	one-half	of	these	costs	in	the	fourth	quarter	of	fiscal	2005.	The	minimum	commitment	under	the	outsourcing	arrangement	is	approximately	$200	million (excluding	the	above-mentioned	transition	costs)	over	a	ten-year	period;	however,	the	Company	believes	it	will	likely	spend	between	$300	million	and	$400	million under	the	outsourcing	arrangement	to	maintain	and	improve	its	information	technology	infrastructure	during	that	period.	The	Company	has	included	the	minimum contractual	commitment	of	$200	million	in	Other	Commitments	in	the	above	table.

During	the	fiscal	year	ended	September	30,	2005,	the	Company's	operating	activities	provided	$1.53	billion	of	cash	as	compared	to	cash	provided	of	$825.1 million	in	the	prior-year	period.	Cash	provided	by	operations	during	the	fiscal	year	ended	September	30,	2005	was	principally	the	result	of	a	$1.1	billion	decrease	in merchandise	inventories,	a	$311.4	million	increase	in	accounts	payable,	accrued	expenses	and	income	taxes,	non-cash	items	of	$282.3	million,	and	net	income	of	$264.6 million,	partially	offset	by	an	increase	in	accounts	receivable	of	$392.8	million.	The	inventory	turnover	rate	for	the	Pharmaceutical	Distribution	segment	improved	to 10.2	times	in	the	fiscal	year	ended	September	30,	2005	from	8.2	times	in	the	prior	fiscal	year.	The	improvement	was	derived	from	lower	average	inventory	levels	due	to an	increase	in	the	number	of	fee-for-service	agreements,	inventory	management	and	other	vendor	agreements,	a	reduction	in	buy-side	profit	opportunities,	and	a reduction	in	the	number	of	distribution	facilities.	The	increase	in	accounts	payable,	accrued	expenses	and	income	taxes	is	primarily	due	to	an	increase	in	sales	volume, the	timing	of	purchases	of	merchandise	inventories	and	cash	payments	to	our	vendors.	The	increase	in	accounts	receivable	was	largely	driven	by	the	continued	strong revenue	growth	of	ABSG,	which	has	a	significantly	higher	average	days	sales	outstanding	than	ABDC	and	the	timing	of	cash	receipts	from	our	customers.	Average	days sales	outstanding	for	the	PharMerica	segment	were	40.2	days	in	the	fiscal	year	ended	September	30,	2005	compared	to	38.4	days	in	the	prior-year	period.	Non-cash	items of	$282.3	million	included	a	$111.9	million	loss	on	early	retirement	of	debt	and	$90.9	million	of	depreciation	and	amortization.	Operating	cash	uses	during	the	fiscal year	ended	September	30,	2005	included	$94.2	million	in	interest	payments	and	$132.6	million	of	income	tax	payments,	net	of	refunds.

During	the	fiscal	year	ended	September	30,	2004,	the	Company's	operating	activities	provided	$825.1	million	of	cash.	Cash	provided	by	operations	in	fiscal	2004 was	principally	the	result	of	a	decrease	in	merchandise	inventories	of	$916.3	million,	net	income	of	$468.4	million	and	non-cash	items	of	$151.5	million,	offset	in	part, by	a	$432.0	million	decrease	in	accounts	payable,	accrued	expenses	and	income	taxes.	The	Company's	change	in	accounting	for	customer	sales	returns	had	the	effect	of increasing	merchandise	inventories	and	reducing	accounts	receivable	by	$316.8	million	at	September	30,	2004.	Merchandise	inventories	have	continued	to	decline	due to	an	increase	in	the	number	of	inventory	management	agreements,	a	reduction	in	buy-side	profit	opportunities,	and	a	reduction	in	the	number	of	distribution	facilities. The	turnover	of	merchandise	inventories	for	the	Pharmaceutical	Distribution	segment	has	improved	to	8.2	times	in	the	fiscal	year	ended	September	30,	2004	from	6.7 times	in	the	prior	fiscal	year.	The	$446.7	million	decrease	in	accounts	payable	was	primarily	due	to	the	decline	of	merchandise	inventories.	Average	days	sales outstanding	for	the	Pharmaceutical	Distribution	segment	increased	slightly	to	17.1	days	in	the	fiscal	year	ended	September	30,	2004	from	16.9	days	in	the	prior	fiscal year	primarily	due	to	the	strong	revenue	growth	of	ABSG,	which	has	a	significantly	higher	average	days	sales	outstanding	than	ABDC.	Average	days	sales	outstanding for	the	PharMerica	segment	improved	to	38.4	days	in	the	fiscal	year	ended	September	30,	2004	from	39.3	days	in	the	prior	fiscal	year	as	a	result	of	the	continued emphasis	on	receivables	management.	Non-cash	items	of	$151.5	million	included	$87.1	million	of	depreciation	and	amortization	and	$48.9	million	of	deferred	income taxes.	Deferred	income	taxes	of	$48.9	million	in	fiscal	2004	were	significantly	lower	than	the	$127.2	million	in	fiscal	2003	primarily	due	to	the	decline	in	income	tax deductions	associated	with

merchandise	inventories.	Operating	cash	uses	during	the	fiscal	year	ended	September	30,	2004	included	$111.0	million	in	interest	payments	and	$200.1	million	of income	tax	payments,	net	of	refunds.

During	the	year	ended	September	30,	2003,	the	Company's	operating	activities	provided	$354.8	million	in	cash.	Cash	provided	by	operations	in	fiscal	2003	was principally	the	result	of	net	income	of	$441.2	million	and	non-cash	items	of	$271.2	million,	offset	in	part,	by	a	$278.4	million	increase	in	merchandise	inventories	and	a $58.0	million	increase	in	accounts	receivable.	The	increase	in	merchandise	inventories	reflected	inventory	required	to	support	the	revenue	increase.	Accounts	receivable increased	only	1%,	excluding	changes	in	the	allowance	for	doubtful	accounts	and	customer	additions	due	to	acquired	companies,	in	comparison	to	the	13%	increase	in operating	revenues.	Average	days	sales	outstanding	for	the	Pharmaceutical	Distribution	segment	increased	slightly	to	16.9	days	in	the	fiscal	year	ended	September	30, 2003	from	16.4	days	in	the	prior	fiscal	year	primarily	due	to	the	strong	revenue	growth	of	AmerisourceBergen	Specialty	Group,	which	generally	has	a	higher	receivable investment	than	the	core	distribution	business.	Average	days	sales	outstanding	for	the	PharMerica	segment	improved	to	39.3	days	in	fiscal	2002	from	43.5	days	in	the prior	year	as	a	result	of	the	continued	improvements	in	centralized	billing	and	collection	practices.	Non-cash	items	of	$271.2	million	included	$127.2	million	of	deferred income	taxes.	The	tax	planning	strategies	implemented	by	the	Company	enabled	the	Company	to	lower	its	current	tax	payments	and	liability	while	increasing	its deferred	taxes	during	the	fiscal	year	ended	September	30,	2003.	Operating	cash	uses	during	the	fiscal	year	ended	September	30,	2003	included	$134.2	million	in	interest payments	and	$118.4	million	of	income	tax	payments,	net	of	refunds.

Capital	expenditures	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	were	$203.4	million,	$189.3	million	and	$90.6	million,	respectively,	and related	principally	to	the	construction	of	the	new	distribution	facilities,	investments	in	warehouse	expansions	and	improvements,	information	technology	and	warehouse automation.	The	Company	estimates	that	it	will	spend	approximately	$125	million	to	$150	million	for	capital	expenditures	during	fiscal	2006.

During	the	fiscal	year	ended	September	30,	2004,	the	Company	paid	$39.0	million	for	the	remaining	40%	equity	interest	in	International	Physician	Networks ("IPN"),	a	physician	education	and	management	consulting	company,	that	it	did	not	previously	own.	Additionally,	the	Company	paid	approximately	$13.7	million	in cash	for	MedSelect,	Inc.,	a	provider	of	automated	medication	and	supply	dispensing	cabinets,	and	$16.6	million	in	cash	for	Imedex,	Inc.,	an	accredited	provider	of continuing	medical	education	for	physicians.

During	fiscal	2003,	the	Company	acquired	Anderson	Packaging	Inc.	("Anderson"),	a	leading	provider	of	physician	and	retail	contracted	packaging	services	to pharmaceutical	manufacturers.	The	purchase	price	was	approximately	$100.1	million,	which	included	the	repayment	of	Anderson	debt	of	$13.8	million	and	$0.8	million of	transaction	costs	associated	with	the	acquisition.	The	Company	paid	part	of	the	purchase	price	by	issuing	814,145	shares	of	its	common	stock	with	an	aggregate market	value	of	$55.6	million.	The	Company	paid	the	remaining	purchase	price,	which	was	approximately	$44.5	million,	in	cash.

During	fiscal	2003,	the	Company	acquired	an	additional	40%	equity	interest	in	IPN	and	satisfied	the	residual	contingent	obligation	for	its	initial	20%	equity interest	for	an	aggregate	$24.7	million	in	cash.

During	fiscal	2003,	the	Company	acquired	US	Bioservices	Corporation	("US	Bio"),	a	national	pharmaceutical	products	and	services	provider	focused	on	the management	of	high-cost	complex	therapies	and	reimbursement	support	for	a	total	base	purchase	price	of	$160.2	million,	which	included	the	repayment	of	US	Bio	debt of	$14.8	million	and	$1.5	million	of	transaction	costs	associated	with	this	acquisition.	The	Company	paid	part	of	the	base	purchase	price	by	issuing	2,399,091	shares	of its	common	stock	with	an	aggregate	market	value	of	$131.0	million.	The	Company	paid	the	remaining	$29.2	million	of	the	base	purchase	price	in	cash.	In	July	2003,	a contingent	payment	of	$2.5	million	was	paid	in	cash	by	the	Company.

During	fiscal	2003,	the	Company	acquired	Bridge	Medical,	Inc.,	a	leading	provider	of	barcode-enabled	point-of-care	software	designed	to	reduce	medication errors,	to	enhance	the	Company's	offerings	in	the	pharmaceutical	supply	channel,	for	a	total	base	purchase	price	of	$28.4	million,	which	included	$0.7	million	of transaction	costs	associated	with	this	acquisition.	The	Company	paid	part	of	the	base	purchase	price	by	issuing	401,780	shares	of	its	common	stock	with	an	aggregate market	value	of	$22.9	million	and	the	remaining	base	purchase	price	was	paid	with	$5.5	million	of	cash.

During	fiscal	2003,	the	Company	also	used	cash	of	$3.0	million	to	purchase	three	smaller	companies	related	to	the	Pharmaceutical	Distribution	segment	and	paid $9.8	million	to	eliminate	the	right	of	the	former	stockholders	of	AutoMed	Technologies,	Inc.	("AutoMed")	to	receive	up	to	$55.0	million	in	contingent	payments	based on	AutoMed	achieving	defined	earnings	targets	through	the	end	of	calendar	2004.

Cash	provided	by	investing	activities	for	the	fiscal	year	ended	September	30,	2005	included	$36.7	million	from	sale-leaseback	transactions	entered	into	by	the Company	with	a	financial	institution.	Additionally,	cash	provided	by	investing

activities	included	$14.6	million	from	the	sale	of	substantially	all	of	the	assets	of	Bridge	Medical,	Inc.	and	the	sale	of	Rita	Ann	Distributors.

In	September	2005,	the	Company	issued	its	2012	Notes	and	its	2015	Notes	for	total	proceeds	of	$895.5	million.	These	proceeds	were	used	to	finance	the	early retirement	of	the	7		1/4%	Notes	and	the	8	1/8%	Notes,	including	the	payment	of	premiums	and	other	costs,	for	a	total	of	$902.3	million.	Additionally,	during	the	fiscal year	ended	September	30,	2005,	the	Company	paid	$100	million	to	redeem	the	Bergen	7		1/4%	Senior	Notes	and	repaid	the	remaining	$180.0	million	outstanding	under the	Term	Loan	Facility.

In	May	2005,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	$450	million	of	its	outstanding	shares	of	common	stock,	subject	to market	conditions	and	to	compliance	with	the	stock	repurchase	restrictions	contained	in	the	indentures	governing	the	Company's	senior	notes	and	in	the	credit	agreement for	the	Company's	senior	credit	facility.	Through	June	30,	2005,	the	Company	had	purchased	$94.2	million	of	its	common	stock	under	this	program	for	a	weighted average	price	of	$65.50.	In	August	2005,	the	Company's	board	of	directors	authorized	an	increase	to	the	amount	available	under	this	program	by	approximately	$394 million,	bringing	total	remaining	availability	to	$750	million,	and	the	total	repurchase	program	to	approximately	$844	million.	The	increase	in	repurchase	authority	was subject	to	the	completion	of	the	tender	and	repurchase	of	the	Company's	$500	million	principal	amount	8.125%	senior	notes	due	2008	and	$300	million	principal amount	7.25%	senior	notes	due	2012	and	the	offering	and	sale	of	$400	million	principal	amount	5.625%	senior	notes	due	2012	and	$500	million	principal	amount 5.875%	senior	notes	due	2015	(collectively,	the	"Refinancing").	The	Refinancing	was	completed	in	September	2005.	As	of	September	30,	2005,	the	Company	has	$750 million	of	remaining	authorization	to	repurchase	its	common	stock	under	this	program.

In	February	2005,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	5.7	million	shares	(substantially	equivalent	to	the	number	of common	stock	shares	issued	in	connection	with	the	conversion	of	the	5%	notes)	of	its	outstanding	common	stock,	subject	to	market	conditions.	In	February	2005,	the Company	acquired	0.4	million	shares	in	the	open	market	for	a	total	of	$25.9	million.	In	addition,	on	March	30,	2005,	the	Company	entered	into	an	Accelerated	Share Repurchase	("ASR")	transaction	with	a	financial	institution	to	purchase	the	remaining	5.3	million	shares	immediately	from	the	financial	institution	at	a	cost	of	$293.8 million.	The	financial	institution	subsequently	purchased	an	equivalent	number	of	shares	in	the	open	market	through	April	21,	2005.	The	ASR	transaction	was completed	on	April	21,	2005;	as	a	result,	the	Company	paid	the	financial	institution	a	cash	settlement	of	$16.6	million.	The	Company	had	acquired	all	the	shares authorized	under	this	program	for	a	total	of	$336.3	million,	which	includes	the	above	cash	settlement	of	$16.6	million.	The	cash	settlement	was	recorded	as	an adjustment	to	additional	paid-in	capital.

In	August	2004,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	$500	million	of	its	outstanding	shares	of	common	stock,	subject	to market	conditions.	During	the	fiscal	year	ended	September	30,	2004,	the	Company	had	acquired	2.8	million	shares	of	its	Common	Stock	for	$144.7	million.	During	the fiscal	year	ended	September	30,	2005,	the	Company	acquired	6.5	million	shares	of	its	common	stock	under	this	program	for	$355.3	million.	As	of	September	30,	2005, the	Company	had	acquired	9.3	million	shares	of	its	common	stock	to	complete	the	$500	million	repurchase	program.

As	previously	described,	the	Company	used	$300	million	to	redeem	the	Subordinated	Notes	and	$8.4	million	to	redeem	the	6	7/8%	Notes	during	the	fiscal	year ended	September	30,	2004.	Additionally,	the	Company	repaid	$60	million	of	the	Term	Facility	in	fiscal	2004.

During	the	fiscal	year	ended	September	30,	2003,	the	Company	issued	the	aforementioned	$300	million	of	7	1/4%	Notes.	The	Company	used	the	net	proceeds	of the	7	1/4%	Notes	to	repay	$15	million	of	the	Term	Facility,	to	repay	$150	million	in	aggregate	principal	of	the	Bergen	7	3/8%	senior	notes	and	redeem	the	PharMerica	8 3/8%	senior	subordinated	notes	due	2008	at	a	redemption	price	equal	to	104.19%	of	the	$123.5	million	principal	amount.	The	Company	also	repaid	an	additional	$45 million	of	the	Term	Facility,	as	scheduled.

# Market	Risk

The	Company's	most	significant	market	risk	is	the	effect	of	changing	interest	rates.	The	Company	manages	this	risk	by	using	a	combination	of	fixed-rate	and variable-rate	debt.	At	September	30,	2005,	the	Company	had	$897.7	million	of	fixed-rate	debt	with	a	weighted	average	interest	rate	of	5.8%	and	$55.0	million	of variable-rate	debt	with	a	weighted	average	interest	rate	of	4.5%.	The	amount	of	variable-rate	debt	fluctuates	during	the	year	based	on	the	Company's	working	capital requirements.	The	Company	periodically	evaluates	various	financial	instruments	that	could	mitigate	a	portion	of	its	exposure	to	variable	interest	rates.	However,	there are	no	assurances	that	such	instruments	will	be	available	on	terms	acceptable	to	the	Company.	There	were	no	such	financial	instruments	in	effect	at	September	30,	2005. For	every	$100	million	of	unhedged	variable-rate	debt	outstanding,	a	45	basis-point	increase	in	interest	rates	(one-tenth	of	the	average	variable	rate	at	September	30, 2005)	would	increase	the	Company's	annual	interest	expense	by	$0.45	million.

# Recently	Issued	Financial	Accounting	Standards

In	December	2004,	the	FASB	issued	SFAS	No.	123R,	"Share-Based	Payment,"	which	requires	companies	to	measure	compensation	cost	for	all	share-based payments	(including	employee	stock	options)	at	fair	value	for	interim	or	annual	periods	beginning	after	June	15,	2005.	In	April	2005,	the	U.S.	Securities	and	Exchange Commission	issued	a	new	rule	allowing	public	companies	to	delay	the	adoption	of	SFAS	No.	123R	to	annual	periods	beginning	after	June	15,	2005.	As	a	result,	the Company	will	adopt	SFAS	No.	123R,	using	the	modified-prospective	transition	method	beginning	on	October	1,	2005,	and	therefore,	will	begin	to	expense	the	fair	value of	all	outstanding	options	over	their	remaining	vesting	periods	to	the	extent	the	options	are	not	fully	vested	as	of	the	adoption	date	and	will	expense	the	fair	value	of	all future	options	granted	subsequent	to	September	30,	2005	over	their	service	periods.	SFAS	No.	123R	also	requires	the	benefits	of	tax	deductions	in	excess	of	recognized compensation	expense	to	be	reported	as	a	financing	cash	flow,	rather	than	an	operating	cash	flow	as	currently	required.	The	Company	estimates	it	will	record	pre-tax share-based	compensation	expense	of	approximately	$14	million	in	fiscal	2006.	This	estimate	may	be	impacted	by	potential	changes	to	the	structure	of	the	Company's share-based	compensation	plans	which	could	impact	the	number	of	stock	options	granted	in	fiscal	2006,	changes	in	valuation	assumptions,	the	market	price	of	the Company's	common	stock,	among	other	things	and,	as	a	result,	the	actual	pre-tax	share-based	compensation	expense	in	fiscal	2006	may	differ	from	the	Company's current	estimate.

# Forward-Looking	Statements

Certain	of	the	statements	contained	in	this	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	("MD&A")	and	elsewhere	in this	report	are	"forward-looking	statements"	within	the	meaning	of	Section	27A	of	the	Securities	Act	of	1933	and	Section	21E	of	the	Securities	Exchange	Act	of	1934. These	statements	are	based	on	management's	current	expectations	and	are	subject	to	uncertainty	and	changes	in	circumstances.	Actual	results	may	vary	materially	from the	expectations	contained	in	the	forward-looking	statements.	The	forward-looking	statements	herein	include	statements	addressing	management's	views	with	respect	to future	financial	and	operating	results	and	the	benefits,	efficiencies	and	savings	to	be	derived	from	the	Company's	integration	plan	to	consolidate	its	distribution	network. Various	factors,	including	competitive	pressures,	success	of	the	Pharmaceutical	Distribution	segment's	ability	to	transition	its	business	model	to	fee-for-service,	success of	integration,	restructuring	or	systems	initiatives,	market	interest	rates,	changes	in	customer	mix,	changes	in	pharmaceutical	manufacturers'	pricing	and	distribution policies	or	practices,	regulatory	changes,	changes	in	U.S.	Government	policies	(including	reimbursement	changes	arising	from	the	Medicare	Modernization	Act), customer	defaults	or	insolvencies,	supplier	defaults	or	insolvencies.	Adverse	resolution	of	any	contract	or	other	disputes	with	customers	(including	departments	and agencies	of	the	U.S.	Government)	or	suppliers,	operational	or	control	issues	arising	from	AmerisourceBergen's	outsourcing	of	information	technology	activities, fluctuations	in	the	U.S.	dollar	–	Canadian	dollar	exchange	rate,	economic,	business,	competitive	and/or	regulatory	developments	in	Canada,	acquisition	of	businesses that	do	not	perform	as	we	expect	or	that	are	difficult	for	us	to	integrate	or	control,	or	the	loss	of	one	or	more	key	customer	or	supplier	relationships,	could	cause	actual outcomes	and	results	to	differ	materially	from	those	described	in	forward-looking	statements.	Certain	additional	factors	that	management	believes	could	cause	actual outcomes	and	results	to	differ	materially	from	those	described	in	forward-looking	statements	are	set	forth	in	this	MD&A,	in	Item	1	(Business)	under	the	heading "Certain	Risk	Factors",	elsewhere	in	Item	1	(Business)	and	elsewhere	in	this	report.

# ITEM	7A. QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

The	Company's	most	significant	market	risk	is	the	effect	of	changing	interest	rates.	See	discussion	above.

# ITEM	8. FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# The	Board	of	Directors	and	Stockholders	of	AmerisourceBergen	Corporation

We	have	audited	the	accompanying	consolidated	balance	sheets	of	AmerisourceBergen	Corporation	and	subsidiaries	as	of	September	30,	2005	and	2004,	and	the	related consolidated	statements	of	operations,	changes	in	stockholders'	equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	September	30,	2005.	Our	audits also	included	the	financial	statement	schedule	listed	in	the	Index	at	Item	15(a).	These	financial	statements	and	schedule	are	the	responsibility	of	the	Company's management.	Our	responsibility	is	to	express	an	opinion	on	these	financial	statements	and	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a	test	basis, evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant	estimates made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	AmerisourceBergen	Corporation and	subsidiaries	at	September	30,	2005	and	2004,	and	the	consolidated	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended September	30,	2005,	in	conformity	with	U.S.	generally	accepted	accounting	principles.	Also,	in	our	opinion,	the	related	financial	statement	schedule,	when	considered	in relation	to	the	basic	financial	statements	taken	as	a	whole,	presents	fairly	in	all	material	respects	the	information	set	forth	therein.

As	discussed	in	Note	1	to	the	consolidated	financial	statements,	AmerisourceBergen	Corporation	changed	its	method	of	recognizing	cash	discounts	effective	at	the beginning	of	fiscal	year	2005.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	effectiveness	of	AmerisourceBergen Corporation's	internal	control	over	financial	reporting	as	of	September	30,	2005,	based	on	criteria	established	in	Internal	Control-Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	December	8,	2005	expressed	an	unqualified	opinion	thereon.

/s/	Ernst	&	Young	LLP

Philadelphia,	Pennsylvania

# AMERISOURCEBERGEN	CORPORATION	AND	SUBSIDIARIES

# CONSOLIDATED	BALANCE	SHEETS

# (in	thousands,	except	share	and	per	share	data)

| September	30, | 2005 | 2004 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $1,315,683 | $871,343 |
| Accounts\treceivable,\tless\tallowances\tfor\treturns\tand\tdoubtful\taccounts: |  |  |
| 2005\t-\t$420,538;\t2004\t-\t$464,354 | 2,640,646 | 2,260,973 |
| Merchandise\tinventories | 4,003,690 | 5,135,830 |
| Prepaid\texpenses\tand\tother | 27,673 | 27,243 |
| Total\tcurrent\tassets | 7,987,692 | 8,295,389 |
| Property\tand\tequipment,\tat\tcost: |  |  |
| Land | 43,676 | 42,959 |
| Buildings\tand\timprovements | 267,847 | 233,397 |
| Machinery,\tequipment\tand\tother | 484,671 | 433,555 |
| Total\tproperty\tand\tequipment | 796,194 | 709,911 |
| Less\taccumulated\tdepreciation | 281,436 | 244,647 |
| Property\tand\tequipment,\tnet | 514,758 | 465,264 |
| Other\tassets: |  |  |
| Goodwill | 2,431,568 | 2,448,275 |
| Intangibles,\tdeferred\tcharges\tand\tother | 447,156 | 445,075 |
| Total\tother\tassets | 2,878,724 | 2,893,350 |
| TOTAL\tASSETS | $11,381,174 | $11,654,003 |

# CONSOLIDATED	BALANCE	SHEETS	-	(Continued)

| September	30, | 2005 | 2004 |
| :--- | :--- | :--- |
| LIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY |  |  |
| Current\tliabilities: |  |  |
| Accounts\tpayable | $5,292,253 | $4,947,037 |
| Accrued\texpenses\tand\tother | 335,650 | 419,381 |
| Current\tportion\tof\tlong-term\tdebt | 1,232 | 281,360 |
| Accrued\tincome\ttaxes | 52,093 | 94,349 |
| Deferred\tincome\ttaxes | 370,868 | 361,781 |
| Total\tcurrent\tliabilities | 6,052,096 | 6,103,908 |
| Long-term\tdebt,\tnet\tof\tcurrent\tportion | 951,479 | 1,157,111 |
| Other\tliabilities | 97,242 | 53,939 |
| Stockholders'\tequity: |  |  |
| shares,\trespectively;\tissued\tand\toutstanding:\t2004:\t112,454,005\tshares\tand\t109,692,505\tshares,\trespectively | 1,156 | 1,125 |
| Additional\tpaid-in\tcapital | 3,315,216 | 3,146,207 |
| Retained\tearnings | 1,604,093 | 1,350,046 |
| Accumulated\tother\tcomprehensive\tloss | (24,814) | (13,577) |
| Treasury\tstock,\tat\tcost:\t2005:\t10,769,906\tshares;\t2004:\t2,761,500\tshares | (615,294) | (144,756) |
| Total\tstockholders'\tequity | 4,280,357 | 4,339,045 |
| TOTAL\tLIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY | $11,381,174 | $11,654,003 |

See	notes	to	consolidated	financial	statements.

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS

# (in	thousands,	except	per	share	data)

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Operating\trevenue | $50,012,598 | $48,812,452 | $45,463,400 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | 4,564,723 | 4,308,339 | 4,120,639 |
| Total\trevenue | \t 54,577,321 | 53,120,791 | 49,584,039 |
| Cost\tof\tgoods\tsold | \t 52,597,137 | 50,954,361 | 47,358,426 |
| Gross\tprofit | 1,980,184 | 2,166,430 | 2,225,613 |
| Operating\texpenses: |  |  |  |
| Distribution,\tselling\tand\tadministrative | 1,234,057 | 1,184,529 | 1,261,357 |
| Depreciation | 70,947 | 63,464 | 62,165 |
| Amortization | 10,252 | 9,961 | 7,032 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | 22,723 | 7,517 | 8,930 |
| Impairment\tcharge | 5,259 | — | — |
| Operating\tincome | 636,946 | 900,959 | 886,129 |
| Other\t(income)\tloss | (990) | (6,236) | 8,015 |
| Interest\texpense,\tnet | 57,223 | 112,704 | 144,748 |
| Loss\ton\tearly\tretirement\tof\tdebt | 111,888 | 23,592 | 4,220 |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\tchange\tin\taccounting | 468,825 | 770,899 | 729,146 |
| Income\ttaxes | 176,903 | 296,025 | 286,081 |
| Income\tfrom\tcontinuing\toperations\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting | 291,922 | 474,874 | 443,065 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax\t(Note\t3) | 17,105 | 6,484 | 1,836 |
| Cumulative\teffect\tof\tchange\tin\taccounting,\tnet\tof\ttax\tof\t$6,341\t(Note\t1) | 10,172 | — | — |
| Net\tincome | $264,645 | $468,390 | $441,229 |
| Earnings\tper\tshare: |  |  |  |
| Basic\tearnings\tper\tshare: |  |  |  |
| Continuing\toperations | $2.76 | $4.25 | $4.05 |
| Discontinued\toperations | (0.16) | (0.06) | (0.02) |
| Cumulative\teffect\tof\tchange\tin\taccounting | (0.10) | — | — |
| Rounding | — | 0.01 | — |
| Net\tincome | $2.50 | $4.20 | $4.03 |
| Diluted\tearnings\tper\tshare: |  |  |  |
| Continuing\toperations | $2.73 | $4.12 | $3.91 |
| Discontinued\toperations | (0.16) | (0.06) | (0.02) |
| Cumulative\teffect\tof\tchange\tin\taccounting | (0.09) | — | — |
| Net\tincome | $2.48 | $4.06 | $3.89 |
| Weighted\taverage\tcommon\tshares\toutstanding: |  |  |  |
| Basic | 105,667 | 111,617 | 109,513 |
| Diluted | 107,770 | 117,779 | 115,954 |

# CONSOLIDATED	STATEMENTS	OF	CHANGES

# IN	STOCKHOLDERS'	EQUITY

| (in	thousands,	except	per	share	data) | Common<br>Stock | Additional<br>Paid-in<br>Capital | Retained<br>Earnings | Other<br>Comprehensive<br>Loss | Treasury<br>Stock | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| September\t30,\t2002 | $1,066 | $2,858,596 | $462,619 | $(5,943) | $— | $3,316,338 |
| Net\tincome |  |  | 441,229 |  |  | 441,229 |
| Increase\tin\tminimum\tpension\tliability,\tnet\tof\ttax\tof\t$5,246 |  |  |  | (8,274) |  | (8,274) |
| Total\tcomprehensive\tincome |  |  |  |  |  | 432,955 |
| Cash\tdividends\tdeclared,\t$0.10\tper\tshare |  |  | (10,995) |  |  | (10,995) |
| Exercise\tof\tstock\toptions | 14 | 42,550 |  |  |  | 42,564 |
| Tax\tbenefit\tfrom\texercise\tof\tstock\toptions |  | 14,389 |  |  |  | 14,389 |
| Stock\tissued\tfor\tacquisitions | 40 | 209,409 |  |  |  | 209,449 |
| Restricted\tshares\tearned\tby\tdirectors |  | 345 |  |  |  | 345 |
| Net\tshares\tpurchased\tpursuant\tto\tstock\tpurchase\tplan |  | (1,608) |  |  |  | (1,608) |
| Accelerated\tvesting\tof\tstock\toptions |  | 1,057 |  |  |  | 1,057 |
| Amortization\tof\tunearned\tcompensation\tfrom\tstock\toptions |  | 823 |  |  |  | 823 |
| September\t30,\t2003 | 1,120 | 3,125,561 | 892,853 | (14,217) | — | 4,005,317 |
| Net\tincome |  |  | 468,390 |  |  | 468,390 |
| Reduction\tin\tminimum\tpension\tliability,\tnet\tof\ttax\tof\t$399 |  |  |  | 640 |  | 640 |
| Total\tcomprehensive\tincome |  |  |  |  |  | 469,030 |
| Cash\tdividends\tdeclared,\t$0.10\tper\tshare |  |  | (11,197) |  |  | (11,197) |
| Exercise\tof\tstock\toptions | 5 | 15,146 |  |  |  | 15,151 |
| Tax\tbenefit\tfrom\texercise\tof\tstock\toptions |  | 4,011 |  |  |  | 4,011 |
| Restricted\tshares\tearned |  | 649 |  |  |  | 649 |
| Net\tshares\tpurchased\tpursuant\tto\tstock\tpurchase\tplan |  | (935) |  |  |  | (935) |
| Accelerated\tvesting\tof\tstock\toptions |  | 1,028 |  |  |  | 1,028 |
| Amortization\tof\tunearned\tcompensation\tfrom\tstock\toptions |  | 747 |  |  |  | 747 |
| Purchases\tof\tcommon\tstock |  |  |  |  | (144,756) | (144,756) |
| September\t30,\t2004 | 1,125 | 3,146,207 | 1,350,046 | (13,577) | (144,756\t) | 4,339,045 |
| Net\tincome |  |  | 264,645 |  |  | 264,645 |
| Increase\tin\tminimum\tpension\tliability,\tnet\tof\ttax\tof\t$7,101 |  |  |  | (11,014) |  | (11,014) |
| Other,\tnet\tof\ttax |  |  |  | (223) |  | (223) |
| Total\tcomprehensive\tincome |  |  |  |  |  | 253,408 |
| Cash\tdividends\tdeclared,\t$0.10\tper\tshare |  |  | (10,598) |  |  | (10,598) |
| Exercise\tof\tstock\toptions | 31 | 174,029 |  |  |  | 174,060 |
| Tax\tbenefit\tfrom\texercise\tof\tstock\toptions |  | 15,347 |  |  |  | 15,347 |
| Restricted\tshares\tearned |  | 488 |  |  |  | 488 |
| Net\tshares\tpurchased\tpursuant\tto\tstock\tpurchase\tplan |  | (1,565) |  |  |  | (1,565) |
| Accelerated\tvesting\tof\tstock\toptions |  | 276 |  |  |  | 276 |
| Write-off\tof\tdeferred\tfinancing\tcosts\trelated\tto\tconversion\tof |  |  |  |  |  |  |
| subordinated\tnotes |  | (3,881) |  |  |  | (3,881) |
| Treasury\tshares\tissued\tfor\tdebt\tconversion |  | 944 |  |  | 299,025 | 299,969 |
| Settlement\tof\taccelerated\tstock\trepurchase\tagreement |  | (16,629) |  |  |  | (16,629) |
| Purchases\tof\tcommon\tstock |  |  |  |  | (769,563) | (769,563) |
| September\t30,\t2005 | $1,156 | $3,315,216 | $1,604,093 | $(24,814) | $(615,294) | $4,280,357 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

# (in	thousands)

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| OPERATING\tACTIVITIES |  |  |  |
| Net\tincome | $264,645 | $468,390 | $441,229 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation,\tincluding\tamounts\tcharged\tto\tcost\tof\tgoods\tsold | 76,546 | 68,071 | 65,005 |
| Amortization,\tincluding\tamounts\tcharged\tto\tinterest\texpense | 14,336 | 19,017 | 15,438 |
| Provision\t(benefit)\ton\taccounts\treceivable | 33,379 | (10,279) | 46,012 |
| Other\tloss\t(income) | 4,269 | (1,314) | 8,015 |
| Provision\tfor\tdeferred\tincome\ttaxes | 17,026 | 48,884 | 127,157 |
| Employee\tstock\tcompensation | 520 | 2,059 | 1,880 |
| Loss\ton\tdisposal\tof\tproperty\tand\tequipment | 1,891 | 1,430 | 3,465 |
| Loss\ton\tearly\tretirement\tof\tdebt | 111,888 | 23,592 | 4,220 |
| Loss\ton\tsales\tof\tdiscontinued\toperations | 12,262 | — | — |
| Cumulative\teffect\tof\tchange\tin\taccounting,\tnet\tof\ttax | 10,172 | — | — |
| Changes\tin\toperating\tassets\tand\tliabilities,\texcluding\tthe\teffects\tof\tacquisitions\tand\tdispositions: |  |  |  |
| Accounts\treceivable | (392,769) | (267,387) | (57,971) |
| Merchandise\tinventories | 1,072,577 | 916,301 | (278,388) |
| Prepaid\texpenses\tand\tother\tassets | (11,052) | (10,768) | (23,294) |
| Accounts\tpayable,\taccrued\texpenses,\tand\tincome\ttaxes | 311,422 | (432,020) | (1,214) |
| Other | (474) | (895) | 3,261 |
| NET\tCASH\tPROVIDED\tBY\tOPERATING\tACTIVITIES | 1,526,638 | 825,081 | 354,815 |
| INVESTING\tACTIVITIES |  |  |  |
| Capital\texpenditures | (203,376) | (189,278) | (90,554) |
| Cost\tof\tacquired\tcompanies,\tnet\tof\tcash\tacquired | (4,404) | (68,882) | (111,981) |
| Proceeds\tfrom\tsale-leaseback\ttransactions | 36,696 | 15,602 | — |
| Proceeds\tfrom\tsales\tof\tdiscontinued\toperations | 14,560 | — | — |
| Proceeds\tfrom\tsales\tof\tproperty\tand\tequipment | 4,219 | 336 | 726 |
| NET\tCASH\tUSED\tIN\tINVESTING\tACTIVITIES | (152,305) | (242,222) | (201,809) |
| FINANCING\tACTIVITIES |  |  |  |
| Long-term\tdebt\tborrowings | 895,500 | — | 300,000 |
| Long-term\tdebt\trepayments | (1,182,339) | (368,425) | (338,989) |
| Purchases\tof\tcommon\tstock | (786,192) | (144,756) | — |
| Deferred\tfinancing\tcosts\tand\tother | (18,859) | (1,390) | (7,282) |
| Exercise\tof\tstock\toptions | 174,060 | 15,151 | 42,564 |
| Cash\tdividends\ton\tcommon\tstock | (10,598) | (11,197) | (10,995) |
| Common\tstock\tpurchases\tfor\temployee\tstock\tpurchase\tplan | (1,565) | (935) | (1,608) |
| NET\tCASH\tUSED\tIN\tFINANCING\tACTIVITIES | (929,993) | (511,552) | (16,310) |
| INCREASE\tIN\tCASH\tAND\tCASH\tEQUIVALENTS | 444,340 | 71,307 | 136,696 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 871,343 | 800,036 | 663,340 |
| CASH\tAND\tCASH\tEQUIVALENTS\tAT\tEND\tOF\tYEAR | $1,315,683 | $871,343 | $800,036 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# Note	1. Summary	of	Significant	Accounting	Policies

AmerisourceBergen	Corporation	(the	"Company")	is	a	national	pharmaceutical	services	company	providing	drug	distribution	and	related	healthcare	services	and solutions	to	its	customers.	The	Company	also	provides	pharmaceuticals	to	long-term	care	and	workers'	compensation	patients.	For	further	information	on	the Company's	operating	segments,	see	Note	14.

# Basis	of	Presentation

The	accompanying	consolidated	financial	statements	include	the	accounts	of	the	Company	and	its	majority-owned	subsidiaries	as	of	the	dates	and	for	the	fiscal years	indicated.	All	material	intercompany	accounts	and	transactions	have	been	eliminated	in	consolidation.

The	preparation	of	financial	statements	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	requires	management	to	make	estimates and	assumptions	that	affect	amounts	reported	in	the	financial	statements	and	accompanying	notes.	Actual	amounts	could	differ	from	these	estimated	amounts.

Certain	reclassifications	have	been	made	to	prior-year	amounts	in	order	to	conform	to	the	current-year	presentation,	principally	related	to	the	discontinued operations	(see	Note	3).

# Business	Combinations

Business	combinations	accounted	for	under	the	purchase	method	of	accounting	include	the	results	of	operations	of	the	acquired	businesses	from	the	dates	of acquisition.	Net	assets	of	the	companies	acquired	are	recorded	at	their	fair	value	to	the	Company	at	the	date	of	acquisition	(see	Note	2).

# Cash	Equivalents

The	Company	classifies	highly	liquid	investments	with	maturities	of	three	months	or	less	at	the	date	of	purchase	as	cash	equivalents.

# Change	in	Accounting	Method

Effective	October	1,	2004,	the	Company	changed	its	method	of	recognizing	cash	discounts	and	other	related	manufacturer	incentives.	The	Company	previously recognized	cash	discounts	as	a	reduction	of	cost	of	goods	sold	when	earned,	which	was	primarily	upon	payment	of	vendor	invoices.	The	Company	now	records	cash discounts	as	a	component	of	inventory	cost	and	recognizes	such	discounts	as	a	reduction	to	cost	of	goods	sold	upon	the	sale	of	the	inventory.	In	connection	with	the Company's	transition	to	a	fee-for-service	model,	the	Company	believes	the	change	in	accounting	method	provides	a	more	objectively	determinable	method	of recognizing	cash	discounts	and	a	better	matching	of	inventory	cost	to	revenue,	as	inventory	turnover	rates	are	expected	to	continue	to	improve.

The	Company	recorded	a	$10.2	million	charge	for	the	cumulative	effect	of	change	in	accounting	(net	of	tax	of	$6.3	million)	in	the	consolidated	statement	of operations	for	the	fiscal	year	ended	September	30,	2005.	The	accounting	change	is	incorporated	in	the	Company's	results	of	operations	for	the	fiscal	year	ended September	30,	2005.

The	pro	forma	effect	of	this	accounting	change	on	prior	periods	is	as	follows:

| (in	thousands,	except	per	share	data) | 2004 | 2003 |
| :--- | :--- | :--- |
| Income\tfrom\tcontinuing\toperations\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting: |  |  |
| As\treported | $474,874 | $443,065 |
| Pro\tforma | $472,653 | $433,431 |
| Net\tIncome: |  |  |
| As\treported | $468,390 | $441,229 |
| Pro\tforma | $466,169 | $431,595 |
| Basic\tearnings\tper\tshare\tfrom\tcontinuing\toperations: |  |  |
| As\treported | $4.25 | $4.05 |
| Pro\tforma | $4.23 | $3.96 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations: |  |  |
| As\treported | $4.12 | $3.91 |
| Pro\tforma | $4.10 | $3.83 |

# Concentrations	of	Credit	Risk	and	Allowance	for	Doubtful	Accounts

The	Company	sells	its	merchandise	inventories	to	a	large	number	of	customers	in	the	healthcare	industry,	including	independent	retail	pharmacies,	chain drugstores,	mail	order	facilities,	health	systems	and	other	acute-care	facilities,	and	alternate	site	facilities	such	as	clinics,	nursing	homes,	physicians,	and	other	non-acute care	facilities.	The	financial	condition	of	the	Company's	customers,	especially	those	in	the	health	systems	and	nursing	home	sectors,	can	be	affected	by	changes	in government	reimbursement	policies	as	well	as	by	other	economic	pressures	in	the	healthcare	industry.

The	Company's	trade	accounts	receivable	are	exposed	to	credit	risk,	but	the	risk	is	moderated	because	the	customer	base	is	diverse	and	geographically widespread.	The	Company	generally	does	not	require	collateral	for	trade	receivables.	The	Company	performs	ongoing	credit	evaluations	of	its	customers'	financial condition	and	maintains	an	allowance	for	doubtful	accounts.	In	determining	the	appropriate	allowance	for	doubtful	accounts,	the	Company	considers	a	combination	of factors,	such	as	the	aging	of	trade	receivables,	industry	trends,	its	customers'	financial	strength	and	credit	standing,	and	payment	and	default	history.	Changes	in	these factors,	among	others,	may	lead	to	adjustments	in	the	Company's	allowance	for	doubtful	accounts.	The	calculation	of	the	required	allowance	requires	judgment	by Company	management	as	to	the	impact	of	those	and	other	factors	on	the	ultimate	realization	of	its	trade	receivables.	Each	of	the	Company's	business	units	performs ongoing	credit	evaluations	of	its	customers'	financial	condition	and	maintains	reserves	for	probable	bad	debt	losses	based	on	historical	experience	and	for	specific	credit problems	when	they	arise.	The	Company	writes	off	balances	against	the	reserves	when	collectibility	is	deemed	remote.	Each	business	unit	performs	formal	documented reviews	of	the	allowance	at	least	quarterly	and	the	Company's	largest	business	units	perform	such	reviews	monthly.	There	were	no	significant	changes	to	this	process during	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	and	bad	debt	expense	was	computed	in	a	consistent	manner	during	these	periods.	The	bad	debt	expense for	any	period	presented	is	equal	to	the	changes	in	the	period	end	allowance	for	doubtful	accounts,	net	of	write-offs	and	recoveries.	Schedule	II	of	this	Form	10-K	sets forth	a	rollforward	of	the	allowance	for	doubtful	accounts.	At	September	30,	2005,	the	largest	trade	receivable	due	from	a	single	customer	represented	approximately 13%	of	accounts	receivable,	net.	Sales	to	the	Company's	largest	non-bulk	customer	represented	7.5%	of	operating	revenue	in	fiscal	2005.	Sales	to	Medco	Health Solutions,	Inc.	("Medco")	represented	6%	of	operating	revenue	and	represented	93%	of	bulk	deliveries	in	fiscal	2005.	No	other	single	customer	accounted	for	more	than 5%	of	the	Company's	operating	revenue.

The	Company	maintains	cash	balances	and	cash	equivalents	with	several	large	creditworthy	banks	and	money-market	funds	located	in	the	United	States.	The Company	does	not	believe	there	is	significant	credit	risk	related	to	its	cash	and	cash	equivalents.

The	Company	accounts	for	purchased	goodwill	and	intangible	assets	in	accordance	with	Financial	Accounting	Standards	Board	("FASB")	Statement	of	Financial Accounting	Standards	("SFAS")	No.	142	"Goodwill	and	Other	Intangible	Assets."	Under	SFAS	No.	142,	purchased	goodwill	and	intangible	assets	with	indefinite	lives are	not	amortized;	rather,	they	are	tested	for	impairment	on	at	least	an	annual	basis.	Intangible	assets	with	finite	lives,	primarily	customer	relationships,	non-compete agreements,	patents	and	software	technology,	are	amortized	over	their	useful	lives.

During	the	second	quarter	of	fiscal	2005,	the	Company	performed	an	impairment	test	on	certain	intangible	assets	within	its	technology	operations	due	to	the existence	of	impairment	indicators.	As	a	result,	the	Company	recorded	an	impairment	charge	of	$5.3	million	relating	to	certain	of	those	intangible	assets.	The	charge	has been	reflected	in	the	Company's	results	of	operations	for	the	fiscal	year	ended	September	30,	2005.

# Income	Taxes

In	accordance	with	provisions	of	SFAS	No.	109,	"Accounting	for	Income	Taxes,"	the	Company	accounts	for	income	taxes	using	the	asset	and	liability	method. The	asset	and	liability	method	requires	recognition	of	deferred	tax	assets	and	liabilities	for	expected	future	tax	consequences	of	temporary	differences	that	currently	exist between	tax	bases	and	financial	reporting	bases	of	the	Company's	assets	and	liabilities.

# Investments

The	Company	uses	the	equity	method	of	accounting	for	its	investments	in	entities	in	which	it	has	significant	influence;	generally,	this	represents	an	ownership interest	of	between	20%	and	50%.	The	Company's	investments	in	marketable	equity	securities	in	which	the	Company	does	not	have	significant	influence	are	classified as	"available	for	sale"	and	are	carried	at	fair	value,	with	unrealized	gains	and	losses	excluded	from	earnings	and	reported	in	the	accumulated	other	comprehensive	loss component	of	stockholders'	equity.

The	Company	accrues	for	loss	contingencies	related	to	litigation	in	accordance	SFAS	No.	5,	"Accounting	for	Contingencies."	An	estimated	loss	contingency	is accrued	in	the	Company's	consolidated	financial	statements	if	it	is	probable	that	a	liability	has	been	incurred	and	the	amount	of	the	loss	can	be	reasonably	estimated. Assessing	contingencies	is	highly	subjective	and	requires	judgments	about	future	events.	The	Company	regularly	reviews	loss	contingencies	to	determine	the	adequacy of	the	accruals	and	related	disclosures.	The	amount	of	the	actual	loss	may	differ	significantly	from	these	estimates.

# Manufacturer	Incentives

The	Company	generally	accounts	for	fees	and	other	incentives	received	from	its	suppliers,	relating	to	the	purchase	or	distribution	of	inventory,	as	a	reduction	to cost	of	goods	sold,	in	accordance	with	Emerging	Issues	Task	Force	("EITF")	Issue	No.	02-16,	"Accounting	by	a	Customer	for	Certain	Consideration	Received	from	a Vendor."	The	Company	considers	these	fees	to	represent	product	discounts,	and	as	a	result,	the	fees	are	capitalized	as	a	product	cost	and	relieved	through	cost	of	goods sold	upon	the	sale	of	the	related	inventory.

Inventories	are	stated	at	the	lower	of	cost	or	market.	Cost	for	approximately	87%	and	92%	of	the	Company's	inventories	at	September	30,	2005	and	2004, respectively,	were	determined	using	the	last-in,	first-out	(LIFO)	method.	If	the	Company	had	used	the	first-in,	first-out	(FIFO)	method	of	inventory	valuation,	which approximates	current	replacement	cost,	consolidated

inventories	would	have	been	approximately	$159.8	million	and	$166.1	million	higher	than	the	amounts	reported	at	September	30,	2005	and	2004,	respectively.	During the	fiscal	years	ended	September	30,	2005	and	2004,	inventory	balances	declined,	which	resulted	in	liquidation	of	LIFO	layers	carried	at	lower	costs	prevailing	in	prior years.	The	effect	of	the	liquidation	in	fiscal	2005	was	to	decrease	cost	of	goods	sold	by	$30.6	million	and	increase	diluted	earnings	per	share	by	$0.17.	The	effect	of	the liquidation	in	fiscal	2004	was	to	decrease	cost	of	goods	sold	by	$10.3	million	and	increase	diluted	earnings	per	share	by	$0.05.

# Property	and	Equipment

Property	and	equipment	are	stated	at	cost	and	depreciated	on	the	straight-line	method	over	the	estimated	useful	lives	of	the	assets,	which	range	from	3	to	40	years for	buildings	and	improvements	and	from	3	to	10	years	for	machinery,	equipment	and	other.	The	costs	of	repairs	and	maintenance	are	charged	to	expense	as	incurred.

# Revenue	Recognition

The	Company	recognizes	revenue	when	products	are	delivered	to	customers.	Service	revenues	are	recognized	as	services	are	performed.	Revenues	as	reflected	in the	accompanying	consolidated	statement	of	operations	are	net	of	sales	returns	and	allowances.

The	Company's	customer	sales	return	policy	generally	allows	customers	to	return	products	only	if	the	products	can	be	resold	at	full	value	or	returned	to	suppliers for	full	credit.	During	the	fiscal	year	ended	September	30,	2004,	the	Company	changed	its	accounting	policy	for	customer	sales	returns	to	reflect	an	accrual	for	estimated customer	returns	at	the	time	of	sale	to	the	customer.	Previously,	the	Company	accounted	for	customer	sales	returns	as	a	reduction	of	sales	and	cost	of	goods	sold	at	the time	of	the	return.	As	a	result	of	this	accounting	policy	change,	operating	revenue	and	cost	of	goods	sold	were	each	reduced	by	$316.8	million	for	the	fiscal	year	ended September	30,	2004.	Additionally,	merchandise	inventories	were	increased	and	accounts	receivable	were	reduced	by	$316.8	million.	At	September	30,	2005	and	2004, the	Company's	accrual	for	customer	sales	returns	was	$280.4	million	and	$316.8	million,	respectively.

The	Company	reports	the	gross	dollar	amount	of	bulk	deliveries	to	customer	warehouses	in	revenue	and	the	related	costs	in	cost	of	goods	sold.	Bulk	delivery transactions	are	arranged	by	the	Company	at	the	express	direction	of	the	customer,	and	involve	either	shipments	from	the	supplier	directly	to	customers'	warehouse	sites or	shipments	from	the	supplier	to	the	Company	for	immediate	shipment	to	the	customers'	warehouse	sites.	The	Company	is	a	principal	to	these	transactions	because	it	is the	primary	obligor	and	has	general	inventory	risk,	physical	loss	inventory	risk,	and	customer	credit	risk.	As	a	result,	and	in	accordance	with	the	EITF	No.	99-19, "Reporting	Revenue	Gross	as	a	Principal	versus	Net	as	an	Agent,"	the	Company	records	bulk	deliveries	to	customer	warehouses	as	gross	revenues.	Gross	profit	earned by	the	Company	on	bulk	deliveries	was	not	material	in	any	year	presented.

# Shipping	and	Handling	Costs

Shipping	and	handling	costs	include	all	costs	to	warehouse,	pick,	pack	and	deliver	inventory	to	customers.	These	costs,	which	were	$380.1	million,	$383.1	million and	$381.8	million	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003,	respectively,	are	included	in	distribution,	selling	and	administrative	expenses.

The	Company	establishes	reserves	against	amounts	due	from	its	suppliers	relating	to	various	price	and	rebate	incentives,	including	deductions	or	billings	taken against	payments	otherwise	due	them	from	the	Company.	These	reserve	estimates	are	established	based	on	the	judgment	of	Company	management	after	carefully considering	the	status	of	current	outstanding	claims,	historical	experience	with	the	suppliers,	the	specific	incentive	programs	and	any	other	pertinent	information available	to	the	Company.	The	Company	evaluates	the	amounts	due	from	its	suppliers	on	a	continual	basis	and	adjusts	the	reserve	estimates	when	appropriate	based	on changes	in	factual	circumstances.	The	ultimate	outcome	of	any	outstanding	claim	may	be	different	than	the	Company's	estimate.

In	December	2004,	the	FASB	issued	SFAS	No.	123R,	"Share-Based	Payment,"	which	requires	companies	to	measure	compensation	cost	for	all	share-based payments	(including	employee	stock	options)	at	fair	value	for	interim	or	annual	periods	beginning	after	June	15,	2005.	In	April	2005,	the	U.S.	Securities	and	Exchange Commission	issued	a	new	rule	allowing	public	companies	to	delay	the	adoption	of	SFAS	No.	123R	to	annual	periods	beginning	after	June	15,	2005.	As	a	result,	the Company	will	adopt	SFAS	No.	123R,	using	the	modified-prospective	transition	method	beginning	on	October	1,	2005,	and	therefore,	will

begin	to	expense	the	fair	value	of	all	outstanding	options	over	their	remaining	vesting	periods	to	the	extent	the	options	are	not	fully	vested	as	of	the	adoption	date	and will	expense	the	fair	value	of	all	future	options	granted	subsequent	to	September	30,	2005	over	their	service	periods.	SFAS	No.	123R	also	requires	the	benefits	of	tax deductions	in	excess	of	recognized	compensation	expense	to	be	reported	as	a	financing	cash	flow,	rather	than	an	operating	cash	flow	as	currently	required.	The	Company estimates	it	will	record	pre-tax	share-based	compensation	expense	of	approximately	$14	million	in	fiscal	2006.	This	estimate	may	be	impacted	by	potential	changes	to the	structure	of	the	Company's	share-based	compensation	plans	which	could	impact	the	number	of	stock	options	granted	in	fiscal	2006,	changes	in	valuation assumptions,	the	market	price	of	the	Company's	common	stock,	among	other	things	and,	as	a	result,	the	actual	pre-tax	share-based	compensation	expense	in	fiscal	2006 may	differ	from	the	Company's	current	estimate.

# Stock	Related	Compensation

The	Company	has	a	number	of	stock-related	compensation	plans,	including	stock	option,	stock	purchase	and	restricted	stock	plans,	which	are	described	in	Note	9. Through	September	30,	2005,	the	Company	accounted	for	its	stock	option	and	stock	purchase	plans	using	the	intrinsic	value	method	set	forth	in	Accounting	Principles Board	Opinion	No.	25,	"Accounting	for	Stock	Issued	to	Employees,"	("APB	No.	25")	and	related	interpretations	for	these	plans.	Under	APB	No.	25,	generally,	when the	exercise	price	of	the	Company's	stock	options	equals	the	market	price	of	the	underlying	stock	on	the	date	of	the	grant,	no	compensation	expense	is	recognized.	As previously	noted,	the	Company	will	begin	expensing	stock	options	beginning	on	October	1,	2005	in	accordance	with	SFAS	No.	123R.

The	fair	values	relating	to	primarily	all	of	the	2005	option	grants	were	estimated	using	a	binomial	option	pricing	model.	The	fair	values	relating	to	the	2004	and 2003	option	grants	were	estimated	using	a	Black-Scholes	option	pricing	model.	The	following	assumptions	were	used	to	estimate	the	fair	values:

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Weighted\taverage\trisk-free\tinterest\trate | 4.10% | 2.74% | 2.52% |
| Expected\tdividend\tyield | 0.17% | 0.14% | 0.14% |
| Weighted\taverage\tvolatility\tfactor\tof\tthe\texpected\tmarket\tprice\tof\tthe\tCompany's\tcommon\tstock | 28.0% | 35.7% | 37.5% |
| Weighted\taverage\texpected\tlife\tof\tthe\toptions | 4.5\tyears | 5\tyears | 5\tyears |
| Expected\tforfeiture\trate | 5% | — | — |

The	weighted	average	fair	value	of	the	options	granted	during	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	was	$16.65,	$20.28,	and	$20.36, respectively.	Changes	to	the	above	valuation	assumptions	could	have	a	significant	impact	on	share-based	compensation	expense.

For	purposes	of	pro	forma	disclosures,	the	estimated	fair	value	of	the	options	and	shares	under	the	employee	stock	purchase	plan	are	amortized	to	expense	over their	assumed	vesting	periods.	The	following	table	illustrates	the	effect	on	net	income	and	earnings	per	share	if	the	Company	had	applied	the	fair	value	recognition provisions	of	SFAS	No.	123,	to	all	stock-related	compensation.

| (in	thousands,	except	per	share	data) | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Net\tincome,\tas\treported | $264,645 | $468,390 | $441,229 |
| Add:\tStock-related\tcompensation\texpense\tincluded\tin\treported\tnet\tincome,\tnet\tof\tincome\ttaxes | 461 | 880 | 770 |
| Deduct:\tStock-related\tcompensation\texpense\tdetermined\tunder\tthe\tfair\tvalue\tmethod,\tnet\tof\tincome\ttaxes | (5,021) | (87,339) | (19,728) |
| Pro\tforma\tnet\tincome | $260,085 | $381,931 | $422,271 |
| Earnings\tper\tshare: |  |  |  |
| Basic,\tas\treported | $2.50 | $4.20 | $4.03 |
| Basic,\tpro\tforma | $2.46 | $3.41 | $3.86 |
| Diluted,\tas\treported | $2.48 | $4.06 | $3.89 |
| Diluted,\tpro\tforma | $2.44 | $3.32 | $3.73 |

The	SFAS	No.	123	stock-related	compensation	expense	in	the	above	table	decreased	in	the	fiscal	year	ended	September	30,	2005	compared	to	the	prior	years.	This decline	was	primarily	due	to	the	Company,	effective	September	1,	2004,	vesting	all	employee	options	then	outstanding	with	an	exercise	price	in	excess	of	$54.10	(the closing	stock	price	on	August	31,	2004).	The	accelerated	vesting	was	approved	by	the	Compensation	and	Succession	Planning	Committee	of	the	Company's	board	of directors	for	employee	retention	purposes	and	in	anticipation	of	the	requirements	of	SFAS	No.	123R.	As	a	result	of	the	accelerated	vesting,	the	pro-forma	compensation expense	and	the	corresponding	reduction	in	diluted	earnings	per	share	in	fiscal	2004	was	significantly	greater	than	the	pro-forma	compensation	expense	and	the corresponding	reduction	in	diluted	earnings	per	share	in	fiscal	2005	and	2003.

The	diluted	earnings	per	share	calculations	consider	the	5%	convertible	subordinated	notes	as	if	converted	and,	therefore,	the	after-tax	effect	of	interest	expense related	to	these	notes	is	added	back	to	net	income	in	determining	income	available	to	common	stockholders.

# Note	2. Acquisitions

In	May	2004,	the	Company	acquired	Imedex,	Inc.	("Imedex"),	an	accredited	provider	of	continuing	medical	education	for	physicians,	for	approximately	$16.6 million	in	cash.	The	acquisition	of	Imedex	continued	the	Company's	efforts	to	add	incremental	services	that	support	manufacturers	and	healthcare	providers	along	the pharmaceutical	supply	channel.	The	purchase	price	has	been	allocated	to	the	underlying	assets	acquired	and	liabilities	assumed	based	upon	their	estimated	fair	values	at the	date	of	the	acquisition.	The	purchase	price	exceeded	the	fair	value	of	the	net	tangible	and	identified	intangible	assets	acquired	by	$12.5	million,	which	has	been allocated	to	goodwill.

In	February	2004,	the	Company	acquired	MedSelect,	Inc.	("MedSelect"),	a	provider	of	automated	medication	and	supply	dispensing	cabinets,	for	approximately $13.7	million	in	cash,	including	transaction	costs.	The	acquisition	of	MedSelect	enhances	the	Company's	ability	to	offer	fully	scalable	and	flexible	technology	solutions to	its	customers.	The	purchase	price	was	allocated	to	the	underlying	assets	acquired	and	liabilities	assumed	based	upon	their	estimated	fair	values	at	the	date	of	the acquisition.	The	purchase	price	exceeded	the	fair	value	of	the	net	tangible	and	identified	intangible	assets	acquired	by	$9.8	million,	which	has	been	allocated	to	goodwill.

In	fiscal	2002,	the	Company	acquired	a	20%	equity	interest	in	International	Physician	Networks	("IPN"),	a	physician	education	and	management	consulting company,	for	$5	million	in	cash,	which	was	subject	to	adjustment	contingent	on	the	entity	achieving	defined	earnings	targets	in	calendar	2002.	In	fiscal	2003,	the Company	satisfied	the	residual	contingent	obligation	for	the	initial	20%	equity	interest	and	acquired	an	additional	40%	equity	interest	for	an	aggregate	$24.7	million	in cash.	In	fiscal	2004,	the	Company	paid	$39.0	million	for	the	remaining	40%	equity	interest.	The	results	of	operations	of	IPN,	less	minority	interest,	have	been	included in	the	Company's	consolidated	financial	statements	of	operations	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003.

In	June	2003,	the	Company	acquired	Anderson	Packaging	Inc.	("Anderson"),	a	leading	provider	of	physician	and	retail	contracted	packaging	services	to pharmaceutical	manufacturers,	to	expand	the	Company's	packaging	capabilities.	The	purchase	price	was	$100.1	million,	which	included	the	repayment	of	Anderson	debt of	$13.8	million	and	$0.8	million	of	transaction	costs	associated	with	the	acquisition.	The	Company	paid	part	of	the	purchase	price	by	issuing	814,145	shares	of	its common	stock,	as	set	forth	in	the	acquisition	agreement,	with	an	aggregate	market	value	of	$55.6	million,	which	was	calculated	based	on	the	Company's	closing	stock price	on	the	transaction	measurement	date.	The	Company	paid	the	remaining	purchase	price,	which	was	approximately	$44.5	million,	in	cash.	In	fiscal	2004,	the Company	paid	a	final	post-closing	working	capital	adjustment	of	$0.3	million.

In	January	2003,	the	Company	acquired	US	Bioservices	Corporation	("US	Bio"),	a	national	pharmaceutical	products	and	services	provider	focused	on	the management	of	high-cost	complex	therapies	and	reimbursement	support,	to	expand	the	Company's	manufacturer	service	offerings	within	the	specialty	pharmaceutical business.	The	total	base	purchase	price	was	$160.2	million,	which	included	the	repayment	of	US	Bio	debt	of	$14.8	million	and	$1.5	million	of	transaction	costs associated	with	the	acquisition.	The	Company	paid	part	of	the	base	purchase	price	by	issuing	2,399,091	shares	of	its	common	stock,	as	set	forth	in	the	acquisition agreement,	with	an	aggregate	market	value	of	$131.0	million,	which	was	calculated	based	on	an	average	of	the	Company's	closing	stock	price	on	the	two	days	before and	the	two	days	after	the	transaction	measurement	date.	The	Company	paid	the	remaining	$29.2	million	of	the	base	purchase	price	in	cash.	In	fiscal	2003,	a	contingent payment	of	$2.5	million	was	paid	in	cash	by	the	Company.

In	January	2003,	the	Company	acquired	Bridge	Medical,	Inc.	("Bridge"),	a	leading	provider	of	barcode-enabled	point-of-care	software	designed	to	reduce medication	errors,	to	enhance	the	Company's	offerings	in	the	pharmaceutical	supply	channel.	The	total	base	purchase	price	was	$28.4	million,	which	included	$0.7 million	of	transaction	costs	associated	with	the	acquisition.	The	Company	paid	part	of	the	base	purchase	price	by	issuing	401,780	shares	of	its	common	stock	with	an aggregate	market	value	of	$22.9	million,	which	was	calculated	based	on	a	30-day	average	of	the	Company's	closing	stock	price	for	the	period	ending	three	days	prior	to the	transaction	closing	date,	as	set	forth	in	the	acquisition	agreement.	The	remaining	base	purchase	price	was	paid	with	$5.5	million	of	cash.	In	June	2005,	the	Company agreed	to	sell	substantially	all	of	the	assets	of	Bridge	(see	Note	3).

The	following	table	summarizes	the	allocation	of	the	purchase	price,	including	transaction	costs,	based	on	the	fair	values	of	the	Imedex,	MedSelect,	IPN, Anderson,	US	Bio,	and	Bridge	assets	and	liabilities	at	the	effective	dates	of	the	respective	acquisitions	(in	thousands):

| Cash | $8,907 |
| :--- | :--- |
| Accounts\treceivable | 65,398 |
| Inventory | 18,952 |
| Property\tand\tequipment | 24,263 |
| Goodwill | \t 229,843 |
| Intangible\tassets | 81,612 |
| Deferred\ttax\tassets | 17,670 |
| Other\tassets | 3,850 |
| Current\tand\tother\tliabilities | (59,772) |
| Fair\tvalue\tof\tnet\tassets\tacquired | $390,723 |

Intangible	assets	of	$81.6	million	consist	of	$31.2	million	of	trade	names,	which	have	indefinite	lives	and	are	not	subject	to	amortization,	$32.1	million	of customer	relationships,	which	have	a	weighted	average	life	of	12	years,	$11.2	million	of	non-compete	agreements,	which	have	a	weighted	average	life	of	4	years,	$4.8 million	of	software,	which	has	a	weighted	average	life	of	3	years,	and	$2.3	million	of	patents,	which	has	a	weighted	average	seven-year	life.	Deferred	tax	assets principally	relate	to	net	operating	losses	and	research	and	development	costs	incurred	by	Bridge	prior	to	the	acquisition.	In	connection	with	the	sale	of	substantially	all	of the	assets	of	Bridge	(see	Note	3),	$9.4	million	of	previously	acquired	goodwill	was	written-off	from	the	Company's	consolidated	balance	sheet.

All	of	the	goodwill	associated	with	the	aforementioned	acquisitions	was	assigned	to	the	Pharmaceutical	Distribution	segment.	The	goodwill	associated	with	the US	Bio	and	Bridge	acquisitions	of	$109.2	million	is	not	deductible	for	income	tax	purposes.

In	June	2003,	the	Company	amended	the	2002	agreement	under	which	it	acquired	AutoMed	Technologies,	Inc	("AutoMed").	Pursuant	to	the	amendment,	the former	stockholders	of	AutoMed	agreed	to	eliminate	their	right	to	receive	up	to	$55	million	in	contingent	payments	based	on	AutoMed	achieving	defined	earnings targets	through	the	end	of	calendar	2004.	In	consideration	thereof,	the	Company	paid	$9.8	million	in	July	2003	to	the	former	stockholders	of	Automed	under	the amendment.	This	amount	was	recorded	as	additional	purchase	price	and	goodwill.

Had	the	aforementioned	acquisitions	been	consummated	at	the	beginning	of	the	respective	fiscal	years,	the	Company's	consolidated	total	revenue,	net	income	and diluted	earnings	per	share	for	the	fiscal	years	ended	September	30,	2004	and	2003	would	not	have	been	materially	different	from	the	reported	amounts.

# Note	3. Discontinued	Operations

In	June	2005,	the	Company	agreed	to	sell	substantially	all	of	the	assets	of	Bridge,	a	component	of	the	Company's	Pharmaceutical	Distribution	reportable	segment, for	$11.0	million.	The	Bridge	sale	closed	in	July	2005	and	is	subject	to	a	working	capital	adjustment.	The	Company	recorded	an	estimated	loss	on	sale	of	the	business	of $4.6	million,	net	of	tax.

In	December	2004,	the	Company	sold	Rita	Ann	Distributors	("Rita	Ann"),	its	cosmetics	distribution	business,	which	was	a	component	of	its	Pharmaceutical Distribution	reportable	segment,	for	$3.6	million,	subject	to	a	working	capital	adjustment.	The	Company	recorded	an	estimated	loss	on	sale	of	Rita	Ann	of	$6.5	million, net	of	tax.

# Note	4. Income	Taxes

The	income	tax	provision	is	as	follows	(in	thousands):

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Current\tprovision: |  |  |  |
| Federal | $138,699 | $ 224,320 | $139,765 |
| State\tand\tlocal | 21,178 | 24,369 | 19,458 |
|  | 159,877 | 248,689 | 159,223 |
| Deferred\tprovision: |  |  |  |
| Federal | 19,076 | 37,243 | 111,421 |
| State\tand\tlocal | (2,050) | 10,093 | 15,437 |
|  | 17,026 | 47,336 | 126,858 |
| Provision\tfor\tincome\ttaxes | $176,903 | $ 296,025 | $286,081 |

A	reconciliation	of	the	statutory	federal	income	tax	rate	to	the	effective	income	tax	rate	is	as	follows:

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Statutory\tfederal\tincome\ttax\trate | 35.0% | 35.0% | 35.0% |
| State\tand\tlocal\tincome\ttax\trate,\tnet\tof\tfederal\ttax\tbenefit | 3.1 | 3.2 | 3.2 |
| Other | (0.4) | 0.2 | 1.0 |
| Effective\tincome\ttax\trate | 37.7% | 38.4% | 39.2% |

Deferred	income	taxes	reflect	the	future	tax	consequences	of	differences	between	the	tax	bases	of	assets	and	liabilities	and	their	financial	reporting	amounts. Significant	components	of	the	Company's	deferred	tax	liabilities	(assets)	are	as	follows	(in	thousands):

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Inventory | $486,791 | $481,813 |
| Property\tand\tequipment | 19,114 | 12,517 |
| Goodwill | 63,904 | 47,470 |
| Other | 936 | 6,708 |
| Gross\tdeferred\ttax\tliabilities | 570,745 | 548,508 |
| Net\toperating\tloss\tand\ttax\tcredit\tcarryforwards | (51,075) | (44,977) |
| Capital\tloss\tcarryforwards | (3,924) | (1,723) |
| Allowance\tfor\tdoubtful\taccounts | (68,892) | (60,160) |
| Accrued\texpenses | (13,800) | (31,834) |
| Employee\tand\tretiree\tbenefits | (30,052) | (28,339) |
| Other | (27,292) | (48,502) |
| Gross\tdeferred\ttax\tassets | (195,035) | (215,535) |
| Valuation\tallowance\tfor\tdeferred\ttax\tassets | 33,490 | 34,115 |
| Deferred\ttax\tassets,\tafter\tallowance | (161,545) | (181,420) |
| Net\tdeferred\ttax\tliability | $409,200 | $367,088 |

In	fiscal	2005,	2004	and	2003,	tax	benefits	of	$15.3	million,	$4.0	million	and	$14.4	million,	respectively,	related	to	the	exercise	of	employee	stock	options	were recorded	as	additional	paid-in	capital.

As	of	September	30,	2005,	the	Company	had	$31.2	million	of	potential	tax	benefits	from	federal	net	operating	loss	carryforwards	expiring	in	16	to	17	years,	and $17.8	million	of	potential	tax	benefits	from	state	operating	loss	carryforwards

expiring	in	1	to	20	years.	As	of	September	30,	2005,	the	Company	had	$2.1	million	of	federal	and	state	alternative	minimum	tax	credit	carryforwards,	and	$3.9	million of	potential	tax	benefits	from	capital	loss	carryforwards	expiring	in	1	to	4	years.

In	fiscal	year	2005,	the	Company	decreased	the	valuation	allowance	on	deferred	tax	assets	by	$0.6	million	primarily	due	to	the	use	of	certain	state	net	operating loss	carryforwards.	In	fiscal	year	2004,	the	Company	decreased	the	valuation	allowance	on	deferred	tax	assets	by	$7.7	million	due	to	the	expiration	of	capital	loss carryforwards.	At	September	30,	2005,	$31.1	million	of	the	remaining	valuation	allowance	has	been	recorded	as	a	component	of	goodwill,	down	from	$33.7	million	at September	30,	2004	due	to	the	use	of	state	net	operating	loss	carryforwards.	Under	current	accounting	rules,	any	future	reduction	of	this	valuation	allowance,	due	to	the realization	of	the	related	deferred	tax	assets,	will	reduce	goodwill.

# Note	5. Goodwill	and	Other	Intangible	Assets

Following	is	a	summary	of	the	changes	in	the	carrying	value	of	goodwill,	by	reportable	segment,	for	the	fiscal	years	ended	September	30,	2005	and	2004	(in thousands):

|  | Pharmaceutical<br>Distribution | PharMerica | Total |
| :--- | :--- | :--- | :--- |
| Goodwill\tat\tSeptember\t30,\t2003 | $2,121,757 | $ 268,956 | $2,390,713 |
| Goodwill\trecognized\tin\tconnection\twith\tthe\tacquisition\tof\tImedex,\tMedSelect,\tand\tIPN | 56,410 | — | 56,410 |
| Goodwill\trecognized\tin\tconnection\twith\tthe\tacquisition\tof\tother\tbusinesses | 1,152 | — | 1,152 |
| Goodwill\tat\tSeptember\t30,\t2004 | 2,179,319 | 268,956 | \t 2,448,275 |
| Goodwill\trecognized\tin\tconnection\twith\tan\tacquisition\tof\ta\tbusiness | 2,357 | — | 2,357 |
| Adjustment\tto\tgoodwill\tdue\tto\tpurchase\tprice\tadjustments | 733 | — | 733 |
| Sale\tof\tBridge | (9,357) | — | (9,357) |
| Adjustment\tto\tgoodwill\trelating\tto\tdeferred\ttax\tassets | (5,130) | (5,310) | (10,440) |
| Goodwill\tat\tSeptember\t30,\t2005 | $2,167,922 | $ 263,646 | $2,431,568 |

During	the	fiscal	year	ended	September	30,	2005,	in	connection	with	the	sale	of	substantially	all	of	the	assets	of	Bridge,	$9.4	million	of	previously	acquired goodwill	was	removed	from	the	Company's	consolidated	balance	sheet.	Additionally,	the	Company	reduced	goodwill	at	September	30,	2005	to	record	acquired	deferred tax	assets	at	their	estimated	net	realizable	value.

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

|  | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization | Net<br>Carrying<br>Amount | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization | Net<br>Carrying<br>Amount |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Unamortized\tintangibles\t-trade\tnames | $254,782 | $— | $254,782 | $257,652 | $— | $257,652 |
| Amortized\tintangibles\t-customer\tlists\tand\tother | 75,504 | (29,188) | 46,316 | 89,852 | (26,701) | 63,151 |
| Total\tother\tintangible\tassets | $330,286 | $(29,188) | $301,098 | $347,504 | $(26,701) | $320,803 |

During	the	fiscal	year	September	30,	2005,	the	Company	recorded	an	impairment	charge	of	$5.3	million	relating	to	certain	intangible	assets	within	its	technology operations.

# Note	6. Debt

Debt	consisted	of	the	following:

# Long-Term	Debt

In	September	2005,	the	Company	issued	$400	million	of	5.625%	senior	notes	due	September	15,	2012	(the	"2012	Notes")	and	$500	million	of	5.875%	senior notes	due	September	15,	2015	(the	"2015	Notes").	The	2012	Notes	and	2015	Notes	each	were	sold	at	99.5%	of	principal	amount	and	have	an	effective	interest	yield	of 5.71%	and	5.94%,	respectively.	Interest	on	the	2012	Notes	and	the	2015	Notes	is	payable	semiannually	in	arrears,	commencing	on	March	15,	2006.	Both	the	2012	Notes and	the	2015	Notes	are	redeemable	at	the	Company's	option	at	a	price	equal	to	the	greater	of	100%	of	the	principal	amount	thereof,	or	the	sum	of	the	discounted	value	of the	remaining	scheduled	payments,	as	defined.	In	addition,	at	any	time	before	September	15,	2008,	the	Company	may	redeem	up	to	an	aggregate	of	35%	of	the	principal amount	of	the	2012	Notes	or	the	2015	Notes	at	redemption	prices	equal	to	105.625%	and	105.875%,	respectively,	of	the	principal	amounts	thereof,	plus	accrued	and unpaid	interest	and	liquidated	damages,	if	any,	to	the	date	of	redemption,	with	the	cash	proceeds	of	one	or	more	equity	issuances.	In	connection	with	the	issuance	of	the 2012	Notes	and	the	2015	Notes,	the	Company	incurred	approximately	$6.3	million	and	$7.9	million	of	costs,	respectively,	which	were	deferred	and	are	being	amortized over	the	terms	of	the	notes.

The	gross	proceeds	from	the	sale	of	the	2012	Notes	and	the	2015	Notes	were	used	to	finance	the	early	retirement	of	the	$500	million	of	8	1/8%	senior	notes	due 2008	and	$300	million	of	7	1/4%	senior	notes	due	2012	in	September	2005,	including	the	payment	of	$102.3	million	of	premiums	and	other	costs.	Additionally,	the Company	expensed	$8.5	million	of	deferred	financing	costs	related	to	the	retirement	of	the	7	1/4%	Notes	and	the	8	1/8%	Notes.

In	December	2004,	the	Company	entered	into	a	$700	million	five-year	senior	unsecured	revolving	credit	facility	(the	"Senior	Revolving	Credit	Facility")	with	a syndicate	of	lenders.	The	Senior	Revolving	Credit	Facility	replaced	the	Senior	Credit	Agreement,	as	defined	below.	There	were	no	borrowings	outstanding	under	the Senior	Revolving	Credit	Facility	at	September	30,	2005.	Interest	on	borrowings	under	the	Senior	Revolving	Credit	Facility	accrues	at	specific	rates	based	on	the Company's	debt	rating.	In	April	2005,	the	Company's	debt	rating	was	raised	by	one	of	the	rating	agencies	and	in	accordance	with	the	terms	of	the	Senior	Revolving Credit	Facility,	interest	on	borrowings	accrue	at	either	80	basis	points	over	LIBOR	or	the	prime	rate	at	September	30,	2005.	Availability	under	the	Senior	Revolving Credit	Facility	is	reduced	by	the	amount	of	outstanding	letters	of

credit	($12.0	million	at	September	30,	2005).	The	Company	pays	quarterly	facility	fees	to	maintain	the	availability	under	the	Senior	Revolving	Credit	Facility	at	specific rates	based	on	the	Company's	debt	rating.	In	April	2005,	the	rate	payable	to	maintain	the	availability	of	the	$700	million	commitment	was	reduced	to	20	basis	points	per annum	resulting	from	the	Company's	improved	debt	rating.	In	connection	with	entering	into	the	Senior	Revolving	Credit	Facility,	the	Company	incurred	approximately $2.5	million	of	costs,	which	were	deferred	and	are	being	amortized	over	the	life	of	the	facility.	The	Company	may	choose	to	repay	or	reduce	its	commitments	under	the Senior	Revolving	Credit	Facility	at	any	time.	The	Senior	Revolving	Credit	Facility	contains	covenants	that	impose	limitations	on,	among	other	things,	additional indebtedness,	distributions	and	dividends	to	stockholders,	and	investments.	Additional	covenants	require	compliance	with	financial	tests,	including	leverage	and minimum	earnings	to	fixed	charges	ratios.

In	August	2001,	the	Company	had	entered	into	a	senior	secured	credit	agreement	(the	"Senior	Credit	Agreement")	with	a	syndicate	of	lenders.	The	Senior	Credit Agreement	consisted	of	a	$1.0	billion	revolving	credit	facility	(the	"Revolving	Facility")	and	a	$300	million	term	loan	facility	(the	"Term	Facility"),	both	of	which	had been	scheduled	to	mature	in	August	2006.	The	Term	Facility	had	scheduled	quarterly	maturities,	which	began	in	December	2002,	totaling	$60	million	in	each	of	fiscal 2003	and	2004,	$80	million	in	fiscal	2005	and	$100	million	in	fiscal	2006.	The	company	previously	paid	the	scheduled	quarterly	maturities	of	$60	million	in	fiscal	2004 and	2003.	In	December	2004,	in	connection	with	entering	into	the	Senior	Revolving	Credit	Facility,	as	defined	above,	the	Company	repaid	the	remaining	$180	million outstanding	under	the	Term	Facility	and	there	were	no	borrowings	under	the	Revolving	Facility.	In	connection	with	the	early	repayment	of	the	Term	Facility,	the Company	incurred	a	loss	of	$1.0	million	relating	to	the	write-off	of	deferred	financing	costs.

In	April	2005,	the	Company	entered	into	a	new	$55	million	Blanco	revolving	credit	facility,	which	replaced	the	previously	existing	facility.	The	Blanco	facility	is not	classified	in	the	current	portion	of	long-term	debt	in	the	accompanying	consolidated	balance	sheet	at	September	30,	2005	because	the	Company	has	the	ability	and intent	to	refinance	it	on	a	long-term	basis.	Borrowings	under	the	new	Blanco	revolving	credit	facility	are	guaranteed	by	the	Company,	whereas	borrowings	on	the previous	facility	were	secured	by	the	Senior	Revolving	Credit	Facility	(defined	above).	The	new	facility	expires	in	April	2006	and	borrowings	under	the	new	facility	will bear	interest	at	LIBOR	plus	90	basis	points.

In	November	2002,	the	Company	issued	$300	million	of	7	1/4%	senior	notes	due	November	15,	2012	(the	"7	1/4%	Notes").	The	7	1/4%	Notes	were	redeemable	at the	Company's	option	at	any	time	before	maturity	at	a	redemption	price	equal	to	101%	of	the	principal	amount	thereof	plus	accrued	and	unpaid	interest	and	liquidated damages,	if	any,	to	the	date	of	redemption	and,	under	some	circumstances,	a	redemption	premium.	The	Company	used	the	net	proceeds	of	the	7	1/4%	Notes	to	repay $15.0	million	of	the	Term	Facility	in	December	2002,	to	repay	$150.0	million	in	aggregate	principal	of	the	Bergen	7	3/8%	senior	notes	in	January	2003	and	redeem	the PharMerica	8	3/8%	senior	subordinated	notes	due	2008	(the	"8	3/8%	Notes")	at	a	redemption	price	equal	to	104.19%	of	the	$123.5	million	principal	amount	in	April 2003.	The	cost	of	the	redemption	premium	of	$5.2	million,	less	$1.0	million	representing	the	unamortized	premium	on	the	8	3/8%	Notes,	was	reflected	in	the	Company's consolidated	statement	of	operations	for	the	fiscal	year	ended	September	30,	2003	as	a	loss	on	the	early	retirement	of	debt.	In	connection	with	the	issuance	of	the	7	1/4% Notes,	the	Company	incurred	approximately	$5.7	million	of	costs	which	were	deferred	and	were	being	amortized	over	the	ten-year	term	of	the	notes.	As	previously mentioned,	the	7	1/4%	Notes	were	repaid	in	September	2005.

In	August	2001,	the	Company	issued	$500	million	of	8	1/8%	senior	notes	due	September	1,	2008	(the	"8	1/8%	Notes").	The	8	1/8%	Notes	were	redeemable	at	the Company's	option	at	any	time	before	maturity	at	a	redemption	price	equal	to	101%	of	the	principal	amount	thereof	plus	accrued	and	unpaid	interest	and	liquidated damages,	if	any,	to	the	date	of	redemption	and,	under	some	circumstances,	a	redemption	premium.	As	previously	mentioned,	the	8	1/8%	Notes	were	repaid	in	September 2005.

In	December	2004,	the	Company	announced	that	it	would	redeem	its	5%	convertible	subordinated	notes	at	a	redemption	price	of	102.143%	of	the	principal amount	of	the	notes	plus	accrued	interest	through	the	redemption	date	of	January	3,	2005.	The	noteholders	were	given	the	option	to	accept	cash	or	convert	the	notes	to common	stock	of	the	Company.	The	notes	were	convertible	into	5,663,730	shares	of	common	stock,	which	translated	to	a	conversion	ratio	of	18.8791	shares	of	common stock	for	each	$1,000	principal	amount	of	notes.	In	connection	with	the	redemption,	the	Company	issued	5,663,144	shares	of	common	stock	from	treasury	to	noteholders to	redeem	substantially	all	of	the	notes	and	paid	$31,000	to	redeem	the	remaining	notes.

The	indentures	governing	the	2012	Notes,	the	2015	Notes,	and	the	Senior	Revolving	Credit	Facility	contain	restrictions	and	covenants	which	include	limitations on	additional	indebtedness;	distributions	and	dividends	to	stockholders;	the	repurchase	of	stock	and	the	making	of	other	restricted	payments;	issuance	of	preferred	stock; creation	of	certain	liens;	capital	expenditures;	transactions	with	subsidiaries	and	other	affiliates;	and	certain	corporate	acts	such	as	mergers,	consolidations,	and	the	sale of

substantially	all	assets.	Additional	covenants	require	compliance	with	financial	tests,	including	leverage	and	fixed	charge	coverage	ratios,	and	maintenance	of	minimum tangible	net	worth.

# Receivables	Securitization	Financing

In	fiscal	2003,	the	Company	entered	into	a	new	$1.05	billion	receivables	securitization	facility	("Securitization	Facility")	and	terminated	the	AmeriSource	and Bergen	securitization	facilities.	In	connection	with	the	Securitization	Facility,	AmerisourceBergen	Drug	Corporation	("ABDC")	sells	on	a	revolving	basis	certain accounts	receivable	to	AmeriSource	Receivables	Financial	Corporation,	a	wholly-owned	special	purpose	entity,	which	in	turn	sells	a	percentage	ownership	interest	in	the receivables	commercial	paper	conduits	sponsored	by	financial	institutions.	ABDC	is	the	servicer	of	the	accounts	receivable	under	the	Securitization	Facility.	After	the maximum	limit	of	receivables	sold	has	been	reached	and	as	sold	receivables	are	collected,	additional	receivables	may	be	sold	up	to	the	maximum	amount	available under	the	facility.	In	December	2004,	the	Company	amended	the	Securitization	Facility	and	under	the	terms	of	the	amendment	the	$550	million	(three-year	tranche) originally	scheduled	to	expire	in	July	2006	was	increased	to	$700	million	and	the	expiration	date	was	extended	to	November	2007.	Additionally,	the	$500	million	(364- day	tranche)	scheduled	to	expire	in	July	2005	was	reduced	to	$350	million	and	the	expiration	date	was	extended	to	December	2005.	In	September	2005,	the	Company elected	to	terminate	the	364-day	tranche,	effective	October	31,	2005.	Interest	rates	are	based	on	prevailing	market	rates	for	short-term	commercial	paper	plus	a	program fee,	and	will	vary	based	on	the	Company's	debt	ratings.	The	program	fee	is	60	basis	points	for	the	three-year	tranche	and	35	basis	points	for	the	364-day	tranche	at September	30,	2005.	Additionally,	the	commitment	fee	on	any	unused	credit	was	reduced	to	20	basis	points	for	the	three-year	tranche	and	to	17.5	basis	points	for	the 364-day	tranche	at	September	30,	2005.	At	September	30,	2005,	there	were	no	borrowings	outstanding	under	the	Securitization	Facility.	In	connection	with	entering	into the	Securitization	Facility	and	the	amendments	thereto,	the	Company	incurred	approximately	$2.8	million	of	costs,	which	were	deferred	and	are	being	amortized	over the	life	of	the	facility.	The	Company	securitizes	its	trade	accounts,	which	are	generally	non-interest	bearing,	in	transactions	that	are	accounted	for	as	borrowings	under SFAS	No.	140,	"Accounting	for	Transfers	and	Servicing	of	Financial	Assets	and	Extinguishments	of	Liabilities."

The	agreement	governing	the	Securitization	Facility	contains	restrictions	and	covenants	which	include	limitations	on	the	incurrence	of	additional	indebtedness, making	of	certain	restricted	payments,	issuance	of	preferred	stock,	creation	of	certain	liens,	and	certain	corporate	acts	such	as	mergers,	consolidations	and	sale	of substantially	all	assets.

The	Company	previously	utilized	the	receivables	securitization	facilities	initiated	by	AmeriSource	(the	"ARFC	Securitization	Facility")	and	Bergen	(the	"Blue Hill	Securitization	Program").

The	ARFC	Securitization	Facility	previously	provided	a	total	borrowing	capacity	of	$400	million.	In	connection	with	the	ARFC	Securitization	Facility,	ABDC sold	on	a	revolving	basis	certain	accounts	receivable	to	ARFC,	which	in	turn	sold	a	percentage	ownership	interest	in	the	receivables	to	a	commercial	paper	conduit sponsored	by	a	financial	institution.	ABDC	was	the	servicer	of	the	accounts	receivable	under	the	ARFC	Securitization	Facility.	The	ARFC	Securitization	Facility	had	an expiration	date	of	May	2004,	prior	to	its	termination.

The	Blue	Hill	Securitization	Program	previously	provided	a	total	borrowing	capacity	of	$450	million.	In	connection	with	the	Blue	Hill	Securitization	Program, ABDC	sold	on	a	revolving	basis	certain	accounts	receivable	to	a	100%-owned	special	purpose	entity	("Blue	Hill"),	which	in	turn	sold	a	percentage	ownership	interest	in the	receivables	to	a	commercial	paper	conduit	sponsored	by	a	financial	institution.	ABDC	was	the	servicer	of	the	accounts	receivable	under	the	Blue	Hill	Securitization Program.	The	Blue	Hill	Securitization	Program	had	an	expiration	date	of	December	2005,	prior	to	its	termination.

Transactions	under	the	ARFC	Securitization	Facility	and	the	Blue	Hill	Securitization	Program	were	accounted	for	as	borrowings	in	accordance	with	SFAS No.	140.

# Other	Information

Total	amortization	of	financing	fees	and	expenses,	as	well	as	the	premiums	and	discounts	related	to	the	adjustment	of	the	carrying	values	of	certain	debt	to	fair value	in	connection	with	the	merger	and	original	issue	discounts	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	was	$4.1	million,	$7.4	million,	and	$7.4 million,	respectively.	These	amounts	are	included	in	interest	expense	in	the	accompanying	consolidated	statements	of	operations.

# Note	7. Stockholders'	Equity	and	Earnings	per	Share

The	authorized	capital	stock	of	the	Company	consists	of	300,000,000	shares	of	common	stock,	par	value	$0.01	per	share	(the	"Common	Stock"),	and	10,000,000 shares	of	preferred	stock,	par	value	$0.01	per	share	(the	"Preferred	Stock").

The	board	of	directors	are	authorized	to	provide	for	the	issuance	of	shares	of	Preferred	Stock	in	one	or	more	series	with	various	designations,	preferences	and relative,	participating,	optional	or	other	special	rights	and	qualifications,	limitations	or	restrictions.	Except	as	required	by	law,	or	as	otherwise	provided	by	the	board	of directors	of	the	Company,	the	holders	of	Preferred	Stock	will	have	no	voting	rights	and	will	not	be	entitled	to	notice	of	meetings	of	stockholders.	Holders	of	Preferred Stock	will	be	entitled	to	receive,	when	declared	by	the	board	of	directors,	out	of	legally	available	funds,	dividends	at	the	rates	fixed	by	the	board	of	directors	for	the respective	series	of	Preferred	Stock,	and	no	more,	before	any	dividends	will	be	declared	and	paid,	or	set	apart	for	payment,	on	Common	Stock	with	respect	to	the	same dividend	period.	No	shares	of	Preferred	Stock	have	been	issued	as	of	September	30,	2005.

The	holders	of	the	Company's	Common	Stock	are	entitled	to	one	vote	per	share	and	have	the	exclusive	right	to	vote	for	the	board	of	directors	and	for	all	other purposes	as	provided	by	law.	Subject	to	the	rights	of	holders	of	the	Company's	Preferred	Stock,	holders	of	Common	Stock	are	entitled	to	receive	ratably	on	a	per	share basis	such	dividends	and	other	distributions	in	cash,	stock	or	property	of	the	Company	as	may	be	declared	by	the	board	of	directors	from	time	to	time	out	of	the	legally available	assets	or	funds	of	the	Company.	The	Company	has	paid	quarterly	dividends	of	$0.025	per	share	on	Common	Stock	since	the	first	quarter	of	fiscal	2002.

In	May	2005,	the	Company's	board	of	directors	authorized	the	Company	to	purchase	up	to	$450	million	of	its	outstanding	shares	of	Common	Stock,	subject	to market	conditions	and	to	compliance	with	the	stock	repurchase	restrictions	contained	in	the	indentures	governing	the	Company's	senior	notes	and	in	the	credit	agreement for	the	Company's	senior	credit	facility.	In	August	2005,	the	Company's	board	of	directors	authorized	an	increase	to	the	amount	available	under	this	program	by approximately	$394	million,	bringing	the	total	remaining	availability	to	$750	million,	and	the	total	repurchase	program	to	approximately	$844	million.	During	fiscal 2005,	the	Company	purchased	approximately	$94	million	of	its	Common	Stock	under	this	program	for	a	weighted	average	price	of	$65.50.	As	of	September	30,	2005, the	Company	has	$750	million	of	remaining	authorization	to	repurchase	its	Common	Stock	under	this	program.

In	February	2005,	the	Company's	board	of	directors	authorized	the	repurchase	up	to	an	aggregate	amount	of	5.7	million	shares	of	the	Company's	Common	Stock, subject	to	market	conditions.	In	February	2005,	the	Company	acquired	0.4	million	shares	in	the	open	market	for	a	total	of	$25.9	million.	In	addition,	on	March	30,	2005, the	Company	entered	into	an	Accelerated	Share	Repurchase	("ASR")	transaction	with	a	financial	institution	to	purchase	the	remaining	5.3	million	shares	immediately from	the	financial	institution	at	a	cost	of	$293.8	million.	The	financial	institution	subsequently	purchased	an	equivalent	number	of	shares	in	the	open	market	through April	21,	2005.	The	ASR	transaction	was	completed	on	April	21,	2005;	as	a	result,	the	Company	paid	the	financial	institution	a	cash	settlement	of	$16.6	million.	As	of September	30,	2005,	the	Company	had	acquired	all	the	shares	authorized	under	this	program	for	a	total	of	$336.3	million,	which	includes	the	above	cash	settlement	of $16.6	million.	The	cash	settlement	was	recorded	as	an	adjustment	to	additional	paid-in	capital.

In	August	2004,	the	Company's	board	of	directors	authorized	the	repurchase	of	Common	Stock	up	to	an	aggregate	amount	of	$500	million,	subject	to	market conditions.	During	the	fiscal	year	ended	September	30,	2004,	the	Company	had	acquired	2.8	million	shares	of	its	Common	Stock	for	$144.7	million.	During	the	fiscal year	ended	September	30,	2005,	the	Company	acquired	6.5	million	shares	of	its	Common	Stock	for	$355.3	million	to	complete	this	program.

Basic	earnings	per	share	is	computed	on	the	basis	of	the	weighted	average	number	of	shares	of	Common	Stock	outstanding	during	the	periods	presented.	Diluted earnings	per	share	is	computed	on	the	basis	of	the	weighted	average	number	of	shares	of	Common	Stock	outstanding	during	the	periods	plus	the	dilutive	effect	of	stock options.	Additionally,	the	diluted	calculations	consider	the	5%	convertible	subordinated	notes	(see	Note	6)	as	if	converted	during	the	periods	that	the	notes	were outstanding	and,	therefore,	the	after-tax	effect	of	interest	expense	related	to	these	notes	is	added	back	to	income	from	continuing	operations	in	determining	income	from continuing	operations	available	to	common	stockholders	for	the	periods	that	the	notes	were	outstanding.	On	January	3,	2005,	the	Company	completed	the	redemption	of the	5%	convertible	subordinated	notes.	Subsequent	to	the	redemption,	a	number	of	shares	substantially	equal	to	the	shares	of	Common	Stock	issued	in	connection	with the	5%	note	redemption	were	repurchased	by	the	Company	under	the	5.7	million	share	repurchase	program	described	above.	The	following	table	(in	thousands)	is	a reconciliation	of	the	numerator	and	denominator	of	the	computation	of	basic	and	diluted	earnings	per	share.

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Income\tfrom\tcontinuing\toperations,\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting | $291,922 | $474,874 | $443,065 |
| Interest\texpense\t-\tconvertible\tsubordinated\tnotes,\tnet\tof\tincome\ttaxes | 2,539 | 10,141 | 9,997 |
| Income\tfrom\tcontinuing\toperations\tavailable\tto\tcommon\tstockholders | $294,461 | $485,015 | $453,062 |
| Weighted\taverage\tcommon\tshares\toutstanding\t-\tbasic | 105,667 | 111,617 | 109,513 |
| Effect\tof\tdilutive\tsecurities: |  |  |  |
| Options\tto\tpurchase\tCommon\tStock | 658 | 498 | 777 |
| Convertible\tsubordinated\tnotes | 1,445 | 5,664 | 5,664 |
| Weighted\taverage\tcommon\tshares\toutstanding\t-\tdiluted | 107,770 | 117,779 | 115,954 |

# Note	8. Pension	and	Other	Benefit	Plans

The	Company	sponsors	various	retirement	benefit	plans,	including	defined	benefit	pension	plans,	defined	contribution	plans,	postretirement	medical	plans	and	a deferred	compensation	plan	covering	eligible	employees.	The	expense	of	these	plans	was	$17.4	million	in	fiscal	year	2005,	$21.6	million	in	fiscal	year	2004,	and	$26.9 million	in	fiscal	year	2003.	The	Company	uses	a	June	30	measurement	date	for	its	pension	and	other	postretirement	benefit	plans.

# Defined	Benefit	Plans

The	Company	provides	a	benefit	for	the	majority	of	its	former	AmeriSource	employees	under	three	different	noncontributory	defined	benefit	pension	plans consisting	of	a	salaried	plan,	a	union	plan	and	a	supplemental	executive	retirement	plan.	For	each	employee,	the	benefits	are	based	on	years	of	service	and	average compensation.	Pension	costs,	which	are	computed	using	the	projected	unit	credit	cost	method,	are	funded	to	at	least	the	minimum	level	required	by	government regulations.	During	fiscal	2002,	the	salaried	and	the	supplemental	executive	retirement	plans	were	closed	to	new	participants	and	benefits	that	can	be	earned	by	active participants	in	the	plan	were	limited.

The	Company	has	an	unfunded	supplemental	executive	retirement	plan	for	its	former	Bergen	officers	and	key	employees.	This	plan	is	a	"target"	benefit	plan, with	the	annual	lifetime	benefit	based	upon	a	percentage	of	salary	during	the	five	final	years	of	pay	at	age	62,	offset	by	several	other	sources	of	income	including benefits	payable	under	a	prior	supplemental	retirement	plan.	During	fiscal	2002,	the	plan	was	closed	to	new	participants	and	benefits	that	can	be	earned	by	active participants	were	limited.

The	following	table	sets	forth	(in	thousands)	a	reconciliation	of	the	changes	in	the	Company-sponsored	defined	benefit	pension	plans:

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Change\tin\tProjected\tBenefit\tObligations: |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $98,986 | $99,011 |
| Service\tcost | 2,954 | 3,834 |
| Interest\tcost | 5,885 | 5,866 |
| Actuarial\t(gains)\tlosses | 16,104 | (2,786) |
| Benefit\tpayments | (6,937) | (6,939) |
| Benefit\tobligation\tat\tend\tof\tyear | $116,992 | $98,986 |
| Change\tin\tPlan\tAssets: |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $64,210 | $56,605 |
| Actual\treturn\ton\tplan\tassets | 5,121 | 6,115 |
| Employer\tcontributions | 12,039 | 9,230 |
| Expenses | (1,223) | (801) |
| Benefit\tpayments | (6,937) | (6,939) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $73,210 | $64,210 |
| Funded\tStatus\tand\tAmounts\tRecognized: |  |  |
| Funded\tstatus | $(43,782) | $(34,776) |
| Unrecognized\tnet\tactuarial\tloss | 41,816 | 25,562 |
| Unrecognized\tprior\tservice\tcost | 77 | 199 |
| Net\tamount\trecognized | $(1,889) | $(9,015) |
| Amounts\trecognized\tin\tthe\tbalance\tsheets\tconsist\tof: |  |  |
| Accrued\tbenefit\tliability | $(42,305) | $(31,322) |
| Intangible\tasset | 77 | 199 |
| Accumulated\tother\tcomprehensive\tloss | 40,339 | 22,108 |
| Net\tamount\trecognized | $(1,889) | $(9,015) |

Weighted	average	assumptions	used	(as	of	the	end	of	the	fiscal	year)	in	computing	the	benefit	obligation	were	as	follows:

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Discount\trate | 5.25% | 6.25% |
| Rate\tof\tincrease\tin\tcompensation\tlevels | 4.00% | 4.00% |
| Expected\tlong-term\trate\tof\treturn\ton\tassets | 8.00% | 8.00% |

The	expected	rate	of	return	for	the	plans	represents	the	average	rate	of	return	to	be	earned	on	plan	assets	over	the	period	the	benefits	included	in	the	benefit obligation	are	to	be	paid.

The	following	table	provides	components	of	net	periodic	benefit	cost	for	the	Company-sponsored	defined	benefit	pension	plans	together	with	contributions charged	to	expense	for	multi-employer	union-administered	defined	benefit	pension	plans	that	the	Company	participates	in	(in	thousands):

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Components\tof\tNet\tPeriodic\tBenefit\tCost: |  |  |  |
| Service\tcost | $3,178 | $4,029 | $4,735 |
| Interest\tcost\ton\tprojected\tbenefit\tobligation | 5,885 | 5,866 | 5,644 |
| Expected\treturn\ton\tplan\tassets | (5,754) | (5,102) | (5,082) |
| Amortization\tof\tprior\tservice\tcost | 137 | 132 | 150 |
| Recognized\tnet\tactuarial\tloss | 1,329 | 1,738 | 722 |
| Loss\tdue\tto\tcurtailments\tand\tsettlements | 137 | 696 | — |
| Net\tperiodic\tpension\tcost\tof\tdefined\tbenefit\tpension\tplans | 4,912 | 7,359 | 6,169 |
| Net\tpension\tcost\tof\tmulti-employer\tplans | 1,752 | 1,824 | 1,673 |
| Total\tpension\texpense | $6,664 | $9,183 | $7,842 |

Weighted	average	assumptions	used	(as	of	the	beginning	of	the	fiscal	year)	in	computing	the	net	periodic	benefit	cost	were	as	follows:

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 6.25% | 6.00% | 7.00% |
| Rate\tof\tincrease\tin\tcompensation\tlevels | 4.00% | 4.00% | 5.50% |
| Expected\tlong-term\trate\tof\treturn\ton\tassets | 8.00% | 8.00% | 8.75% |

To	determine	the	expected	long-term	rate	of	return	on	assets,	the	Company	considered	the	current	and	expected	asset	allocations,	as	well	as	historical	and expected	returns	on	various	categories	of	plan	assets.

The	board	of	directors	of	the	Company	has	a	Compensation	and	Succession	Planning	Committee	(the	"Committee").	The	Committee	is	responsible	for establishing	the	investment	policy	of	any	retirement	plan,	including	the	selection	of	acceptable	asset	classes,	allowable	ranges	of	holdings,	the	definition	of	acceptable securities	within	each	class,	and	investment	performance	expectations.	Additionally,	the	Committee	has	established	rules	for	the	rebalancing	of	assets	between	asset classes	and	among	individual	investment	managers.

The	investment	portfolio	contains	a	diversified	portfolio	of	investment	categories,	including	equities,	fixed	income	securities	and	cash.	Securities	are	also diversified	in	terms	of	domestic	and	international	securities	and	large	cap	and	small	cap	stocks.	The	actual	and	target	asset	allocations	expressed	as	a	percentage	of	the plans'	assets	at	the	measurement	date	are	as	follows:

|  | 2005 | 2004 | 2005 | 2004 |
| :--- | :--- | :--- | :--- | :--- |
| Asset\tCategory: |  |  |  |  |
| Equity\tsecurities | 48% | 51% | 50% | 50% |
| Debt\tsecurities | 50 | 49 | 50 | 50 |
| Other | 2 | — | — | — |
| Total | 100% | 100% | 100% | 100% |

Subsequent	to	the	June	30	measurement	date,	the	Committee	approved	a	change	in	the	target	allocation	for	2006,	such	that	70%	of	the	plans'	assets	will	be allocated	to	equity	securities	and	30%	will	be	allocated	to	debt	securities.

The	investment	goals	are	to	achieve	the	optimal	return	possible	within	the	specific	risk	parameters	and,	at	a	minimum,	produce	results	which	achieve	the	plans' assumed	interest	rate	for	funding	the	plans	over	a	full	market	cycle.	High	levels	of	risk	and	volatility	are	avoided	by	maintaining	diversified	portfolios.	Allowable investments	include	government-backed	fixed	income	securities,	equity,	and	cash	equivalents.	Prohibited	investments	include	unregistered	or	restricted	stock, commodities,	margin	trading,	options	and	futures,	short-selling,	venture	capital,	private	placements,	real	estate	and	other	high	risk	investments.

As	of	September	30,	2005	and	2004,	all	of	the	Company-sponsored	defined	benefit	pension	plans	had	projected	and	accumulated	benefit	obligations	in	excess	of plan	assets	that	consist	of	the	following	(in	thousands):

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Accumulated\tbenefit\tobligation | $115,515 | $95,624 |
| Projected\tbenefit\tobligation | \t 116,992 | \t 98,986 |
| Plan\tassets\tat\tfair\tvalue | 73,210 | \t 64,210 |

Contributions	to	the	pension	plans	during	fiscal	2006	are	expected	to	be	the	minimum	required	of	$7.5	million.	Expected	benefit	payments	over	the	next	ten	years, which	reflect	expected	future	service,	are	anticipated	to	be	paid	as	follows	(in	thousands):

|  | Pension	Benefits |
| :--- | :--- |
| Fiscal\tYear: |  |
| 2006 | $6,592 |
| 2007 | 4,485 |
| 2008 | 4,451 |
| 2009 | 4,682 |
| 2010 | 4,270 |
| 2011-2015 | 29,344 |
| Total | $53,824 |

Expected	benefit	payments	are	based	on	the	same	assumptions	used	to	measure	the	benefit	obligations	and	include	estimated	future	employee	service.

The	Company	owns	life	insurance	covering	substantially	all	of	the	participants	in	the	Bergen	supplemental	retirement	plans.	At	September	30,	2005,	the	policies have	an	aggregate	cash	surrender	value	of	approximately	$37.9	million	(which	is	included	in	other	assets	in	the	accompanying	consolidated	balance	sheet)	and	an aggregate	death	benefit	of	approximately	$58.2	million.

# Postretirement	Benefit	Plans

The	Company	provides	medical	benefits	to	certain	retirees,	principally	former	employees	of	Bergen.	Employees	became	eligible	for	such	postretirement	benefits after	meeting	certain	age	and	years	of	service	criteria.	During	fiscal	2002,	the	plans	were	closed	to	new	participants	and	benefits	that	can	be	earned	by	active	participants were	limited.	As	a	result	of	special	termination	benefit	packages	previously	offered,	the	Company	also	provides	dental	and	life	insurance	benefits	to	a	limited	number	of retirees	and	their	dependents.	These	benefit	plans	are	unfunded.

The	following	table	sets	forth	(in	thousands)	a	reconciliation	of	the	changes	in	the	Company-sponsored	postretirement	benefit	plans:

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Change\tin\tAccumulated\tBenefit\tObligations: |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $16,055 | $20,561 |
| Interest\tcost | 1,142 | 1,213 |
| Actuarial\tlosses\t(gains) | 4,298 | (4,194) |
| Benefit\tpayments | (2,079) | (1,525) |
| Benefit\tobligation\tat\tend\tof\tyear | $19,416 | $16,055 |
| Change\tin\tPlan\tAssets: |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $— | $— |
| Employer\tcontributions | 2,079 | 1,525 |
| Benefit\tpayments | (2,079) | (1,525) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $— | $— |
| Funded\tStatus\tand\tAmounts\tRecognized: |  |  |
| Funded\tstatus | $(19,416) | $(16,055) |
| Unrecognized\tnet\tactuarial\tloss\t(gain) | 3,972 | (479) |
| Net\tamount\trecognized | $(15,444) | $(16,534) |
| Amounts\trecognized\tin\tthe\tbalance\tsheets\tconsist\tof:\nAccrued\tbenefit\tliability | $(15,444) | $(16,534) |

Weighted	average	assumptions	used	(as	of	the	end	of	the	fiscal	year)	in	computing	the	funded	status	of	the	plans	were	as	follows:

|  | 2005 | 2004 |
| :--- | :--- | :--- |
| Discount\trate | 5.25% | 6.25% |
| Health\tcare\ttrend\trate\tassumed\tfor\tnext\tyear | 11.0% | 12.0% |
| Rate\tto\twhich\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline | 5% | 5% |
| Year\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | 2014 | 2014 |

Assumed	health	care	trend	rates	have	a	significant	effect	on	the	amounts	reported	for	the	health	care	plans.	A	one-percentage-point	change	in	assumed	health	care cost	trend	rates	would	have	the	following	effects	(in	thousands):

|  | Increase | Decrease |
| :--- | :--- | :--- |
| Effect\ton\ttotal\tservice\tand\tinterest\tcost\tcomponents | $95 | $(79) |
| Effect\ton\tbenefit\tobligation | 1,805 | (1,504) |

The	following	table	provides	components	of	net	periodic	benefit	cost	for	the	Company-sponsored	postretirement	benefit	plans	(in	thousands):

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Components\tof\tNet\tPeriodic\tBenefit\tCost: |  |  |  |
| Interest\tcost\ton\tprojected\tbenefit\tobligation | $1,142 | $1,213 | $1,374 |
| Amortization\tof\tprior\tservice\tcost | — | — | 133 |
| Recognized\tnet\tactuarial\t(gain)\tloss | (153) | 139 | (28) |
| Total\tpostretirement\tbenefit\texpense | $989 | $1,352 | $1,479 |

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 6.25% | 6% | 7% |
| Health\tcare\ttrend\trate\tassumed\tfor\tnext\tyear | 12% | 13% | 11% |
| Rate\tto\twhich\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline | 5% | 5% | 5% |
| Year\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | 2014 | 2014 | 2015 |

Expected	postretirement	benefit	payments	over	the	next	ten	years	are	anticipated	to	be	paid	as	follows	(in	thousands):

| Fiscal	Year: |  |
| :--- | :--- |
| 2006 | $1,924 |
| 2007 | 2,291 |
| 2008 | 2,133 |
| 2009 | 1,937 |
| 2010 | 1,835 |
| 2011-2015 | 6,586 |
| Total | $16,706 |

# Defined	Contribution	Plans

The	Company	sponsors	the	AmerisourceBergen	Employee	Investment	Plan,	as	amended	and	restated	July	1,	2002,	which	is	a	defined	contribution	401(k)	plan covering	salaried	and	certain	hourly	employees.	Eligible	participants	may	contribute	to	the	plan	from	2%	to	18%	of	their	regular	compensation	before	taxes.	The Company	contributes	$1.00	for	each	$1.00	invested	by	the	participant	up	to	the	participant's	investment	of	3%	of	salary,	and	$0.50	for	each	additional	$1.00	invested	by the	participant	up	to	the	participant's	investment	of	an	additional	2%	of	salary.	An	additional	discretionary	contribution,	in	an	amount	not	to	exceed	the	limits	established by	the	Internal	Revenue	Code,	may	also	be	made	depending	upon	the	Company's	performance.	All	contributions	are	invested	at	the	direction	of	the	employee	in	one	or more	funds.	All	contributions	vest	immediately	except	for	the	discretionary	contributions	made	by	the	Company	that	vest	in	full	after	five	years	of	credited	service.

PharMerica	sponsors	the	PharMerica,	Inc.	401(k)	Profit	Sharing	Plan,	which	is	a	defined	contribution	401(k)	plan,	that	is	generally	available	to	its	employees with	90	days	of	service	and	excludes	those	employees	covered	under	a	collective	bargaining	agreement.	Eligible	participants	may	contribute	1%	to	50%	of	their	pretax compensation	(1%	to	15%	prior	to	January	1,	2004).	PharMerica	contributes	$1.00	for	each	$1.00	invested	by	the	participant	up	to	the	first	3%	of	the	participant's contribution	and	$0.50	for	each	additional	$1.00	invested	by	the	participant	of	an	additional	2%	of	salary.	The	employee	and	employer	contributions,	collectively,	may not	exceed	limits	established	by	the	Internal	Revenue	Code.	All	contributions	are	invested	at	the	direction	of	the	employee	in	one	or	more	investment	funds.	All contributions	vest	immediately.

Costs	of	the	defined	contribution	plans	charged	to	expense	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	were	$9.2	million,	$10.3	million	and $15.9	million,	respectively.

# Deferred	Compensation	Plan

The	Company	also	sponsors	the	AmerisourceBergen	Corporation	2001	Deferred	Compensation	Plan,	as	amended	and	restated	November	1,	2002.	This	unfunded plan,	under	which	740,000	shares	of	Common	Stock	are	authorized	for	issuance,	allows	eligible	officers,	directors	and	key	management	employees	to	defer	a	portion	of their	annual	compensation.	The	amount	deferred	may	be	allocated	by	the	employee	to	cash,	mutual	funds	or	stock	credits.	Stock	credits,	including	dividend	equivalents, are	equal	to	the	full	and	fractional	number	of	shares	of	Common	Stock	that	could	be	purchased	with	the	participant's	compensation	allocated	to	stock	credits	based	on the	average	of	closing	prices	of	Common	Stock	during	each	month,	plus,	at	the	discretion	of	the	board	of	directors,	up	to	one-half	of	a	share	of	Common	Stock	for	each full	share	credited.	Stock	credit	distributions	are	made	in	shares	of	Common	Stock.	No	shares	of	Common	Stock	have	been	issued	under	the	deferred	compensation	plan through	September	30,	2005.

# Note	9. Stock	Compensation	Plans

# Stock	Option	Plans

In	accordance	with	SFAS	No.	123,	"Accounting	for	Stock-Based	Compensation,"	the	Company	elected	to	account	for	stock-based	compensation	under	APB No.	25	and	its	related	interpretations	for	these	plans	until	its	adoption	of	SFAS	No.	123R.	Under	APB	25,	generally,	when	the	exercise	price	of	the	Company's employee	stock	options	equals	the	market	price	of	the	underlying	stock	on	the	date	of	grant,	no	compensation	expense	is	recognized.

The	Company	currently	has	seven	employee	stock	option	plans	that	provide	for	the	granting	of	incentive	and	nonqualified	stock	options	to	acquire	shares	of Common	Stock	to	employees	at	a	price	not	less	than	the	fair	market	value	of	the	Common	Stock	on	the	date	the	option	is	granted.	Option	terms	and	vesting	periods	are determined	at	the	date	of	grant	by	a	committee	of	the	board	of	directors.	Options	generally	vest	over	four	years	and	expire	in	ten	years.	The	Company	also	has	six	non- employee	director	stock	option	plans	that	provide	for	the	granting	of	nonqualified	stock	options	to	acquire	shares	of	Common	Stock	to	non-employee	directors	at	the fair	market	value	of	the	Common	Stock	on	the	date	of	the	grant.	Vesting	periods	for	the	non-employee	director	plans	range	from	immediate	vesting	to	three	years	and options	expire	in	ten	years.

At	September	30,	2005,	there	were	outstanding	options	to	purchase	8.1	million	shares	of	Common	Stock	under	the	aforementioned	plans.	Options	for	an additional	0.9	million	shares	may	be	granted	under	one	of	the	employee	stock	option	plans	and	options	for	an	additional	0.2	million	shares	may	be	granted	under	one	of the	non-employee	director	stock	option	plans.

All	outstanding	stock	options	granted	prior	to	February	15,	2001	under	the	above	plans	became	fully	vested	in	August	2001,	and	generally	became	exercisable	in August	2002.	As	a	result	of	the	accelerated	vesting	of	stock	options,	the	Company	recorded	a	charge	of	$0.3	million,	$1.0	million	and	$1.1	million	in	fiscal	2005,	2004, and	2003,	respectively.	These	charges	were	recorded	within	distribution,	selling	and	administrative	expenses	in	the	accompanying	consolidated	statements	of	operations.

Effective	September	1,	2004,	the	Company	vested	all	employee	options	then	outstanding	with	an	exercise	price	in	excess	of	$54.10	(the	closing	stock	price	on August	31,	2004).	The	accelerated	vesting	was	approved	by	the	Compensation	and	Succession	Planning	Committee	of	the	Company's	board	of	directors	for	employee retention	purposes	and	in	anticipation	of	the	requirements	of	SFAS	No.	123R.	In	accordance	with	APB	No.	25,	the	Company	did	not	incur	a	charge	related	to	this accelerated	vesting	because	the	exercise	price	of	all	the	accelerated	options	was	greater	than	$54.10.

A	summary	of	the	Company's	stock	option	activity	and	related	information	for	its	option	plans	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	were as	follows:

|  |  | Weighted |  | Weighted |  | Weighted |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Average |  | Average |  | Average |
|  | Options | Exercise | Options | Exercise | Options | Exercise |
|  | (000's) | Price | (000's) | Price | (000's) | Price |
| Outstanding\tat\tbeginning\tof\tyear | 9,402 | $57 | 8,255 | $56 | 7,801 | $53 |
| Granted | 2,134 | 62 | 2,405 | 58 | 2,430 | 56 |
| Exercised | (3,187) | 55 | (433) | 35 | (1,385) | 33 |
| Forfeited | (287) | 66 | (825) | 62 | (591) | 67 |
| Outstanding\tat\tend\tof\tyear | 8,062 | $59 | 9,402 | $57 | 8,255 | $56 |
| Exercisable\tat\tend\tof\tyear | 5,962 | $57 | 9,249 | $57 | 3,616 | $49 |

A	summary	of	the	status	of	options	outstanding	at	September	30,	2005	follows:

# Employee	Stock	Purchase	Plan

In	February	2002,	the	stockholders	approved	the	adoption	of	the	AmerisourceBergen	2002	Employee	Stock	Purchase	Plan,	under	which	up	to	an	aggregate	of 4,000,000	shares	of	Common	Stock	may	be	sold	to	eligible	employees	(generally	defined	as	employees	with	at	least	30	days	of	service	with	the	Company).	Under	this plan,	the	participants	may	elect	to	have	the	Company	withhold	up	to	25%	of	base	salary	to	purchase	shares	of	the	Company's	Common	Stock	at	a	price	equal	to	85%	of the	fair	market	value	of	the	stock	on	the	first	or	last	business	day	of	each	six-month	purchase	period,	whichever	is	lower.	Each	participant	is	limited	to	$25,000	of purchases	during	each	calendar	year.	During	the	fiscal	years	ended	September	30,	2005	and	2004,	the	Company	acquired	104,309	shares	and	115,281	shares,

respectively,	from	the	open	market	for	issuance	to	participants	in	this	plan.	As	of	September	30,	2005,	the	Company	has	withheld	$1.3	million	from	eligible	employees for	the	purchase	of	additional	shares	of	Common	Stock.

# Note	10. Leases	and	Other	Commitments

At	September	30,	2005,	future	minimum	payments	totaling	$239.8	million	under	noncancelable	operating	leases	with	remaining	terms	of	more	than	one	fiscal year	were	due	as	follows:	2006	-	$64.3	million;	2007	-	$48.4	million;	2008	-	$38.4	million;	2009	-	$28.6	million;	2010	-	$20.4	million;	and	thereafter	-	$39.7	million.	In the	normal	course	of	business,	operating	leases	are	generally	renewed	or	replaced	by	other	leases.	Certain	operating	leases	include	escalation	clauses.	Total	rental expense	was	$63.4	million	in	fiscal	2005,	$63.2	million	in	fiscal	2004	and	$61.2	million	in	fiscal	2003.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	entered	into	three	sale-leaseback	agreements	with	a	financial	institution	relating	to	certain equipment	located	at	two	of	the	Company's	new	distribution	facilities	and	certain	equipment	located	at	one	of	the	Company's	existing	distribution	facilities	that	was significantly	expanded.	The	net	book	value	of	all	of	the	equipment	under	the	three	leases	totaled	$35.3	million	and	was	sold	for	$36.7	million.	During	fiscal	2004,	the Company	entered	into	a	sale-leaseback	agreement	with	a	financial	institution	relating	to	certain	equipment	located	at	one	of	the	Company's	new	distribution	facilities. The	net	book	value	of	the	equipment,	totaling	$15.1	million	was	sold	for	$15.6	million.	The	Company	deferred	the	gains	associated	with	these	sale-leaseback agreements,	which	are	being	amortized	as	a	reduction	of	lease	expense	over	the	respective	operating	lease	terms.

In	December	2004,	the	Company	entered	into	a	distribution	agreement	with	a	Canadian	influenza	vaccine	manufacturer	to	distribute	product	through	March	31, 2015.	The	agreement	includes	a	commitment	to	purchase	at	least	12	million	doses	per	year	of	the	influenza	vaccine	provided	the	vaccine	is	approved	and	available	for distribution	in	the	United	States	by	the	Food	and	Drug	Administration	("FDA").	The	Company	will	be	required	to	purchase	the	annual	doses	at	market	prices,	as adjusted	for	inflation	and	other	factors.	We	expect	the	Canadian	manufacturer	will	receive	FDA	approval	by	the	2006/2007	influenza	season;	however,	FDA	approval may	be	received	earlier.	If	the	initial	year	of	the	purchase	commitment	begins	in	fiscal	2007,	then	the	Company	anticipates	its	purchase	commitment	for	that	year	will approximate	$66	million.	The	Company	anticipates	its	total	purchase	commitment	(assuming	the	commitment	commences	in	fiscal	2007)	will	be	approximately	$1.1 billion.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	decided	to	outsource	a	significant	portion	of	its	information	technology	activities	and	entered	into a	ten-year	commitment,	effective	July	1,	2005,	with	IBM	Global	Services,	which	will	assume	responsibility	for	performing	the	outsourced	information	technology activities	following	the	completion	of	certain	transition	matters.	The	minimum	commitment	under	the	outsourcing	arrangement	is	approximately	$200	million

(excluding	the	above-mentioned	transition	costs)	over	a	ten-year	period;	however,	the	Company	believes	it	will	likely	spend	between	$300	million	and	$400	million under	the	outsourcing	arrangement	to	maintain	and	improve	its	information	technology	infrastructure	during	that	period.

# Note	11. Facility	Consolidations,	Employee	Severance	and	Other

In	2001,	the	Company	developed	an	integration	plan	to	consolidate	its	distribution	network	and	eliminate	duplicative	administrative	functions.	During	the	fiscal year	ended	September	30,	2005,	the	Company	decided	to	outsource	a	significant	portion	of	its	information	technology	activities	as	part	of	the	integration	plan.	The Company's	plan,	as	revised,	is	to	have	a	distribution	facility	network	numbering	in	the	mid-20's	within	the	next	two	years	and	to	have	successfully	completed	the outsourcing	of	such	information	technology	activities	by	the	end	of	fiscal	2006.	The	plan	includes	building	six	new	facilities	(four	of	which	were	operational	as	of September	30,	2005)	and	closing	facilities	(twenty-three	of	which	have	been	closed	through	September	30,	2005).	The	fifth	facility	opened	in	October	2005	and	the	sixth facility	is	scheduled	to	open	during	fiscal	2006,	thereby	reducing	the	Company's	total	number	of	distribution	facilities	to	28	by	the	end	of	fiscal	2006.	During	fiscal	2005 and	2004,	the	Company	closed	six	and	four	distribution	facilities,	respectively.	The	Company	anticipates	closing	six	additional	facilities	in	fiscal	2006.

In	September	2001,	the	Company	announced	plans	to	close	seven	distribution	facilities	in	fiscal	2002,	consisting	of	six	former	AmeriSource	facilities	and	one former	Bergen	facility.	A	charge	of	$10.9	million	was	recognized	in	the	fourth	quarter	of	fiscal	2001	related	to	the	AmeriSource	facilities,	and	included	$6.2	million	of severance	for	approximately	260	warehouse	and	administrative	personnel	to	be	terminated,	$2.3	million	in	lease	and	contract	cancellations,	and	$2.4	million	for	the write-down	of	assets	related	to	the	facilities	to	be	closed.	During	the	fiscal	year	ended	September	30,	2003,	severance	accruals	of	$1.8	million	recorded	in	September 2001	were	reversed	into	income	because	certain	employees	who	were	expected	to	be	severed	either	voluntarily	left	the	Company	or	were	retained	in	other	positions within	the	Company.

During	the	fiscal	year	ended	September	30,	2002,	the	Company	announced	further	integration	initiatives	relating	to	the	closure	of	Bergen's	repackaging	facility and	the	elimination	of	certain	Bergen	administrative	functions,	including	the	closure	of	a	related	office	facility.	The	cost	of	these	initiatives	of	approximately	$19.2 million,	which	included	$15.8	million	of	severance	for	approximately	310	employees	to	be	terminated,	$1.6	million	for	lease	cancellation	costs,	and	$1.8	million	for	the write-down	of	assets	related	to	the	facilities	to	be	closed,	resulted	in	additional	goodwill	being	recorded	during	fiscal	2002.	At	September	30,	2003,	all	of	the	employees had	been	terminated.

During	the	fiscal	year	ended	September	30,	2003,	the	Company	closed	six	distribution	facilities	and	eliminated	certain	administrative	and	operational	functions ("the	fiscal	2003	initiatives").	During	the	fiscal	years	ended	September	30,	2004	and	2003,	the	Company	recorded	$0.9	million	and	$10.3	million,	respectively,	of employee	severance	costs	relating	to	the	fiscal	2003	initiatives.	Approximately	780	employees	received	termination	notices	as	a	result	of	the	fiscal	2003	initiatives,	of which	substantially	all	have	been	terminated.

During	the	fiscal	year	ended	September	30,	2005,	the	Company	announced	plans	to	continue	to	consolidate	and	eliminate	certain	administrative	functions,	and	to outsource	a	significant	portion	of	the	Company's	information	technology	activities	(the	"fiscal	2005	initiatives").	The	Company	plans	to	have	successfully	completed	the outsourcing	of	such	information	technology	activities	by	the	end	of	fiscal	2006.	During	the	fiscal	year	ended	September	30,	2005,	the	Company	recorded	$13.3	million of	employee	severance	and	lease	cancellation	costs	primarily	related	to	the	2005	initiatives	and	$9.4	million	of	transition	costs	associated	with	the	outsourcing	of information	technology	activities.

Most	employees	receive	their	severance	benefits	over	a	period	of	time,	generally	not	to	exceed	12	months,	while	others	may	receive	a	lump-sum	payment.

The	following	table	displays	the	activity	in	accrued	expenses	and	other	from	September	30,	2003	to	September	30,	2005	related	to	the	integration	plan	discussed above	(in	thousands):

|  | Employee<br>Severance | Lease	Cancellation<br>Costs	and	Other | Total |
| :--- | :--- | :--- | :--- |
| Balance\tas\tof\tSeptember\t30,\t2003 | $4,935 | $81 | $5,016 |
| Expense\trecorded\tduring\tthe\tperiod | 6,324 | 1,193 | 7,517 |
| Payments\tmade\tduring\tthe\tperiod | (8,275) | (1,206) | (9,481) |
| Balance\tas\tof\tSeptember\t30,\t2004 | 2,984 | 68 | 3,052 |
| Expense\trecorded\tduring\tthe\tperiod | \t 10,580 | 12,143 | 22,723 |
| Payments\tmade\tduring\tthe\tperiod | (8,328) | (5,128) | (13,456) |
| Balance\tas\tof\tSeptember\t30,\t2005 | $5,236 | $7,083 | $12,319 |

# Note	12. Legal	Matters	and	Contingencies

In	the	ordinary	course	of	its	business,	the	Company	becomes	involved	in	lawsuits,	administrative	proceedings	and	governmental	investigations,	including antitrust,	environmental,	product	liability,	regulatory	and	other	matters.	Significant	damages	or	penalties	may	be	sought	from	the	Company	in	some	matters,	and	some matters	may	require	years	for	the	Company	to	resolve.	The	Company	establishes	reserves	based	on	its	periodic	assessment	of	estimates	of	probable	losses.	There	can	be no	assurance	that	an	adverse	resolution	of	one	or	more	matters	during	any	subsequent	reporting	period	will	not	have	a	material	adverse	effect	on	the	Company's	results of	operations	for	that	period.	However,	on	the	basis	of	information	furnished	by	counsel	and	others	and	taking	into	consideration	the	reserves	established	for	pending matters,	the	Company	does	not	believe	that	the	resolution	of	currently	pending	matters	(including	those	matters	specifically	described	below),	individually	or	in	the aggregate,	will	have	a	material	adverse	effect	on	the	Company's	financial	condition.

# Note	13. Antitrust	Litigation	Settlements

During	the	fiscal	years	ended	September	30,	2005	and	2004,	the	Company	recognized	gains	of	$40.1	million	and	$38.0	million,	respectively,	from	antitrust litigation	settlements	with	pharmaceutical	manufacturers.	These	gains,	which	are	net	of	attorney	fees	and	estimated	payments	due	to	other	parties,	were	recorded	as reductions	to	cost	of	goods	sold	in	the	Company's	consolidated	statements	of	operations	for	the	fiscal	year	ended	September	30,	2005	and	2004,	respectively.

# Note	14. Business	Segment	Information

The	Pharmaceutical	Distribution	reportable	segment	includes	the	operations	of	ABDC	and	AmerisourceBergen	Specialty	and	Packaging	groups.	The	operations	of the	former	AmerisourceBergen	Technology	Group	became	a	part	of	the	overall	ABDC	operations	in	fiscal	2005.	The	Pharmaceutical	Distribution	reportable	segment	is comprised	of	two	operating	segments:	ABDC	and	the	AmerisourceBergen	Specialty	Group	("ABSG").	The	ABDC	operating	segment	includes	the	operations	of	the AmerisourceBergen	Packaging	Group.

The	PharMerica	reportable	segment	includes	the	operations	of	the	PharMerica	long-term	care	business	("Long-Term	Care")	and	a	workers'	compensation-related business	("Workers'	Compensation").	The	PharMerica	reportable	segment	encompasses	only	the	PharMerica	operating	segment.

In	accordance	with	FAS	131,	we	have	aggregated	the	operating	segment	of	ABDC	and	the	operating	segment	of	ABSG	into	one	reportable	segment,	the Pharmaceutical	Distribution	segment.	Our	decision	to	aggregate	these	two	operating	segments	into	one	reportable	segment	was	based	on •the	objective	and	basic	principles	of	FAS	131,

•the	Aggregation	Criteria	as	noted	in	paragraph	17	of	FAS	131	and

•the	fact	that	ABDC	and	ABSG	have	similar	economic	characteristics.

The	chief	operating	decision	maker	for	the	Pharmaceutical	Distribution	segment	is	the	President	and	Chief	Operating	Officer	of	the	Company	whose	function	is	to allocate	resources	to,	and	assess	the	performance	of,	the	ABDC	and	ABSG	operating	segments.	The	President	of	ABDC	and	the	President	of	ABSG	each	function	as operating	segment	managers	whose	roles	include	reporting	directly	to	the	President	and	Chief	Operating	Officer	of	the	Company	on	their	respective	operating	segment's business	activities,	financial	results	and	operating	plans.

The	businesses	of	the	Pharmaceutical	Distribution	operating	segments	are	similar.	These	segments	service	both	pharmaceutical	manufacturers	and	healthcare providers	in	the	pharmaceutical	supply	channel.	The	warehousing	and	distribution	of	pharmaceutical	drugs,	which	are	purchased	from	the	same	suppliers,	is	the	primary business	activity	of	both	operating	segments.	The	distribution	of	pharmaceutical	drugs	represented	approximately	98.0%,	98.3%,	and	98.8%	of	the	Pharmaceutical Distribution	segment's	total	operating	revenue	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003,	respectively.	ABDC	and	ABSG	both	operate	in	a	high volume	and	low	margin	environment	and,	as	a	result,	their	economic	characteristics	are	similar.	Both	operating	segments	warehouse	and	distribute	products	in	a	similar manner.	Additionally,	both	operating	segments	are	subject	to	the	same	extensive	regulatory	environment	under	which	the	pharmaceutical	distribution	industry	operates.

ABDC	distributes	a	comprehensive	offering	of	brand	name	and	generic	pharmaceuticals,	over-the-counter	healthcare	products,	and	home	healthcare	supplies	and equipment	to	a	wide	variety	of	healthcare	providers,	including	acute	care	hospitals	and	health	systems,	independent	and	chain	retail	pharmacies,	mail	order	facilities, physicians,	clinics	and	other	alternate	site	facilities,	and	skilled	nursing	and	assisted	living	centers.

ABSG,	through	a	number	of	individual	operating	businesses,	provides	distribution	and	other	services,	including	group	purchasing	services,	to	physicians	and alternate	care	providers	who	specialize	in	a	variety	of	disease	states,	including	oncology,	nephrology,	and	rheumatology.	ABSG	also	distributes	vaccines,	other injectables	and	plasma.	In	addition,	through	its	manufacturer	services	and	physician	and	patient	services	businesses,	ABSG	provides	a	number	of	commercialization	and other	services	for	biotech	and	other	pharmaceutical	manufacturers,	third	party	logistics,	reimbursement	consulting,	practice	management,	and	physician	education.

The	following	tables	present	reportable	segment	information	for	the	periods	indicated	(dollars	in	thousands):

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $49,319,371 | $48,113,015 | $44,657,911 |
| PharMerica | 1,571,369 | 1,575,255 | 1,608,203 |
| Intersegment\teliminations | (878,142) | (875,818) | (802,714) |
| Operating\trevenue | \t 50,012,598 | 48,812,452 | 45,463,400 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | 4,564,723 | 4,308,339 | 4,120,639 |
| Total\trevenue | $54,577,321 | $53,120,791 | $49,584,039 |

Management	evaluates	segment	performance	based	on	revenues	excluding	bulk	deliveries	to	customer	warehouses.	For	further	information	regarding	the	nature of	bulk	deliveries,	which	only	occur	in	the	Pharmaceutical	Distribution	segment,	see	Note	1.	Intersegment	eliminations	represent	the	elimination	of	the	Pharmaceutical Distribution	segment's	sales	to	PharMerica.	ABDC	is	the	principal	supplier	of	pharmaceuticals	to	PharMerica.

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $532,887 | $748,625 | $791,216 |
| PharMerica | 91,947 | \t 121,846 | 103,843 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | (22,723) | (7,517) | (8,930) |
| Gain\ton\tlitigation\tsettlements | 40,094 | 38,005 | — |
| Impairment\tcharge | (5,259) | — | — |
| Operating\tincome | \t 636,946 | \t 900,959 | 886,129 |
| Other\t(income)\tloss | (990) | (6,236) | 8,015 |
| Interest\texpense,\tnet | 57,223 | \t 112,704 | 144,748 |
| Loss\ton\tearly\tretirement\tof\tdebt | \t 111,888 | 23,592 | 4,220 |
| Income\tfrom\tcontinuing\toperations\tbefore\ttaxes\tand\tcumulative\teffect\tof\tchange\tin\taccounting | $468,825 | $770,899 | $729,146 |

Segment	operating	income	is	evaluated	before	other	(income)	loss;	interest	expense,	net;	loss	on	early	retirement	of	debt;	facility	consolidations,	employee severance	and	other;	gain	on	litigation	settlements;	and	impairment	charge.	All	corporate	office	expenses	are	allocated	to	the	two	reportable	segments.

| At	September	30, | 2005 | 2004 |
| :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $10,803,578 | $11,093,798 |
| PharMerica | 577,596 | 560,205 |
| Total\tassets | $11,381,174 | $11,654,003 |

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $64,404 | $58,358 | $ 51,604 |
| PharMerica | 16,795 | 15,067 | 17,593 |
| Total\tdepreciation\tand\tamortization | $81,199 | $73,425 | $ 69,197 |

Depreciation	and	amortization	includes	depreciation	and	amortization	of	property	and	equipment	and	intangible	assets,	but	excludes	amortization	of	deferred financing	costs	and	other	debt-related	items,	which	is	included	in	interest	expense.

| Fiscal	year	ended	September	30, | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Pharmaceutical\tDistribution | $ 182,347 | $ 174,004 | $70,207 |
| PharMerica | 21,029 | 15,274 | 20,347 |
| Total\tcapital\texpenditures | $ 203,376 | $ 189,278 | $90,554 |

# Note	15. Disclosure	About	Fair	Value	of	Financial	Instruments

The	recorded	amounts	of	the	Company's	cash	and	cash	equivalents,	accounts	receivable	and	accounts	payable	at	September	30,	2005	and	2004	approximate	fair value.	The	fair	values	of	the	Company's	debt	instruments	are	estimated	based	on	market	prices.	The	recorded	amount	of	debt	(see	Note	6)	and	the	corresponding	fair value	as	of	September	30,	2005	were	$952,711	and	$941,568	respectively.	The	recorded	amount	of	debt	(see	Note	6)	and	the	corresponding	fair	value	as	of September	30,	2004	were	$1,438,471	and	$1,539,846,	respectively.

# Note	16. Quarterly	Financial	Information	(Unaudited)

| (in	thousands,	except	per	share	amounts) | First<br>Quarter	(a)(b) | Second<br>Quarter(c) | Third<br>Quarter | Fourth<br>Quarter | Fiscal<br>Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | $12,202,109 | $12,241,739 | $12,603,893 | $12,964,857 | $50,012,598 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | 1,434,727 | 948,428 | 1,228,073 | 953,496 | 4,564,723 |
| Total\trevenue | 13,636,836 | 13,190,167 | 13,831,966 | 13,918,353 | 54,577,321 |
| Gross\tprofit\t(d) | 454,592 | 501,750 | 502,069 | 521,774 | 1,980,184 |
| Distribution,\tselling\tand\tadministrative\texpenses,\tdepreciation\tand\tamortization | 315,374 | 315,398 | 329,714 | 354,770 | 1,315,256 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother\t(see\tNote\t11) | 5,133 | 1,837 | 3,747 | 12,006 | 22,723 |
| Impairment\tcharge | — | 5,259 | — | — | 5,259 |
| Operating\tincome | $134,085 | $179,256 | $168,608 | $154,998 | $636,946 |
| Loss\ton\tearly\tretirement\tof\tdebt | $1,015 | $—\t\t\t\t $— | $—\t\t\t\t $— | $110,873 | $111,888 |
| Income\tfrom\tcontinuing\toperations,\tbefore\tcumulative\teffect\tof\tchange\tin |  |  |  |  |  |
| accounting | $69,023 | $101,713 | $99,844 | $21,342 | $291,922 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $7,905 | $2,291 | $5,067 | $1,842 | $17,105 |
| Net\tincome | $50,946 | $99,422 | $94,777 | $19,500 | $264,645 |
| Earnings\tper\tshare\tfrom\tcontinuing\toperations: |  |  |  |  |  |
| Basic | $0.65 | $0.93 | $0.96 | $0.21 | $2.76 |
| Diluted | $0.64 | $0.92 | $0.96 | $0.19 | $2.73 |
| Earnings\tper\tshare: |  |  |  |  |  |
| Basic | $0.48 | $0.91 | $0.91 | $0.20 | $2.50 |
| Diluted | $0.48 | $0.90 | $0.91 | $0.19 | $2.48 |

(a) During	fiscal	2005,	the	Company	changed	its	method	of	recognizing	cash	discounts	and	other	related	manufacturer	incentives,	effective	October	1,	2004.	As	a result,	the	Company	restated	its	first	quarter	operating	results	to	include	the	$10.2	million	cumulative	effect	of	change	in	accounting	charge	(net	of	tax	benefit) and	recorded	a	$3.3	million	charge	(net	of	tax	benefit)	to	incorporate	the	effect	of	the	change	in	accounting	on	the	first	quarter.	This	$10.2	million	cumulative effect	charge	reduced	diluted	earnings	per	share	by	$0.09	for	the	fiscal	year	ended	September	30,	2005.

(b) Income	from	continuing	operations,	before	cumulative	effect	of	change	in	accounting	reported	on	Form	10-Q	for	the	first	quarter	was	higher	by	$1.8	million	than the	amount	presented	above	as	the	amounts	presented	above	have	been	restated	to	reflect	the	change	in	accounting	discussed	in	footnote	(a)	and	the	reporting	of Bridge	as	discontinued	operations.	The	change	in	accounting	had	the	effect	of	reducing	income	from	continuing	operations	by	$3.3	million,	while	the reclassification	of	the	operations	of	Bridge	as	discontinued	operations	had	the	effect	of	increasing	income	from	continuing	operations	by	$1.5	million.

(c) Income	from	continuing	operations,	before	cumulative	effect	of	change	in	accounting	reported	on	Form	10-Q	for	the	second	quarter	was	lower	by	$1.7	million than	the	amount	presented	above	as	the	amounts	presented	above	have	been	restated	to	reflect	the	reporting	of	Bridge	as	discontinued	operations.

(d) The	first	and	third	quarters	of	fiscal	2005	include	$18.8	million	and	$21.3	million	gains,	respectively,	from	antitrust	litigation	settlements.

| (in	thousands,	except	per	share	amounts) | First<br>Quarter(a) | Second<br>Quarter(b) | Third<br>Quarter | Fourth<br>Quarter | Fiscal<br>Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue\t(c) | $12,251,758 | $12,330,036 | $12,099,815 | $12,130,843 | $48,812,452 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | 1,089,434 | 1,018,919 | 956,598 | 1,243,388 | 4,308,339 |
| Total\trevenue | 13,341,192 | 13,348,955 | 13,056,413 | 13,374,231 | 53,120,791 |
| Gross\tprofit\t(d) | 524,996 | 578,671 | 572,068 | 490,695 | 2,166,430 |
| Distribution,\tselling\tand\tadministrative\texpenses,\tdepreciation\tand\tamortization | 309,788 | 316,106 | 318,202 | 313,858 | 1,257,954 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother\t(see\tNote\t11) | 1,553 | 2,216 | 1,550 | 2,198 | 7,517 |
| Operating\tincome | $213,655 | $260,349 | $252,316 | $174,639 | $900,959 |
| Loss\ton\tearly\tretirement\tof\tdebt | $—\t\t\t\t $— | $—\t\t\t\t $— | $23,592 | $— | $23,592 |
| Income\tfrom\tcontinuing\toperations | $110,429 | $143,383 | $127,175 | $93,887 | $474,874 |
| Loss\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | $1,955 | $1,231 | $1,400 | $1,898 | $6,484 |
| Net\tincome | $108,474 | $142,152 | $125,775 | $91,989 | $468,390 |
| Earnings\tper\tshare\tfrom\tcontinuing\toperations: |  |  |  |  |  |
| Basic | $0.99 | $1.28 | $1.13 | $0.85 | $4.25 |
| Diluted | $0.96 | $1.24 | $1.10 | $0.82 | $4.12 |
| Earnings\tper\tshare: |  |  |  |  |  |
| Basic | $0.97 | $1.27 | $1.12 | $0.83 | $4.20 |
| Diluted | $0.94 | $1.23 | $1.09 | $0.81 | $4.06 |

(a) Income	from	continuing	operations	reported	on	Form	10-Q	for	the	first	quarter	was	lower	by	$1.4	million	than	the	amount	presented	above	as	the	amounts presented	above	have	been	restated	to	reflect	the	reporting	of	Bridge	as	discontinued	operations.

(b) Income	from	continuing	operations	reported	on	Form	10-Q	for	the	second	quarter	was	lower	by	$0.7	million	than	the	amount	presented	above	as	the	amounts presented	above	have	been	restated	to	reflect	the	reporting	of	Bridge	as	discontinued	operations.

(c) During	the	third	quarter	of	fiscal	2004,	the	Company	changed	its	accounting	policy	for	customer	sales	returns,	and,	as	a	result,	operating	revenue	and	cost	of goods	sold	were	reduced	by	$320.4	million.

(d) The	third	quarter	of	fiscal	2004	includes	a	$38.0	million	gain	from	an	antitrust	litigation	settlement.

# Note	17. Subsequent	Events

In	October	2005,	the	Company	acquired	Trent	Drugs	(Wholesale)	Ltd	("Trent"),	one	of	the	largest	national	pharmaceutical	distributors	in	Canada	for	a	purchase price	of	$81.7	million,	which	included	the	assumption	of	debt	of	$41.3	million.	The	purchase	price	is	subject	to	a	working	capital	adjustment.	The	acquisition	of	Trent provides	the	Company	a	solid	foundation	to	expand	its	pharmaceutical	distribution	capability	into	the	Canadian	marketplace.	The	purchase	price	has	been	allocated	to the	underlying	assets	acquired	and	liabilities	assumed	based	upon	their	fair	values	at	the	date	of	the	acquisition.	The	purchase	price	exceeded	the	fair	market	value	of	the net	tangible	and	intangible	assets	acquired	by	$29.1	million,	which	will	be	allocated	to	goodwill.

In	October	2005,	the	Company	entered	into	a	C$135	million	senior	unsecured	revolving	credit	facility	(the	"Canadian	Credit	Facility")	due	December	2009	with	a syndicate	of	lenders	in	connection	with	the	Company's	acquisition	of	Trent	Drugs	(Wholesale)	Ltd	and	borrowed	approximately	C$92	million	to	complete	the transaction.	Interest	on	borrowings	under	the	Canadian	Credit	Facility	accrues	at	specific	rates	based	on	the	Company's	debt	rating	(0.675%	over	LIBOR	or	Bankers' Acceptance	Stamping	Fee	Spread	at	October	3,	2005).	The	Company	will	pay	quarterly	facility	fees	to	maintain	the	availability	under	the	Canadian	Credit	Facility	at specific	rates	based	on	the	Company's	debt	rating	(0.20%	at	October	3,	2005).	The	Company	may	choose	to	repay	or	reduce	its	commitments	under	the	Canadian	Credit Facility	at	any	time.	The	Canadian	Credit	Facility	contains	restrictions	on,	among	other	things,	additional	indebtedness,	distributions	and	dividends	to	stockholders, investments	and	capital	expenditures.	Additional	covenants	require	compliance	with	financial	tests,	including	leverage	and	minimum	earnings	to	fixed	charges	ratios.

On	November	15,	2005,	the	Company's	board	of	directors	declared	a	100%	increase	in	the	quarterly	dividend	rate	to	$0.05	per	common	share	from	$0.025	per common	share	and	will	be	paid	on	December	12,	2005	to	stockholders	of	record	as	of	close	of	business	on	November	25,	2005.	Additionally,	the	Company	declared	a two-for-one	stock	split	of	the	Company's	outstanding	shares	of	Common	Stock.	The	stock	split	will	occur	in	the	form	of	a	stock	dividend,	where	each	stockholder receives	one	additional	share	for	each	share	owned.	The	stock	dividend	is	payable	on	December	28,	2005	to	stockholders	of	record	at	the	close	of	business	on December	13,	2005.	Subsequent	quarterly	cash	dividends	will	be	adjusted	to	reflect	the	two-for-one	stock	split.

The	Company's	historical	earnings	per	share	for	the	fiscal	years	ended	September	30,	2005,	2004	and	2003	on	a	pro	forma	basis,	assuming	the	stock	dividend	had occurred	as	of	October	1,	2002,	would	be	as	follows	(unaudited):

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Earnings\tper\tshare: |  |  |  |
| Basic\tearnings\tper\tshare: |  |  |  |
| Continuing\toperations | $1.38 | $2.13 | $2.02 |
| Discontinued\toperations | (0.08) | (0.03) | (0.01) |
| Cumulative\teffect\tof\tchange\tin\taccounting | (0.05) | — | — |
| Net\tincome | $1.25 | $2.10 | $2.01 |
| Diluted\tearnings\tper\tshare: |  |  |  |
| Continuing\toperations | $1.37 | $2.06 | $1.95 |
| Discontinued\toperations | (0.08) | (0.03) | (0.01) |
| Cumulative\teffect\tof\tchange\tin\taccounting | (0.05) | — | — |
| Rounding | — | — | 0.01 |
| Net\tincome | $1.24 | $2.03 | $1.95 |

# Note	18. Selected	Consolidating	Financial	Statements	of	Parent,	Guarantors	and	Non-Guarantors

The	Company's	2012	Notes	and	2015	Notes	each	are	fully	and	unconditionally	guaranteed	on	a	joint	and	several	basis	by	certain	of	the	Company's	subsidiaries (the	subsidiaries	of	the	Company	that	are	guarantors	of	either	the	2012	Notes	and	the	2015	Notes	being	referred	to	collectively	as	the	"Guarantor	Subsidiaries").	The total	assets,	stockholders'	equity,	revenues,	earnings	and	cash	flows	from	operating	activities	of	the	Guarantor	Subsidiaries	exceeded	a	majority	of	the	consolidated	total of	such	items	as	of	or	for	the	periods	reported.	The	only	consolidated	subsidiaries	of	the	Company	that	are	not	guarantors	of	either	the	2012	Notes	and/or	the	2015	Notes (the	"Non-Guarantor	Subsidiaries")	are:	(a)	the	receivables	securitization	special	purpose	entity	described	in	Note	6	and	(b)	certain	operating	subsidiaries,	all	of	which, collectively,	are	minor.	The	following	tables	present	condensed	consolidating	financial	statements	including	AmerisourceBergen	Corporation	(the	"Parent"),	the Guarantor	Subsidiaries,	and	the	Non-Guarantor	Subsidiaries.	Such	financial	statements	include	balance	sheets	as	of	September	30,	2005	and	2004	and	the	related statements	of	operations	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	September	30,	2005.

# SUMMARY	CONSOLIDATING	BALANCE	SHEETS:

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Current\tassets: |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $1,215,497 | $67,438 | $32,748 | $— | $1,315,683 |
| Accounts\treceivable,\tnet | 1,460 | 595,401 | 2,043,785 | — | 2,640,646 |
| Merchandise\tinventories | — | 3,968,355 | 35,335 | — | 4,003,690 |
| Prepaid\texpenses\tand\tother | 15 | 26,585 | 1,073 | — | 27,673 |
| Total\tcurrent\tassets | \t 1,216,972 | 4,657,779 | 2,112,941 | — | 7,987,692 |
| Property\tand\tequipment,\tnet | — | 514,072 | 686 | — | 514,758 |
| Goodwill | — | 2,428,431 | 3,137 | — | 2,431,568 |
| Intangibles,\tdeferred\tcharges\tand\tother | 18,989 | 426,080 | 2,087 | — | 447,156 |
| Intercompany\tinvestments\tand\tadvance | \t 3,685,627 | 2,830,284 | (1,814,316) | (4,701,595) | — |
| Total\tassets | $4,921,588 | $10,856,646 | $304,535 | $(4,701,595) | $11,381,174 |
| Current\tliabilities: |  |  |  |  |  |
| Accounts\tpayable | $— | $5,256,887 | $35,366 | $— | $5,292,253 |
| Accrued\texpenses\tand\tother | (254,287) | 636,522 | 5,508 | — | 387,743 |
| Current\tportion\tof\tlong-term\tdebt | — | 1,232 | — | — | 1,232 |
| Deferred\tincome\ttaxes | — | 372,144 | (1,276) | — | 370,868 |
| Total\tcurrent\tliabilities | (254,287) | 6,266,785 | 39,598 | — | 6,052,096 |
| Long-term\tdebt,\tnet\tof\tcurrent\tportion | 895,518 | 961 | 55,000 | — | 951,479 |
| Other\tliabilities | — | 97,242 | — | — | 97,242 |
| Stockholders'\tequity | \t 4,280,357 | 4,491,658 | 209,937 | (4,701,595) | 4,280,357 |
| Total\tliabilities\tand\tstockholders'\tequity | $4,921,588 | $10,856,646 | $304,535 | $(4,701,595) | $11,381,174 |

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Current\tassets: |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $754,745 | $82,174 | $34,424 | $— | $871,343 |
| Accounts\treceivable,\tnet | 672 | 347,159 | 1,913,142 | — | 2,260,973 |
| Merchandise\tinventories | — | 5,095,322 | 40,508 | — | 5,135,830 |
| Prepaid\texpenses\tand\tother | 223 | 26,177 | 843 | — | 27,243 |
| Total\tcurrent\tassets | 755,640 | 5,550,832 | 1,988,917 | — | 8,295,389 |
| Property\tand\tequipment,\tnet | — | 464,608 | 656 | — | 465,264 |
| Goodwill | — | 2,445,138 | 3,137 | — | 2,448,275 |
| Intangibles,\tdeferred\tcharges\tand\tother | 19,334 | 422,933 | 2,808 | — | 445,075 |
| Intercompany\tinvestments\tand\tadvance | \t 4,675,462 | 1,443,187 | (1,742,577) | (4,376,072) | — |
| Total\tassets | $5,460,436 | $10,326,698 | $252,941 | $(4,376,072) | $11,654,003 |
| Current\tliabilities: |  |  |  |  |  |
| Accounts\tpayable | $— | $4,922,021 | $25,016 | $— | $4,947,037 |
| Accrued\texpenses\tand\tother | (168,609) | 677,066 | 5,273 | — | 513,730 |
| Current\tportion\tof\tlong-term\tdebt | 279,939 | 1,421 | — | — | 281,360 |
| Deferred\tincome\ttaxes | — | 363,057 | (1,276) | — | 361,781 |
| Total\tcurrent\tliabilities | 111,330 | 5,963,565 | 29,013 | — | 6,103,908 |
| Long-term\tdebt,\tnet\tof\tcurrent\tportion | \t 1,000,061 | 102,050 | 55,000 | — | 1,157,111 |
| Other\tliabilities | — | 53,939 | — | — | 53,939 |
| Stockholders'\tequity | \t 4,339,045 | 4,207,144 | 168,928 | (4,376,072) | 4,339,045 |
| Total\tliabilities\tand\tstockholders'\tequity | $5,450,436 | $10,326,698 | $252,941 | $(4,376,072) | $11,654,003 |

# SUMMARY	CONSOLIDATING	STATEMENTS	OF	OPERATIONS:

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | $— | $49,658,018 | $354,580 | $— | $50,012,598 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | — | 4,564,687 | 36 | — | 4,564,723 |
| Total\trevenue | — | \t 54,222,705 | 354,616 | — | \t 54,577,321 |
| Cost\tof\tgoods\tsold | — | \t 52,265,151 | 331,986 | — | \t 52,597,137 |
| Gross\tprofit | — | 1,957,554 | 22,630 | — | 1,980,184 |
| Operating\texpenses: |  |  |  |  |  |
| Distribution,\tselling\tand\tadministrative | — | 1,308,876 | (74,819) | — | 1,234,057 |
| Depreciation | — | 70,734 | 213 | — | 70,947 |
| Amortization | — | 10,181 | 71 | — | 10,252 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | — | 22,723 | — | — | 22,723 |
| Impairment\tcharge | — | 5,259 | — | — | 5,259 |
| Operating\tincome | — | 539,781 | 97,165 | — | 636,946 |
| Other\tincome | — | (990) | — | — | (990) |
| Interest\t(income)\texpense | (19,878) | 16,599 | 60,502 | — | 57,223 |
| Loss\ton\tearly\tretirement\tof\tdebt | \t 111,888 | — | — | — | 111,888 |
| Income\tfrom\tcontinuing\toperations\tbefore\ttaxes,\tequity\tin\tearnings\tof\tsubsidiaries,\tand |  |  |  |  |  |
| cumulative\teffect\tof\tchange\tin\taccounting | (92,010) | 524,172 | 36,663 | — | 468,825 |
| Income\ttaxes | (32,833) | 195,658 | 14,078 | — | 176,903 |
| Equity\tin\tearnings\tof\tsubsidiaries | \t 323,822 | — | — | (323,822) | — |
| Income\tfrom\tcontinuing\toperations\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting | \t 264,645 | 328,514 | 22,585 | (323,822) | 291,922 |
| Loss\tfrom\tdiscontinued\toperations | — | 17,105 | — | — | 17,105 |
| Cumulative\teffect\tof\tchange\tin\taccounting | — | 10,094 | 78 | — | 10,172 |
| Net\tincome | $264,645 | $301,315 | $22,507 | $(323,822) | $264,645 |

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | $— | $48,464,915 | $347,537 | $— | $48,812,452 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | — | 4,308,305 | 34 | — | 4,308,339 |
| Total\trevenue | — | \t 52,773,220 | 347,571 | — | \t 53,120,791 |
| Cost\tof\tgoods\tsold | — | \t 50,637,528 | 316,833 | — | \t 50,954,361 |
| Gross\tprofit | — | 2,135,692 | 30,738 | — | 2,166,430 |
| Operating\texpenses: |  |  |  |  |  |
| Distribution,\tselling\tand\tadministrative | — | 1,278,555 | (94,026) | — | 1,184,529 |
| Depreciation | — | 63,095 | 369 | — | 63,464 |
| Amortization | — | 9,425 | 536 | — | 9,961 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | — | 7,517 | — | — | 7,517 |
| Operating\tincome | — | 777,100 | 123,859 | — | 900,959 |
| Other\tincome | — | (6,236) | — | — | (6,236) |
| Interest\t(income)\texpense | (39,560) | 119,173 | 33,091 | — | 112,704 |
| Loss\ton\tearly\tretirement\tof\tdebt | — | 23,592 | — | — | 23,592 |
| Income\tfrom\tcontinuing\toperations\tbefore\ttaxes\tand\tequity\tin\tearnings\tof\tsubsidiaries | 39,560 | 640,571 | 90,768 | — | 770,899 |
| Income\ttaxes | 15,190 | 245,980 | 34,855 | — | 296,025 |
| Equity\tin\tearnings\tof\tsubsidiaries | \t 444,020 | — | — | (444,020) | — |
| Income\tfrom\tcontinuing\toperations | \t 468,390 | 394,591 | 55,913 | (444,020) | 474,874 |
| Loss\tfrom\tdiscontinued\toperations | — | 6,484 | — | — | 6,484 |
| Net\tincome | $468,390 | $388,107 | $55,913 | $(444,020) | $468,390 |

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue | $— | $45,195,128 | $268,272 | $— | $45,463,400 |
| Bulk\tdeliveries\tto\tcustomer\twarehouses | — | 4,120,605 | 34 | — | 4,120,639 |
| Total\trevenue | — | \t 49,315,733 | 268,306 | — | \t 49,584,039 |
| Cost\tof\tgoods\tsold | — | \t 47,116,582 | 241,844 | — | \t 47,358,426 |
| Gross\tprofit | — | 2,199,151 | 26,462 | — | 2,225,613 |
| Operating\texpenses: |  |  |  |  |  |
| Distribution,\tselling\tand\tadministrative | — | 1,317,824 | (56,467) | — | 1,261,357 |
| Depreciation | — | 61,807 | 358 | — | 62,165 |
| Amortization | — | 6,185 | 847 | — | 7,032 |
| Facility\tconsolidations,\temployee\tseverance\tand\tother | — | 8,930 | — | — | 8,930 |
| Operating\tincome | — | 804,405 | 81,724 | — | 886,129 |
| Other\tloss | — | 6,542 | 1,473 | — | 8,015 |
| Interest\t(income)\texpense | (125,772) | 239,386 | 31,134 | — | 144,748 |
| Loss\ton\tearly\tretirement\tof\tdebt | — | 4,220 | — | — | 4,220 |
| Income\tfrom\tcontinuing\toperations\tbefore\ttaxes\tand\tequity\tin\tearnings\tof |  |  |  |  |  |
| subsidiaries | 125,772 | 554,257 | 49,117 | — | 729,146 |
| Income\ttaxes | 49,342 | 217,563 | 19,176 | — | 286,081 |
| Equity\tin\tearnings\tof\tsubsidiaries | 364,799 | — | — | (364,799) | — |
| Income\tfrom\tcontinuing\toperations | 441,229 | 336,694 | 29,941 | (364,799) | 443,065 |
| Loss\tfrom\tdiscontinued\toperations | — | 1,836 | — | — | 1,836 |
| Net\tincome | $441,229 | $334,858 | $29,941 | $(364,799) | $441,229 |

# SUMMARY	CONDENSED	CONSOLIDATING	STATEMENTS	OF	CASH	FLOWS:

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $264,645 | $301,315 | $22,507 | $(323,822) | $264,645 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\t(used\tin)\tprovided\tby\toperating |  |  |  |  |  |
| activities | (393,050) | 1,445,536 | (114,315) | 323,822 | 1,261,993 |
| Net\tcash\t(used\tin)\tprovided\tby\toperating\tactivities | (128,405) | 1,746,851 | (91,808) | — | 1,526,638 |
| Capital\texpenditures | — | (203,028) | (348) | — | (203,376) |
| Cost\tof\tacquired\tcompanies,\tnet\tof\tcash\tacquired | — | (4,404) | — | — | (4,404) |
| Proceeds\tfrom\tsale-leaseback\ttransactions | — | 36,696 | — | — | 36,696 |
| Proceeds\tfrom\tsale\tof\tdiscontinued\toperations | — | 14,560 | — | — | 14,560 |
| Other | — | 4,219 | — | — | 4,219 |
| Net\tcash\tused\tin\tinvesting\tactivities | — | (151,957) | (348) | — | (152,305) |
| Long-term\tdebt\tborrowings | 895,500 | — | — | — | 895,500 |
| Long-term\tdebt\trepayments | (1,180,000) | (2,339) | — | — | (1,182,339) |
| Purchase\tof\tCommon\tStock | (786,192) | — | — | — | (786,192) |
| Deferred\tfinancing\tcosts\tand\tother | (16,685) | (1,334) | (840) | — | (18,859) |
| Exercise\tof\tstock\toptions | 174,060 | — | — | — | 174,060 |
| Cash\tdividends\ton\tCommon\tStock | (10,598) | — | — | — | (10,598) |
| Common\tStock\tpurchases\tfor\temployee\tstock\tpurchase\tplan | (1,565) | — | — | — | (1,565) |
| Intercompany\tfinancing\tand\tadvances | 1,514,637 | (1,605,957) | 91,320 | — | — |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 589,157 | (1,609,630) | 90,480 | — | (929,993) |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | 460,752 | (14,736) | (1,676) | — | 444,340 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 754,745 | 82,174 | 34,424 | — | 871,343 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | $1,215,497 | $67,438 | $32,748 | $— | $1,315,683 |

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $468,390 | $388,107 | $55,913 | $(444,020) | $468,390 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities | (438,948) | 164,257 | 187,362 | 444,020 | 356,691 |
| Net\tcash\tprovided\tby\toperating\tactivities | 29,442 | 552,364 | 243,275 | — | 825,081 |
| Capital\texpenditures | — | (189,278) | — | — | (189,278) |
| Cost\tof\tacquired\tcompanies,\tnet\tof\tcash\tacquired | — | (68,882) | — | — | (68,882) |
| Other | — | 15,938 | — | — | 15,938 |
| Net\tcash\tused\tin\tinvesting\tactivities | — | (242,222) | — | — | (242,222) |
| Long-term\tdebt\trepayments | (60,000) | (308,425) | — | — | (368,425) |
| Purchase\tof\tCommon\tStock | (144,756) |  | — | — | (144,756) |
| Deferred\tfinancing\tcosts\tand\tother | — | (1,376) | (14) | — | (1,390) |
| Exercise\tof\tstock\toptions | 15,151 | — | — | — | 15,151 |
| Cash\tdividends\ton\tCommon\tStock | (11,197) | — | — | — | (11,197) |
| Common\tStock\tpurchases\tfor\temployee\tstock\tpurchase\tplan | (935) | — | — | — | (935) |
| Intercompany\tfinancing\tand\tadvances | 354,132 | (87,490) | (266,642) | — | — |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 152,395 | (397,291) | (266,656) | — | (511,552) |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | 181,837 | (87,149) | (23,381) | — | 71,307 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 572,908 | 169,323 | 57,805 | — | 800,036 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | $754,745 | $82,174 | $34,424 | $— | $871,343 |

| (in	thousands) | Parent | Guarantor<br>Subsidiaries | Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $441,229 | $334,858 | $29,941 | $(364,799) | $441,229 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\t(used\tin)\toperating |  |  |  |  |  |
| activities | (420,085) | 81,318 | (112,446) | 364,799 | (86,414) |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | 21,144 | 416,176 | (82,505) | — | 354,815 |
| Capital\texpenditures | — | (90,362) | (192) | — | (90,554) |
| Cost\tof\tacquired\tcompanies,\tnet\tof\tcash\tacquired | — | (91,690) | (20,291) | — | (111,981) |
| Other | — | 726 | — | — | 726 |
| Net\tcash\tused\tin\tinvesting\tactivities | — | (181,326) | (20,483) | — | (201,809) |
| Long-term\tdebt\tborrowings | 300,000 | — | — | — | 300,000 |
| Long-term\tdebt\trepayments | (60,000) | (278,989) | — | — | (338,989) |
| Deferred\tfinancing\tcosts\tand\tother | (5,658) | 807 | (2,431) | — | (7,282) |
| Exercise\tof\tstock\toptions | 42,564 | — | — | — | 42,564 |
| Cash\tdividends\ton\tCommon\tStock | (10,995) | — | — | — | (10,995) |
| Common\tStock\tpurchases\tfor\temployee\tstock\tpurchase\tplan | (1,608) | — | — | — | (1,608) |
| Intercompany\tfinancing\tand\tadvances | (128,541) | 40,597 | 87,944 | — | — |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 135,762 | (237,585) | 85,513 | — | (16,310) |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | 156,906 | (2,735) | (17,475) | — | 136,696 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 416,002 | 172,058 | 75,280 | — | 663,340 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | $572,908 | $169,323 | $57,805 | $— | $800,036 |

# ITEM	9. CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# None.

# ITEM	9A. CONTROLS	AND	PROCEDURES

# Evaluation	of	Disclosure	Controls	and	Procedures

The	Company	maintains	disclosure	controls	and	procedures	that	are	intended	to	ensure	that	information	required	to	be	disclosed	in	the	Company's	reports submitted	under	the	Securities	Exchange	Act	of	1934,	as	amended	(the	"Exchange	Act"),	is	recorded,	processed,	summarized	and	reported	within	the	time	periods specified	in	the	rules	and	forms	of	the	SEC.	These	controls	and	procedures	also	are	intended	to	ensure	that	information	required	to	be	disclosed	in	such	reports	is accumulated	and	communicated	to	management	to	allow	timely	decisions	regarding	required	disclosures.

The	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer,	with	the	participation	of	other	members	of	the	Company's	management,	have	evaluated	the effectiveness	of	the	Company's	disclosure	controls	and	procedures	(as	such	term	is	defined	in	Rules	13a	–	15(e)	and	15d	–	15(e)	under	the	Exchange	Act)	and	have concluded	that	the	Company's	disclosure	controls	and	procedures	were	effective	for	their	intended	purposes	as	of	the	end	of	the	period	covered	by	this	report.

# Changes	in	Internal	Control	over	Financial	Reporting

There	were	no	changes	during	the	fiscal	quarter	ended	September	30,	2005	in	the	Company's	internal	control	over	financial	reporting	that	materially	affected,	or are	reasonably	likely	to	materially	affect,	those	controls.	During	the	fiscal	quarter	ended	September	30,	2005,	the	Company	outsourced	a	significant	portion	of	its corporate	and	ABDC	information	technology	activities	to	IBM	Global	Services.	The	outsourced	services	primarily	include	management	of	applications	and	hardware	as well	as	systems	design	and	development.	The	Company	retains	responsibility	and	authority	for	application	selection,	hardware	selection,	technology	strategy	and standards	for	technology	use.	Management	implemented,	and	oversaw	the	implementation	by	IBM	Global	Services	of,	controls	over	the	outsourced	activities	that management	believes	were	adequate	to	ensure	that	the	outsourcing	did	not	materially	affect	internal	control	over	financial	reporting	during	the	fiscal	quarter	ended September	30,	2005.

# MANAGEMENT'S	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

The	management	of	AmerisourceBergen	Corporation	("AmerisourceBergen"	or	the	"Company")	is	responsible	for	establishing	and	maintaining	adequate	internal control	over	financial	reporting	as	defined	in	Rules	13a-15(f)	and	15d-15(f)	under	the	Securities	Exchange	Act	of	1934,	as	amended.	AmerisourceBergen's	internal control	over	financial	reporting	is	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for external	purposes	in	accordance	with	generally	accepted	accounting	principles.	The	Company's	internal	control	over	financial	reporting	includes	those	policies	and procedures	that:

(i)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	Company;

(ii)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with	U.S.	generally accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of	management	and directors	of	the	Company;	and

(iii)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use	or	disposition	of	the	company's	assets	that	could	have a	material	effect	on	the	financial	statements.

Because	of	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

AmerisourceBergen's	management	assessed	the	effectiveness	of	AmerisourceBergen's	internal	control	over	financial	reporting	as	of	September	30,	2005.	In making	this	assessment,	management	used	the	criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO)	in	Internal Control-Integrated	Framework.	Based	on	management's	assessment	and	those	criteria,	management	has	concluded	that	AmerisourceBergen's	internal	control	over financial	reporting	was	effective	as	of	September	30,	2005.	AmerisourceBergen's	independent	registered	public	accounting	firm,	Ernst	&	Young	LLP,	has	issued	an audit	report	on	management's	assessment	and	the	effectiveness	of	AmerisourceBergen's	internal	control	over	financial	reporting.	This	report	is	set	forth	on	the	next page.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

We	have	audited	management's	assessment,	included	in	the	accompanying	Management's	Report	on	Internal	Control	Over	Financial	Reporting,	that AmerisourceBergen	Corporation	and	subsidiaries	maintained	effective	internal	control	over	financial	reporting	as	of	September	30,	2005,	based	on	criteria	established	in Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(the	COSO	criteria).	AmerisourceBergen Corporation's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control over	financial	reporting.	Our	responsibility	is	to	express	an	opinion	on	management's	assessment	and	an	opinion	on	the	effectiveness	of	the	company's	internal	control over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our audit	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	evaluating	management's	assessment,	testing	and	evaluating	the	design	and operating	effectiveness	of	internal	control,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

In	our	opinion,	management's	assessment	that	AmerisourceBergen	Corporation	and	subsidiaries	maintained	effective	internal	control	over	financial	reporting	as of	September	30,	2005,	is	fairly	stated,	in	all	material	respects,	based	on	the	COSO	criteria.	Also,	in	our	opinion,	AmerisourceBergen	Corporation	and	subsidiaries maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	September	30,	2005,	based	on	the	COSO	criteria.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	balance	sheets	of AmerisourceBergen	Corporation	and	subsidiaries	as	of	September	30,	2005	and	2004,	and	the	related	consolidated	statements	of	operations,	changes	in	stockholders' equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	September	30,	2005	of	AmerisourceBergen	Corporation	and	subsidiaries	and	our	report	dated December	8,	2005	expressed	an	unqualified	opinion	thereon.

# ITEM	9B. OTHER	INFORMATION

# PART	III

# ITEM	10. DIRECTORS	AND	EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

Information	appearing	in	the	Company's	Notice	of	Annual	Meeting	of	Stockholders	and	Proxy	Statement	for	the	2006	annual	meeting	of	stockholders	(the	"2006 Proxy	Statement")	including	information	under	"Election	of	Directors,"	"Codes	of	Ethics,"	"Audit	Matters,"	and	"Compliance	with	Section	16(a)	of	the	Securities Exchange	Act	of	1934,"	is	incorporated	herein	by	reference.	The	Company	will	file	the	2006	Proxy	Statement	with	the	Commission	pursuant	to	Regulation	14A	within 120	days	after	the	close	of	the	fiscal	year.

Information	with	respect	to	Executive	Officers	of	the	Company	appears	in	Part	I	of	this	report.

The	Company	has	adopted	a	Code	of	Ethics	for	Designated	Senior	Officers	that	applies	to	the	Company's	Chief	Executive	Officer,	Chief	Financial	Officer	and Corporate	Controller.	A	copy	of	this	Code	of	Ethics	is	filed	as	an	exhibit	to	this	report	and	is	posted	on	the	Company's	Internet	website,	which	is www.amerisourcebergen.com.	Any	amendment	to,	or	waiver	from,	any	provision	of	this	Code	of	Ethics	will	be	posted	as	well	on	the	Company's	Internet	website.

# ITEM	11. EXECUTIVE	COMPENSATION

Information	contained	in	the	2006	Proxy	Statement,	including	information	appearing	under	"Compensation	Matters,"	and	"Stock	Performance	Graph"	in	the	2006 Proxy	Statement,	is	incorporated	herein	by	reference.

# ITEM	12. SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER	MATTERS

Information	contained	in	the	2006	Proxy	Statement,	including	information	appearing	under	"Beneficial	Ownership	of	Common	Stock"	and	"Equity	Compensation Plan	Information"	in	the	2006	Proxy	Statement,	is	incorporated	herein	by	reference.

# ITEM	13. CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS

Information	contained	in	the	2006	Proxy	Statement,	including	information	appearing	under	"Agreements	with	Employees"	and	"Certain	Transactions"	in	the	2006 Proxy	Statement,	is	incorporated	herein	by	reference.

# ITEM	14. PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

Information	contained	in	the	2006	Proxy	Statement,	including	information	appearing	under	"Audit	Matters"	in	the	2006	Proxy	Statement,	is	incorporated	herein by	reference.

# PART	IV

# ITEM	15. EXHIBITS	AND	FINANCIAL	STATEMENT	SCHEDULES

# (a)	(1)	and	(2)	List	of	Financial	Statements	and	Schedules.

Financial	Statements:	The	following	consolidated	financial	statements	are	submitted	in	response	to	Item	15(a)(1):

All	other	schedules	for	which	provision	is	made	in	the	applicable	accounting	regulations	of	the	Securities	and	Exchange	Commission	are	not	required	under	the related	instructions	or	are	inapplicable	and,	therefore,	have	been	omitted.

* Copies	of	the	exhibits	will	be	furnished	to	any	security	holder	of	the	Registrant	upon	payment	of	the	reasonable	cost	of	reproduction.

A Each	marked	exhibit	is	a	management	contract	or	a	compensatory	plan,	contract	or	arrangement	in	which	a	director	or	executive	officer	of	the	Registrant participates	or	has	participated.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	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.

R.	David	Yost

Chief	Executive	Officer	and

Director

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	as	of	December	9,	2005	by	the	following	persons on	behalf	of	the	Registrant	and	in	the	capacities	indicated.

# /s/				MICHAEL	D.	DICANDILO

# Michael	D.	DiCandilo

# Kurt	J.	Hilzinger

Tim	G.	Guttman

James	R.	Mellor

Rodney	H.	Brady

Charles	H.	Cotros

Richard	C.	Gozon

/s/				EDWARD	E.	HAGENLOCKER

Edward	E.	Hagenlocker

Jane	E.	Henney,	M.D.

Henry	W.	McGee

Executive	Vice	President	and	Chief	Financial	Officer	(Principal	Financial and	Accounting	Officer)

President,	Chief	Operating	Officer	and	Director

Vice	President,	Corporate	Controller

Director	and	Chairman

# SCHEDULE	II	-	VALUATION	AND	QUALIFYING	ACCOUNTS

| Description | Balance	at<br>Beginning<br>of	Period | Charged	to<br>Costs	and<br>Expenses	(1) | Charged<br>to	Other<br>Accounts | Deductions-<br>Describe	(3) | Balance	at<br>End	of<br>Period |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tEnded\tSeptember\t30,\t2005 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $147,564 | $33,379 | $— | $(40,807) | $140,136 |
| Year\tEnded\tSeptember\t30,\t2004 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $191,744 | $(10,279) | $50(2) | $(33,951) | $147,564 |
| Year\tEnded\tSeptember\t30,\t2003 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $181,432 | $46,012 | $ 5,193(2) | $(40,893) | $191,744 |

(2) Represents	the	aggregate	allowances	of	acquired	entities	at	the	respective	acquisition	dates.

(3) Represents	accounts	written	off	during	year,	net	of	recoveries.



Question: without employee severance costs in 2004 and 2005 , what would have been the increase in net income in millions?\\n\\n
Calculation:    increase_in_net_income = 13.3 + 5.4
 answer = increase_in_net_income
Answer: 18.7