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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

OR

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

For the transition period from                      to

Commission file number 000-25769

ACCREDO HEALTH, INCORPORATED

(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 62-1642871                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

1640 CENTURY CENTER PKWY, SUITE 101, MEMPHIS, TN 38134

(Address of principal executive offices)
(Zip Code)

(901) 385-3688

(Registrants telephone number, including area code)

NO CHANGE

(Former name, former address and former fiscal year,
if changed since last report)

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 whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.

|                              |  |                                 |            | 
|----------------------------- |  | ------------------------------- | ---------- | 
|CLASS                         |  | OUTSTANDING AT October 31, 2003
|                              |  |                                
|COMMON STOCK, $0.01 PAR VALUE |  |                                 | 47,880,792 | 
|                              |  |                                 |            | 
|TOTAL COMMON STOCK            |  |                                 | 47,880,792 | 
|                              |  |                                 |            | 





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TABLE OF CONTENTS



|                                                                                               |                                                      |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                                
|ITEM 1. FINANCIAL STATEMENTS.                                                                 
|                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|ITEM 4. CONTROLS AND PROCEDURES                                                               
|PART II  OTHER INFORMATION                                                                   
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                     
|Signature                                                                                     
|EX-10.1  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.2  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.3  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.4  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.5  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.6  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-10.7  INCENTIVE STOCK OPTION AGREEMENT                                                     
|EX-31.1  SECTION 302 CEO CERTIFICATION                                                        
|EX-31.2  SECTION 302 CFO CERTIFICATION                                                        
|EX-32.1  SECTION 906 CEO CERTIFICATION                                                        
|EX-32.2  SECTION 906 CFO CERTIFICATION                                                        



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ACCREDO HEALTH, INCORPORATED
INDEX

|          |  |                                                                                                                                  |  |  |  |  | 
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  | 
|Part I -  |  | FINANCIAL INFORMATION                                                                                                            | 
|Item 1    |  | Financial Statements                                                                                                             | 
|          |  | Condensed
Consolidated Statements of Income (unaudited)
For the three months ended September 30, 2002 (as restated) and 2003     | 
|          |  | Condensed
Consolidated Balance Sheets
June 30, 2003 and September 30, 2003 (unaudited)                                           | 
|          |  | Condensed Consolidated Statements of Cash
Flows (unaudited)
For the three months ended September 30, 2002 (as restated) and 2003 | 
|          |  | Notes to Condensed Consolidated
Financial Statements                                                                             | 
|Item 2    |  | Management's Discussion and Analysis of
Financial Condition and Results of Operations                                            | 
|Item 3    |  | Quantitative and Qualitative Disclosure About Market Risk                                                                        | 
|Item 4    |  | Controls and Procedures                                                                                                          | 
|Part II - |  | OTHER INFORMATION                                                                                                                | 
|Item 6    |  | Exhibits and Reports on Form 8-K                                                                                                 | 
|Note:     |  | Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not applicable.                                                   | 





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PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS.




ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(000S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)

|                                             |         |   |                    |            |             |   |              |            | 
|-------------------------------------------- | ------- | - | ------------------ | ---------- | ----------- | - | ------------ | ---------- | 
|                                             |         |   | Three Months Ended
|                                             |         |   | September 30,     
|                                             |         |   |                   
|                                             |         |   |                    |            |             |   | 2002        
|                                             |         |   |                    |            |             |   | (as restated
|                                             |         |   | 2003               |            | see Note 2)
|                                             |         |   |                    |            |            
|Net patient revenue                          |         | $ | 326,039            |            |             | $ | 307,431      |           
|Other revenue                                |         |   | 8,397              |            |             |   | 8,885        |           
|Equity in net income of joint ventures       |         |   | 548                |            |             |   | 345          |           
|                                             |         |   |                    |            |             |   |              |           
|Total revenues                               |         |   | 334,984            |            |             |   | 316,661      |           
|Cost of sales                                |         |   | 258,897            |            |             |   | 251,596      |           
|                                             |         |   |                    |            |             |   |              |           
|Gross profit                                 |         |   | 76,087             |            |             |   | 65,065       |           
|General & administrative                     |         |   | 34,552             |            |             |   | 30,744       |           
|Bad debts                                    |         |   | 7,174              |            |             |   | 6,554        |           
|Depreciation and amortization                |         |   | 2,955              |            |             |   | 2,340        |           
|                                             |         |   |                    |            |             |   |              |           
|Income from operations                       |         |   | 31,406             |            |             |   | 25,427       |           
|Interest expense, net                        |         |   | (2,276             | )          |             |   | (2,446       | )         
|Minority interest in consolidated subsidiary |         |   | (482               | )          |             |   | (484         | )         
|                                             |         |   |                    |            |             |   |              |           
|Income before income taxes                   |         |   | 28,648             |            |             |   | 22,497       |           
|Provision for income taxes                   |         |   | 11,140             |            |             |   | 9,034        |           
|                                             |         |   |                    |            |             |   |              |           
|Net income                                   |         | $ | 17,508             |            |             | $ | 13,463       |           
|                                             |         |   |                    |            |             |   |              |           
|Cash dividends declared on common stock      |         | $ |                   |            |             | $ |             |           
|                                             |         |   |                    |            |             |   |              |           
|Net income per common share:                 |         |   |                    |            |             |   |              |           
|                                             | Basic   |   | $                  | 0.37       |             |   | $            | 0.29       | 
|                                             |         |   |                    |            |             |   |              |           
|                                             | Diluted |   | $                  | 0.36       |             |   | $            | 0.28       | 
|                                             |         |   |                    |            |             |   |              |           
|Weighted average shares outstanding:         |         |   |                    |            |             |   |              |           
|                                             | Basic   |   |                    | 47,848,126 |             |   |              | 47,106,209 | 
|                                             | Diluted |   |                    | 48,554,127 |             |   |              | 48,309,648 | 

See accompanying notes to condensed consolidated financial statements.





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ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(000S OMITTED, EXCEPT SHARE DATA)

|                                                |                                                                                                                                                                            |   |               |         |          |   |         |         |  
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------- | -------- | - | ------- | ------- | -
|                                                |                                                                                                                                                                            |   | (Unaudited)   |         |          |   |        
|                                                |                                                                                                                                                                            |   | September 30, |         | June 30,
|                                                |                                                                                                                                                                            |   | 2003          |         | 2003    
|                                                |                                                                                                                                                                            |   |               |         |         
|ASSETS                                          |                                                                                                                                                                            |   |               |         |          |   |         |        
|Current assets:                                 |                                                                                                                                                                            |   |               |         |          |   |         |        
|                                                | Cash and cash equivalents                                                                                                                                                  |   | $             | 49,121  |          |   | $       | 48,006  |  
|                                                | Patient accounts receivable, less allowance for
doubtful accounts of $120,204 at September 30, 2003
and $126,541 at June 30, 2003                                          |   |               | 312,224 |          |   |         | 307,982 |  
|                                                | Due from affiliates                                                                                                                                                        |   |               | 4,056   |          |   |         | 3,933   |  
|                                                | Other accounts receivable                                                                                                                                                  |   |               | 19,528  |          |   |         | 21,226  |  
|                                                | Inventories                                                                                                                                                                |   |               | 94,299  |          |   |         | 89,985  |  
|                                                | Prepaids and other current assets                                                                                                                                          |   |               | 5,184   |          |   |         | 4,625   |  
|                                                | Income taxes receivable                                                                                                                                                    |   |               |        |          |   |         | 1,546   |  
|                                                | Deferred income taxes                                                                                                                                                      |   |               | 22,650  |          |   |         | 24,579  |  
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|Total current assets                            |                                                                                                                                                                            |   | 507,062       |         |          |   | 501,882 |        
|Property and equipment, net                     |                                                                                                                                                                            |   | 31,192        |         |          |   | 31,681  |        
|Other assets:                                   |                                                                                                                                                                            |   |               |         |          |   |         |        
|                                                | Joint venture investments                                                                                                                                                  |   |               | 6,275   |          |   |         | 5,908   |  
|                                                | Goodwill, net                                                                                                                                                              |   |               | 352,332 |          |   |         | 352,509 |  
|                                                | Other intangible assets, net                                                                                                                                               |   |               | 21,264  |          |   |         | 22,803  |  
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|Total assets                                    |                                                                                                                                                                            | $ | 918,125       |         |          | $ | 914,783 |        
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                                                                                            |   |               |         |          |   |         |        
|Current liabilities:                            |                                                                                                                                                                            |   |               |         |          |   |         |        
|                                                | Accounts payable                                                                                                                                                           |   | $             | 153,949 |          |   | $       | 169,664 |  
|                                                | Accrued expenses                                                                                                                                                           |   |               | 17,745  |          |   |         | 19,518  |  
|                                                | Due to affiliates                                                                                                                                                          |   |               | 324     |          |   |         | 576     |  
|                                                | Income taxes payable                                                                                                                                                       |   |               | 5,533   |          |   |         |        |  
|                                                | Current portion of long-term debt                                                                                                                                          |   |               | 16,250  |          |   |         | 16,250  |  
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|Total current liabilities                       |                                                                                                                                                                            |   | 193,801       |         |          |   | 206,008 |        
|Long-term debt                                  |                                                                                                                                                                            |   | 174,375       |         |          |   | 178,438 |        
|Deferred income taxes                           |                                                                                                                                                                            |   | 16,601        |         |          |   | 14,810  |        
|Minority interest in consolidated joint venture |                                                                                                                                                                            |   | 2,501         |         |          |   | 2,819   |        
|Stockholders equity:                           |                                                                                                                                                                            |   |               |         |          |   |         |        
|                                                | Undesignated Preferred Stock, 5,000,000 shares
authorized, no shares issued                                                                                                |   |               |        |          |   |         |        |  
|                                                | Common Stock, $.01 par value; 100,000,000 shares authorized;
47,880,792 and 47,838,257 shares issued and outstanding at
September 30, 2003 and June 30, 2003, respectively |   |               | 479     |          |   |         | 478     |  
|                                                | Additional paid-in capital                                                                                                                                                 |   |               | 425,746 |          |   |         | 425,183 |  
|                                                | Accumulated other comprehensive loss                                                                                                                                       |   |               |        |          |   |         | (68     | )
|                                                | Retained earnings                                                                                                                                                          |   |               | 104,622 |          |   |         | 87,115  |  
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|Total stockholders equity                      |                                                                                                                                                                            |   | 530,847       |         |          |   | 512,708 |        
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        
|Total liabilities and stockholders equity      |                                                                                                                                                                            | $ | 918,125       |         |          | $ | 914,783 |        
|                                                |                                                                                                                                                                            |   |               |         |          |   |         |        

See accompanying notes to condensed consolidated financial statements.





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ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000S OMITTED)
(UNAUDITED)

|                                                                                  |                                                           |   |                    |         |             |   |              |         |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------- | - | ------------------ | ------- | ----------- | - | ------------ | ------- | -
|                                                                                  |                                                           |   | Three Months Ended
|                                                                                  |                                                           |   | September 30,     
|                                                                                  |                                                           |   |                   
|                                                                                  |                                                           |   | 2003               |         | 2002       
|                                                                                  |                                                           |   |                    |         |             |   | (as restated
|                                                                                  |                                                           |   |                    |         | see Note 2)
|                                                                                  |                                                           |   |                    |         |            
|OPERATING ACTIVITIES:                                                             |                                                           |   |                    |         |             |   |              |        
|Net income                                                                        |                                                           | $ | 17,508             |         |             | $ | 13,463       |        
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                                           |   |                    |         |             |   |              |        
|                                                                                  | Depreciation and amortization                             |   |                    | 3,869   |             |   |              | 3,070   |  
|                                                                                  | Provision for losses on accounts receivable               |   |                    | 7,174   |             |   |              | 6,554   |  
|                                                                                  | Deferred income tax benefit                               |   |                    | 3,720   |             |   |              | (1,250  | )
|                                                                                  | Tax benefit of exercise of stock options                  |   |                    | 148     |             |   |              | 2,611   |  
|                                                                                  | Undistributed
earnings of joint ventures                  |   |                    | (368    | )           |   |              | (205    | )
|                                                                                  | Minority interest in income of consolidated joint venture |   |                    | 482     |             |   |              | 484     |  
|Changes in operating assets and liabilities:                                      |                                                           |   |                    |         |             |   |              |        
|                                                                                  | Patient receivables and other                             |   |                    | (9,717  | )           |   |              | 649     |  
|                                                                                  | Due from affiliates                                       |   |                    | (375    | )           |   |              | (1,369  | )
|                                                                                  | Inventories                                               |   |                    | (4,315  | )           |   |              | 970     |  
|                                                                                  | Prepaids and other current assets                         |   |                    | (559    | )           |   |              | (174    | )
|                                                                                  | Accounts payable and accrued expenses                     |   |                    | (17,366 | )           |   |              | (27,138 | )
|                                                                                  | Income taxes payable                                      |   |                    | 7,255   |             |   |              | 6,127   |  
|                                                                                  |                                                           |   |                    |         |             |   |              |        
|Net cash provided by operating activities                                         |                                                           |   | 7,456              |         |             |   | 3,792        |        
|INVESTING ACTIVITIES:                                                             |                                                           |   |                    |         |             |   |              |        
|Purchases of property and equipment                                               |                                                           |   | (1,850             | )       |             |   | (6,177       | )      
|Business acquisitions and joint venture investments                               |                                                           |   | (44                | )       |             |   | (700         | )      
|                                                                                  |                                                           |   |                    |         |             |   |              |        
|Net cash used in investing activities                                             |                                                           |   | (1,894             | )       |             |   | (6,877       | )      
|FINANCING ACTIVITIES:                                                             |                                                           |   |                    |         |             |   |              |        
|Decrease in long-term notes payable                                               |                                                           |   | (4,062             | )       |             |   | (30,625      | )      
|Issuance of common stock                                                          |                                                           |   | 415                |         |             |   | 1,983        |        
|Distributions
to minority interest partner                                        |                                                           |   | (800               | )       |             |   | (300         | )      
|                                                                                  |                                                           |   |                    |         |             |   |              |        
|Net cash used in financing activities                                             |                                                           |   | (4,447             | )       |             |   | (28,942      | )      
|                                                                                  |                                                           |   |                    |         |             |   |              |        
|Increase (decrease) in cash and cash equivalents                                  |                                                           |   | 1,115              |         |             |   | (32,027      | )      
|Cash and cash equivalents at beginning of period                                  |                                                           |   | 48,006             |         |             |   | 42,913       |        
|                                                                                  |                                                           |   |                    |         |             |   |              |        
|Cash and cash equivalents at end of period                                        |                                                           | $ | 49,121             |         |             | $ | 10,886       |        
|                                                                                  |                                                           |   |                    |         |             |   |              |        

See accompanying notes to condensed consolidated financial statements.





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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2003

1.     BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial information and with the instructions to form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary to present fairly the condensed consolidated financial
position, results of operations and cash flows of Accredo Health,
Incorporated ( the Company or Accredo ) have been included.
Operating results for the three-month period ended September 30,
2003, are not necessarily indicative of the results that may be
expected for the fiscal year ended June 30, 2004.

Certain amounts for the quarter ended September 30, 2002 have been
reclassified to conform to the presentation for the quarter ended
September 30, 2003.

The balance sheet at June 30, 2003 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys
Annual Report on Form 10-K for the year ended June 30, 2003.

2.     RESTATEMENT

Subsequent to the issuance of the Companys 2003 quarterly financial
statements, the Companys management determined that previously
issued financial statements should be restated due to a change in the
timing and recognition of revenue. For revenue recognition purposes,
prior to April 1, 2003, the Company considered the delivery criteria
to have been met when product was shipped to its patients, and the
Company had no further obligation related to such product. The
Company has now determined that the delivery criteria are met when
the product has been delivered to the patient (which typically occurs
one day after shipment), and the Company has no further obligation
related to such product. The restatement resulted in a decrease in
total revenues of $5,104 for the three months ended September 30,
2002 and reduced previously reported net income from $13,970 to
$13,463. Previously reported basic and diluted earnings per common
share decreased $.01 for the period ended September 30, 2002.

A summary of the significant effects of the restatement is as follows
(in thousands, except per share data):

Condensed Consolidated Statement of Operations Data:

|                             |         |   |                                       |      |             |   |         |      | 
|---------------------------- | ------- | - | ------------------------------------- | ---- | ----------- | - | ------- | ---- | 
|                             |         |   | Three Months Ended September 30, 2002
|                             |         |   |                                      
|                             |         |   | As previously reported                |      | As restated
|                             |         |   |                                       |      |            
|Total revenues               |         | $ | 321,765                               |      |             | $ | 316,661 |     
|Operating income             |         |   | 25,877                                |      |             |   | 25,427  |     
|Income before income taxes   |         |   | 23,318                                |      |             |   | 22,497  |     
|Net income                   |         |   | 13,970                                |      |             |   | 13,463  |     
|Net income per common share: |         |   |                                       |      |             |   |         |     
|                             | Basic   |   | $                                     | 0.30 |             |   | $       | 0.29 | 
|                             | Diluted |   | $                                     | 0.29 |             |   | $       | 0.28 | 

3.     STOCKHOLDERS EQUITY

During the quarter, employees exercised stock options to acquire
42,535 shares of Accredo common stock at a weighted average exercise
price of $9.76 per share.





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4.     PRO FORMA NET INCOME EFFECT OF COMPANY STOCK OPTION PLANS

Pro forma information regarding net income is required by Statement
of Financial Accounting Standards No. 123 (Statement 123) and has
been determined as if the Company had accounted for its employee
stock options under the fair value method of Statement 123.
Significant assumptions used by the Company in the Black-Scholes
option pricing model computations are as follows for the quarters
ended September 30:

|                               |  |           |      |           |  |                |     |  
|------------------------------ |  | --------- | ---- | --------- |  | -------------- | --- | -
|                               |  | 2003      |      | 2002     
|                               |  |           |      |          
|Risk-free interest rate        |  |           | 2.91 | %         |  | 2.63% to 3.15%
|Dividend yield                 |  |           | 0    | %         |  |                | 0   | %
|Volatility factor              |  |           | .66  |           |  |                | .66 |  
|Weighted-average expected life |  | 4.0 years |      | 4.0 years
|Estimated turnover             |  |           | 8    | %         |  |                | 8   | %

The Black-Scholes option model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the
expected stock price volatility. Because the Companys employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options vesting period.
The Companys pro forma information for the three month periods ended
September 30 is as follows (in thousands, except share data):

|                                                                                                                      |                       |   |                    |      |      |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------ | ---- | ---- | - | ------ | ---- | 
|                                                                                                                      |                       |   | Three Months Ended
|                                                                                                                      |                       |   | September 30,     
|                                                                                                                      |                       |   |                   
|                                                                                                                      |                       |   | 2003               |      | 2002
|                                                                                                                      |                       |   |                    |      |     
|Net income, as reported                                                                                               |                       | $ | 17,508             |      |      | $ | 13,463 |     
|Less stock-based employee compensation
cost, net of related tax effects, applying
the fair value method to all awards |                       |   | (2,208             | )    |      |   | (2,098 | )   
|                                                                                                                      |                       |   |                    |      |      |   |        |     
|Pro forma net income                                                                                                  |                       |   | 15,300             |      |      | $ | 11,365 |     
|Earnings per share:                                                                                                   |                       |   |                    |      |      |   |        |     
|                                                                                                                      | Basic  as reported   |   | $                  | 0.37 |      |   | $      | 0.29 | 
|                                                                                                                      | Basic  pro forma     |   | $                  | 0.32 |      |   | $      | 0.24 | 
|                                                                                                                      | Diluted  as reported |   | $                  | 0.36 |      |   | $      | 0.28 | 
|                                                                                                                      | Diluted  pro forma   |   | $                  | 0.32 |      |   | $      | 0.24 | 





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5.     COMPREHENSIVE INCOME

Comprehensive income includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting.
Comprehensive income for all periods presented is as follows:

|                                                                           |  |                    |        |      |  |   |        |  
|-------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                           |  | Three Months Ended
|                                                                           |  | September 30,     
|                                                                           |  |                   
|                                                                           |  | 2003               |        | 2002
|                                                                           |  |                    |        |     
|Reported net income                                                        |  | $                  | 17,508 |      |  | $ | 13,463 |  
|Unrealized gain (loss) on interest rate
swap contracts, net of tax benefit |  |                    | 68     |      |  |   | (374   | )
|                                                                           |  |                    |        |      |  |   |        |  
|Comprehensive income                                                       |  | $                  | 17,576 |      |  | $ | 13,089 |  
|                                                                           |  |                    |        |      |  |   |        |  

The adjustments made in computing comprehensive income are reflected
as a component of stockholders equity under the heading accumulated
other comprehensive loss.

6.     CONTINGENCIES

Commencing April 8, 2003, the Company and certain officers and
directors were named as defendants in several substantially similar
putative class action lawsuits filed in the United States District
Court for the Western District of Tennessee, Memphis Division. The
various complaints have been consolidated into a single action, but
the Court has not appointed a Lead Plaintiff. Once the Lead
Plaintiff is appointed, a Consolidated Complaint will be filed to
which the Defendants will respond. The lawsuits filed to date name
the Company, David D. Stevens, Joel Kimbrough, John R. Grow and
Thomas W. Bell, Jr. as Defendants. One of the lawsuits also named
the Companys former independent auditor, Ernst & Young LLP, as a
defendant. The lawsuits allege violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10(b)(5) promulgated
thereunder, and Section 20 of the Securities Exchange Act of 1934.
The putative class representatives seek to represent a class of
individuals and entities that purchased Company stock during the
period June 16, 2002 through April 7, 2003 and who supposedly
suffered damages from the alleged violations of the securities laws.
The Company believes that the claims asserted in the putative class
action lawsuits are without merit.

In addition, two purported derivative lawsuits were filed in the
Circuit Court of Shelby County, Tennessee for the Thirtieth Judicial
District at Memphis. These actions were consolidated and a
Consolidated Derivative Complaint was filed on July 28, 2003. The
derivative action names Company officers, directors and a former
director; David D. Stevens, John R. Grow, Kyle J. Callahan, Kevin L.
Roberg, Kenneth R. Masterson, Kenneth J. Melkus, Dick R. Gourley,
Nancy Ann Deparle, Joel R. Kimbrough, Thomas W. Bell, Jr., and
Patrick J. Welsh; as defendants. The derivative lawsuit alleges that
the defendants breached fiduciary duties owed to the Company by
engaging in the same alleged conduct that is the basis of the
putative class action lawsuits. On behalf of the Company, the
derivative complaint seeks compensatory damages from the defendants
and the disgorgement of profits, benefits and other compensation
received by the defendants. The Company believes that the claims
asserted in the derivative lawsuit are without merit and has filed a
Motion to Dismiss the Consolidated Derivative Complaint.

Also, from time to time, the Company is involved in lawsuits, claims,
audits and investigations arising in the normal course of its
business. In the Companys opinion, in the aggregate these lawsuits,
claims, audits and investigations should not have a material adverse
effect on the Companys business, financial condition, or results of
operations. In addition, the business that the Company acquired from
Gentiva Health Services, Inc. has several lawsuits and claims related
to its historic operation by Gentiva, which are being controlled by
Gentiva and for which the Company is entitled to indemnification from
liability by Gentiva.





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##### Table of Contents



7.     EARNINGS PER SHARE

The Company presents earnings per share in accordance with SFAS No.
128, Earnings Per Share. All per share amounts have been calculated
using the weighted average number of shares outstanding during each
period. Diluted earnings per share are adjusted for the impact of
common stock equivalents using the treasury stock method when the
effect is dilutive. A reconciliation of the basic and diluted
weighted average shares outstanding is as follows at September 30:

|                                                                                                                              |  |      |            |      |  |  |            | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|                                                                                                                              |  | 2003 |            | 2002
|                                                                                                                              |  |      |            |     
|Weighted average number of common shares outstanding used as
the denominator in the basic earnings per share calculation      |  |      | 47,848,126 |      |  |  | 47,106,209 | 
|Additional shares assuming exercise of dilutive stock options                                                                 |  |      | 706,001    |      |  |  | 1,203,439  | 
|                                                                                                                              |  |      |            |      |  |  |            | 
|Weighted average number of common and equivalent shares used
as the denominator in the diluted earnings per share
calculation |  |      | 48,554,127 |      |  |  | 48,309,648 | 
|                                                                                                                              |  |      |            |      |  |  |            | 





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##### Table of Contents






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

FORWARD LOOKING STATEMENTS

Some of the information in this quarterly report contains
forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking
words such as may, will, expect, anticipate, believe,
intend, estimate and continue or similar words. You should read
statements that contain these words carefully for the following
reasons:



| |  | the statements discuss our future expectations;                                             
|- |  | --------------------------------------------------------------------------------------------
| 
| |  | the statements contain projections of our future earnings or of our financial condition; and
| 
| |  | the statements state other forward-looking information.                                   

Specifically, this report contains, among others, forward-looking statements about:



| |  | our expectations regarding our product mix for periods following September 30, 2003;                   
|- |  | -------------------------------------------------------------------------------------------------------
| 
| |  | our expectations regarding our payor mix for periods following September 30, 2003;                     
| 
| |  | our expectations regarding the scope and cost of our capital expenditures following September 30, 2003;
| 
| |  | our sources and availability of funds to satisfy our working capital needs;                            
| 
| |  | our critical accounting policies; and                                                                  
| 
| |  | our expectations regarding the percentage of our revenues attributable to federal and state programs.  

The forward-looking statements contained in this report reflect our
current views about future events, are based on assumptions and are
subject to known and unknown risks and uncertainties. Many important
factors could cause our actual results or achievements to differ
materially from any future results or achievements expressed in or
implied by our forward-looking statements. Many of the factors that
will determine future events or achievements are beyond our ability
to control or predict. Important factors that could cause actual
results or achievements to differ materially from the results or
achievements reflected in our forward-looking statements include,
among other things, the factors discussed in Part I, Item 2 of this
report under the sub-heading Risk Factors.

You should read this report, the information incorporated by
reference into this report and the documents filed as exhibits to
this report completely and with the understanding that our actual
future results or achievements may be materially different from what
we currently expect or anticipate. You should be aware that the
occurrence of any of the events described in the risk factors
discussed elsewhere in this quarterly report and other events that we
have not predicted or assessed could have a material adverse effect
on our earnings, financial condition and business. In such case, the
trading price of our common stock could decline, and you may lose all
or part of your investment.

The forward-looking statements contained in this report reflect our
views and assumptions only as of the date this report is signed.
Except as required by law, we assume no responsibility for updating
any forward-looking statements.

We qualify all of our forward-looking statements by these cautionary
statements. In addition, with respect to all of our forward-looking
statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.





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##### Table of Contents



OVERVIEW

For an understanding of the significant factors that influenced our
results, the following discussion should be read in conjunction with
our unaudited consolidated financial statements and related notes
appearing elsewhere in this report. This managements discussion and
analysis should also be read in conjunction with the managements
discussion and analysis and consolidated financial statements
included in our Form 10-K for the fiscal year ended June 30, 2003.

We provide specialty retail pharmacy services for the treatment of
patients with costly, chronic diseases. We derive revenues primarily
from the retail sale of drugs to patients. We focus almost
exclusively on a limited number of complex and expensive drugs that
serve small patient populations. The following table presents the
percentage of our total revenues generated from sales with respect to
the diseases that we primarily serve:

|                                                                             |  |                                  |    |      |  |  |    |  
|---------------------------------------------------------------------------- |  | -------------------------------- | -- | ---- |  |  | -- | -
|                                                                             |  | Three Months Ended September 30,
|                                                                             |  |                                 
|                                                                             |  | 2003                             |    | 2002
|                                                                             |  |                                  |    |     
|Hemophilia, Autoimmune Disorders and
Primary Immunodeficiency Diseases
(PID) |  |                                  | 40 | %    |  |  | 40 | %
|Pulmonary Arterial Hypertension (PAH)                                        |  |                                  | 17 | %    |  |  | 14 | %
|Multiple Sclerosis                                                           |  |                                  | 15 | %    |  |  | 16 | %
|Gaucher Disease                                                              |  |                                  | 10 | %    |  |  | 10 | %
|Growth Hormone-Related Disorders                                             |  |                                  | 8  | %    |  |  | 8  | %
|Respiratory Syncytial Virus                                                  |  |                                  |   | %    |  |  |   | %

We anticipate that our revenue mix for the second and third quarters
of our fiscal year 2004 will change as a result of revenues from the
seasonal drug Synagis® for the treatment of Respiratory Syncytial
Virus (RSV).

Reimbursement for the products we sell comes from governmental
payors, Medicare and Medicaid, and non-governmental payors. The
following table presents the percentage of our total revenues
reimbursed by these payors:

|                 |          |  |               |    |               |  |                    |    |   |  |    |    |  
|---------------- | -------- |  | ------------- | -- | ------------- |  | ------------------ | -- | - |  | -- | -- | -
|                 |          |  | Year Ended    |    | Year Ended    |  | Three Months Ended
|                 |          |  | June 30, 2002 |    | June 30, 2003 |  | September 30, 2003
|                 |          |  |               |    |               |  |                   
|Non-governmental |          |  | 79            | %  |               |  | 73                 | %  |   |  | 73 | % 
|Governmental:    |          |  |               |    |               |  |                    |    |   |  |    |   
|                 | Medicaid |  |               | 19 | %             |  |                    | 20 | % |  |    | 19 | %
|                 | Medicare |  |               | 2  | %             |  |                    | 7  | % |  |    | 8  | %

The increase in Medicare reimbursement and the related decrease in
non-governmental reimbursement from fiscal year 2002 to fiscal year
2003 is due to the increase in revenues from hemophilia factor and
the PAH products, Flolan® and Remodulin®, as a result of the
acquisition of the SPS division. These are the only products we
distribute for which we are reimbursed directly by Medicare. We
anticipate that our payor mix for the remainder of our fiscal year
2004 will be similar to the payor mix achieved in fiscal 2003 and the
three months ended September 30, 2003.

RESULTS OF OPERATIONS

As discussed in Note 2 to the condensed consolidated financial
statements included under Item 1, we have restated our condensed
consolidated financial statements for the three months ended
September 30, 2002. The following managements discussion and
analysis gives effect to the restatement.

Three Months Ended September 30, 2003 Compared to Three Months Ended
September 30, 2002

Revenues.Total revenues increased 6% from $316.7 million to $335.0
million from the three months ended September 30, 2002 to the three
months ended September 30, 2003. Net patient revenues increased 6%
from $307.4 million to $326.0 million from the three months ended
September 30, 2002 to the three months ended September 30, 2003.
During fiscal 2003, we began distributing certain wholesale products
on a consignment basis for the manufacturer, and we sold our
infertility business eliminating revenues from the sale of these
products from our business. Revenues from these products amounted to
approximately $16.0 million for the three months ended September
2002. Excluding the $16.0 million from the three months





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##### Table of Contents



ended September 30, 2002 results, our revenues increased 11% from the
September 2002 quarter to the September 2003 quarter. The increase is
primarily due to volume growth in our products for the treatments of
multiple sclerosis, growth hormone disorders, Gaucher disease,
hemophilia, autoimmune disorders and pulmonary arterial hypertension
as a result of the addition of new patients and additional sales of
product to existing patients. We also benefited from the addition of
new and expanded contracts with managed care organizations.

Cost of Services.Cost of services increased 3% from $251.6 million
to $258.9 million from the three months ended September 30, 2002 to
the three months ended September 30, 2003, which is commensurate with
the increase in our revenues discussed above. As a percentage of
revenues, cost of services decreased from 79.5% to 77.3% from the
three months ended September 30, 2002 to the three months ended
September 30, 2003, resulting in gross margins of 20.5% and 22.7% for
the three months ended September 30, 2002 and 2003, respectively.
Gross margins for the individual products have remained relatively
stable. However, a change in product mix and lower acquisition costs
on some of the products we distribute resulted in an increase in the
composite gross margin in the three months ended September 30, 2003.
The primary change in product mix was an increase in the percentage
of total revenues from products for the treatment of pulmonary
arterial hypertension and a decrease in the percentage of total
revenues from products for the treatment of multiple sclerosis.

General and Administrative.General and administrative expenses
increased from $30.7 million to $34.6 million, or 12%, from the three
months ended September 30, 2002 to the three months ended September
30, 2003. As a percentage of revenues, general and administrative
expenses increased from 9.7% to 10.3% from the three months ended
September 30, 2002 to the three months ended September 30, 2003. The
increase is primarily due to start up costs related to the upcoming
Synagis® season and an increase in audit fees as a result of the
change to Deloitte & Touche LLP for the fiscal 2003 audit. In
addition, we experienced increased salaries and benefits associated
with the expansion of our reimbursement, sales and marketing,
administrative and support staffs and the addition of office space
and related furniture and fixtures to support revenue growth.

Bad Debts.Bad debts increased from $6.6 million to $7.2 million from
the three months ended September 30, 2002 to the three months ended
September 30, 2003. As a percentage of revenues, bad debt expense was
2.1% in both periods.

Depreciation and Amortization.Depreciation expense increased from
$1.2 million to $1.8 million from the three months ended September
30, 2002 to the three months ended September 30, 2003, as a result of
the assets acquired in the SPS acquisition completed in June 2002,
purchases of property and equipment associated with our revenue
growth and the expansion of our leasehold facility improvements.
Amortization expense was $1.1 million in the three months ended
September 30, 2002 and 2003.

Interest Income/Expense, Net.Interest expense, net decreased from
$2.4 million to $2.3 million from the three months ended September
30, 2002 to the three months ended September 30, 2003.

Income Tax Expense.Our effective tax rate decreased from 40.2% to
38.9% from the three months ended September 30, 2002 to the three
months ended September 30, 2003. The difference between the
recognized effective tax rate and the statutory rate is primarily
attributed to state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2003, working capital was $313.3 million, cash
and cash equivalents were $49.1 million and the current ratio was 2.6
to 1.0.

Net cash provided by operating
activities was $7.5 million for the
three months ended September 30, 2003. During the three months ended
September 30, 2003, accounts receivable increased $2.5 million,
inventories increased $4.3 million and accounts payable, accrued
expenses and income taxes payable decreased $10.1 million. These
changes are due primarily to our revenue growth and the timing of the
collection of receivables, inventory purchases and payments of
accounts payable.

Net cash used in investing activities
was $1.9 million for the three
months ended September 30, 2003. Cash used in investing activities
consisted primarily for purchases of property and
equipment.

Net cash used in financing activities
was $4.4 million for the three
months ended September 30, 2003, which consisted of $4.0 million in
debt repayments and $.8 million of distributions to our minority
interest partner less $0.4 million from the net proceeds of stock
option exercises.

Historically, we have funded our operations and continued internal
growth through cash provided by operations. We anticipate that our
capital expenditures for the fiscal year ending June 30, 2004 will
consist primarily of additional computer hardware, enhancements to
our fully integrated pharmacy and reimbursement software system and
costs to build out and





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furnish additional space needed to meet the needs of our growth. We
expect the cost of our capital expenditures in fiscal year 2004 to be
approximately $13.0 million, exclusive of any acquisitions of
businesses. We expect to fund these expenditures through cash
provided by operating activities and/or borrowings under the
revolving credit facility with our bank.

During 2002, we amended our $60 million revolving credit facility
with Bank of America, N.A. and other participating banks
(collectively the Lenders) to increase the size of the credit
facility to $325 million. The credit facility consists of a $125
million revolving commitment due June 2007, a $75 million term loan
(Tranche A Term Loan) due in periodic principal payments through
March 2007, and a $125 million term loan (Tranche B Term Loan) due in
periodic principal payments through March 2009. The amount available
to borrow under this credit facility is based upon certain ratios
calculated as of the end of each quarter. Based upon the asset
coverage ratio as of September 30, 2003, the total amount available
to borrow is approximately $262 million. As of September 30, 2003,
the total amount outstanding under the credit facility was $190.6
million, which included $67.5 million under the Tranche A Term Loan
and $123.1 million under the Tranche B Term Loan.

Amounts outstanding under the credit agreement bear interest at
varying rates based upon the London Inter-bank Offered Rate (LIBOR)
or the prime rate of interest (as selected by us), plus a variable
margin rate based upon our leverage ratio as defined by the credit
agreement. Our obligations under the credit agreement are secured by
a lien on substantially all of our assets, including a pledge of all
of the common stock or partnership interest of each of our
subsidiaries in which we own an 80% or more interest. The Lenders
security interest in a portion of our inventory is subordinate to the
liens on that inventory under the terms of a security agreement
between one of our vendors and us. The same vendor has a security
interest in certain accounts receivable, which is subordinate to the
rights of the Lenders.

The credit agreement contains financial covenants, including
requirements to maintain certain ratios with respect to leverage,
fixed charge coverage, net worth and asset coverage each as defined
in the credit agreement. The credit agreement also includes customary
affirmative and negative covenants, including covenants relating to
transactions with affiliates, uses of proceeds, restrictions on
subsidiaries, limitations on indebtedness, limitations on mergers,
acquisitions and asset dispositions, limitations on investments,
limitations on payment of dividends and stock repurchases, and other
distributions. The credit agreement also contains customary events of
default, including events relating to changes in control of our
company.

The credit agreement required us to enter into a one-year interest
rate swap agreement within 60 days of June 13, 2002, to protect
against fluctuations in interest rates. The credit agreement required
the interest rate swap to provide coverage in an amount equal to at
least 50% of the outstanding principal amount of the loans. On July
17, 2002, we entered into an interest rate swap agreement effectively
converting for a period of one year $120 million of floating-rate
borrowings to fixed-rate borrowings with a fixed rate of 2.175%, plus
the applicable margin rate as determined by the credit agreement. On
June 4, 2003, we entered into an interest rate swap agreement
effectively converting for a period of one year beginning July 21,
2003, $120 million of floating-rate borrowings to fixed-rate
borrowings with a fixed rate of 1.14%, plus the applicable margin
rate as determined by the credit agreement.

On May 5, 2003, we amended the credit agreement to exclude the
charges, as defined in the amendment to the credit agreement, taken
in the March 2003 quarter in connection with the additional accounts
receivable reserves of the SPS division from the calculation of
Consolidated EBITDA, as defined in the credit agreement, and to
reduce the Consolidated Net Worth requirement, as defined in the
credit agreement, to allow for a reduction in the minimum net worth
requirement equal to the net loss incurred in the March 2003 quarter.
The amendment also included a 25 basis point increase in interest
rates per the credit agreement for a period of twelve months
beginning May 15, 2003.

On February 6, 2003, the Securities and Exchange Commission (SEC)
declared effective our shelf registration statement on Form S-3
providing for the offer, from time to time, of various securities, up
to an aggregate of $500 million. The shelf registration statement may
enable us to more efficiently raise funds from the offering of
securities covered by the shelf registration statement, subject to
market conditions and our capital needs.

We believe that our cash from operations, cash available under the
revolving credit facility and the proceeds from any offering of debt
or equity securities allowed by the shelf registration statement will
be sufficient to meet our internal operating requirements and growth
plans for at least the next 12 months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. In preparing our financial statements, we
are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. We evaluate our estimates and judgments on an
ongoing basis. We base our estimates and judgments on historical
experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the





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carrying values of assets and liabilities that are not readily
apparent from other sources. Our actual results may differ from these
estimates, and different assumptions or conditions may yield
different estimates.

Information regarding our Critical Accounting Policies and
Estimates can be found in our Annual Report on Form 10-K for our
most recent fiscal year ended June 30, 2003, filed with the SEC on
September 29, 2003. The four critical accounting policies that we
believe are either the most judgmental, or involve the selection or
application of alternative accounting policies, and are material to
our financial statements are those relating to revenue recognition,
allowance for doubtful accounts, allowance for contractual discounts
and medical claims reserve. In addition, Note 1 to the financial
statements in our Annual Report contains a summary of our significant
accounting policies.





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##### Table of Contents



RISK FACTORS

You should carefully consider the risks and uncertainties we
describe below before investing in Accredo. The risks and
uncertainties described below arenotthe only risks and
uncertainties that could develop. Other risks and uncertainties that
we have not predicted or evaluated could also affect our company.

If any of the following risks occur, our earnings, financial
condition or business could be materially harmed, and the trading
price of our common stock could decline, resulting in the loss of all
or part of your investment.

We are highly dependent on our relationships with a limited number of
biopharmaceutical suppliers and the loss of any of these
relationships could significantly impact our ability to sustain or
grow our revenues.

We derive a substantial percentage of our revenue and
profitability from the sale of hemophilia product and IVIG that we
primarily purchase from Baxter Healthcare Corporation, Aventis
Behring, LLC, Wyeth Pharmaceuticals and Bayer Corporation.
Approximately 40% of our revenue in the quarter was derived from the
sale of IVIG and hemophilia product. The majority of our hemophilia
product was purchased from Baxter Healthcare Corporation. We also
derive a substantial percentage of our revenue and profitability from
our relationships with Biogen, Genzyme, GlaxoSmithKline and
MedImmune. Our revenue derived from these relationships represented
approximately 36% of our revenue for the quarter.

Our agreements with these suppliers are short-term and
cancelable by either party without cause on 30 to 365 days prior
notice. These agreements also generally limit our ability to handle
competing drugs during and, in some cases, after the term of the
agreement, but allow the supplier to distribute through channels
other than us. Further, these agreements provide that pricing and
other terms of these relationships be periodically adjusted for
changed market conditions or required service levels. Any termination
or adverse adjustment to any of these relationships could have a
material adverse effect on a significant portion of our business,
financial condition and results of operations.

Our ability to grow could be limited if we do not expand our existing
base of drugs or if we lose patients.

We primarily sell 20 products. We focus almost exclusively on a
limited number of complex and expensive drugs that serve small
patient populations. The drugs that we sell with respect to the
following core disease markets account for approximately 91% of our
revenues, with the drugs for hemophilia and autoimmune disorders
constituting approximately 40% of our revenue for the quarter:



| |  |  | Hemophilia, Autoimmune Disorders, PID and Hereditary Emphysema
| | - |  | --------------------------------------------------------------
|
| |  |  | Pulmonary Arterial Hypertension                               
|
| |  |  | Multiple Sclerosis                                            
|
| |  |  | Enzyme Deficiencies                                           
|
| |  |  | Growth Hormone-Related Disorders                              
|
| |  |  | Respiratory Syncytial Virus                                   

Due to the small patient populations that use the drugs we
handle, our future growth is highly dependent on expanding our base
of drugs. Further, a loss of patient base or reduction in demand for
any reason of the drugs we currently handle could have a material
adverse effect on a significant portion of our business, financial
condition and results of operations.

Our business would be harmed if demand for our products and services
is reduced.

Reduced demand for our products and services could be caused by
a number of circumstances, including:



| |  |  | patient shifts to treatment regimens other than those we offer;                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | new treatments or methods of delivery of existing drugs that do not require our specialty products and services;
|
| |  |  | a recall of a drug;                                                                                             
|
| |  |  | adverse reactions caused by a drug;                                                                             





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| |  |  | the expiration or challenge of a drug patent;                                                     
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | competing treatment from a new drug or a new use of an existing drug or orphan drug status;       
|
| |  |  | the loss of a managed care or other payor relationship covering a number of high revenue patients;
|
| |  |  | the cure of a disease we service; or                                                              
|
| |  |  | the death of a high-revenue patient.                                                              

There is substantial competition in our industry, and we may not be
able to compete successfully.

The specialty pharmacy industry is highly competitive and is
continuing to become more competitive. Most of the drugs, supplies
and services that we provide are also available from our competitors.
Our current and potential competitors include:



| |  |  | other specialty pharmacy distributors;                                            
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | specialty pharmacy divisions of wholesale drug distributors;                      
|
| |  |  | pharmacy benefit management companies (PBM);                                      
|
| |  |  | hospital-based pharmacies;                                                        
|
| |  |  | retail pharmacies;                                                                
|
| |  |  | home infusion therapy companies;                                                  
|
| |  |  | manufacturers that sell their products both to distributors and directly to users;
|
| |  |  | comprehensive hemophilia treatment centers; and                                   
|
| |  |  | other alternative site health care providers.                                     

Many of our competitors have substantially greater resources and
more established operations and infrastructure than we have. We are
particularly at risk from any of our suppliers deciding to pursue its
own distribution and services and not outsource these needs to
companies like us. A significant factor in effective competition will
be our ability to maintain and expand relationships with managed care
companies, pharmacy benefit managers and other payors who can
effectively determine the pharmacy source for their enrollees.

Entry by PBMs into the specialty pharmacy market and consolidation in
the industry could affect our ability to serve patients.

On September 2, 2003, Caremark Rx, Inc. announced that it had
signed a definitive Merger Agreement with AdvancePCS. Both of these
firms are our competitors and the two companies combined will form
the nations second largest pharmacy benefit manager, processing drug
claims for about 95 million individuals with about 600 million
prescriptions filled per year. We expect that there will be further
consolidation among specialty pharmacy providers. As pharmacy
benefits managers acquire specialty pharmacy capability, it is likely
that they will attempt to cancel their relationships with entities
that compete with the PBM specialty pharmacy operations, and to cause
the PBM patients to obtain their drugs from the PBMs specialty
pharmacy.

Our business could be harmed by changes in Medicare or Medicaid.

Changes in the Medicare, Medicaid or similar government programs
or the amounts paid by those programs for our services may adversely
affect our earnings. Such programs are highly regulated and subject
to frequent and substantial changes and cost containment measures. In
recent years, changes in these programs have limited and reduced
reimbursement to providers. Recent Medicare prescription drug benefit
bills in both houses of Congress, as well as a proposed rule issued
by the Centers for Medicare and Medicaid Services (CMS), offer
changes to the way the federal government pays for certain Part B
drugs. Such proposals range from deeper discounts to average
wholesale price (AWP) to a competitive acquisition program. On August
15, 2003, CMS proposed a new rule that would revise the methodology
for determining payment for Part B covered drugs and biologicals. In
the proposed rule, CMS offered four alternative approaches. According
to CMS, depending upon which program is adopted, the new payment
methodology could be in place as early as January 1, 2004.





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Although these proposals from CMS and Congress are not final, we
expect that these developments will ultimately reduce prices and
margins on some of the drugs that we distribute.

In order to deal with budget shortfalls, some states are
attempting to create state administered prescription drug discount
plans, limit the number of prescriptions per person that are covered,
raising Medicaid co-pays and deductibles, proposing more restrictive
formularies and proposing reductions in pharmacy reimbursement rates.
For example, Californias Medicaid program, MediCal, recently adopted
a plan that will shift away from use of the discounted AWP, instead
using Average Selling Price plus 20% for hemophilia factors.
California has not yet determined exactly how it will calculate
Average Selling Price. MediCal is also considering implementing a
reduced price for other drugs. Any reduction in the reimbursement
from MediCal as a result of this new plan could adversely impact
revenues and profitability from the sale of drugs by us or by our two
partnerships in California to patients covered by MediCal. Any
reductions in amounts reimbursable by government programs for our
services or changes in regulations governing such reimbursements
could materially and adversely affect our business, financial
condition and results of operations.

Changes in average wholesale prices could reduce our pricing and
margins.

Many government payors, including Medicare and Medicaid, pay us
directly or indirectly at a percentage off the drugs AWP. We have
also contracted with a number of private payors to sell drugs at AWP
or at a percentage off AWP. AWP for most drugs is compiled and
published by several private companies, including First DataBank,
Inc. In February 2000, First DataBank published a Market Price Survey
of 437 drugs, which was significantly lower than the historic AWP for
a number of the clotting factor and IVIG products that we sell. A
number of state Medicaid agencies have revised their payment
methodology as a result of the Market Price Survey.

Recent Medicare prescription drug benefit bills in both houses
of Congress, as well as a proposed rule issued by CMS, offer changes
to the way the federal government pays for certain Part B drugs. Such
proposals range from deeper discounts to AWP to a competitive
acquisition program. On August 15, 2003, CMS proposed a new rule that
would revise the methodology for determining payment for Part B
covered drugs and biologicals. In the proposed rule, CMS offered four
alternative approaches. According to CMS, depending upon which
program is adopted, the new payment methodology could be in place as
early as January 1, 2004. Although these proposals from CMS and
Congress are not final, we expect that these developments will
ultimately reduce prices and margins on some of the drugs that we
distribute.

Various federal and state government agencies have been
investigating whether the reported AWP of many drugs, including some
that we sell, is an appropriate or accurate measure of the market
price of the drugs. There are also several whistleblower lawsuits
pending against various drug manufacturers that have been reported in
the business press. These government investigations and lawsuits
involve allegations that manufacturers reported artificially inflated
AWP prices of various drugs to First DataBank.

We cannot predict the eventual results of government proposals,
investigations, lawsuits or the changes made by First DataBank. If
government payors or private payors revise their pricing based on new
methods of calculating the AWP for drugs we handle or implement
reimbursement methodology based on some value other than AWP, this
could have a material adverse effect on our business, financial
condition and results of operation, including reducing the pricing
and margins on certain of our products.

Our business will suffer if we lose relationships with payors.

We are highly dependent on reimbursement from non-governmental
payors. For the fiscal years ended June 30, 2001, 2002 and 2003 and
the quarter ended September 30, 2003, we derived approximately 81%,
79%, 73% and 73% respectively of our gross patient revenue from
non-governmental payors (including self-pay), which included 4%, 3%,
1% and 1%, respectively for those periods, from sales to private
physician practices whose ultimate payor is typically Medicare.

Many payors seek to limit the number of providers that supply
drugs to their enrollees. For example, we were selected by Aetna,
Inc. as one of three providers of injectable medications. We received
approximately 7% of our total revenues from Aetna in the fiscal year
ended June 30, 2003 and approximately 3% of our total revenues in the
fiscal year ended June 30, 2003 from various relationships with
Gentiva, including the distribution of specialty pharmaceuticals
through the CareCentrix division of Gentivas home health business.
From time to time, payors with whom we have relationships require
that we and our competitors bid to keep their business, and there can
be no assurance that we will be retained or that our margins will not
be adversely affected when that happens. The loss of a payor
relationship, for example, our relationship with Aetna, Inc. and
affiliates (which is terminable on 90 days notice) or our
relationship with the Gentiva CareCentrix division, or an adverse
change in the financial condition of a payor like Aetna, could result
in the loss of a significant number of patients and have a material
adverse effect on our business, financial condition and results of
operations.





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We incurred additional debt to acquire the SPS business of Gentiva
Health Services, Inc. which may limit our future financial
flexibility.

The current level of our debt will have several important
effects on our future operations, including, among others:



| |  |  | A significant portion of our cash flow from operations
will be dedicated to the payment of principal on the debt and
will not be available for other purposes;                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our debt covenants will require us to meet financial
tests, and may impose other limitations that may limit our
flexibility in planning for and reacting to changes in our
business, including possible acquisition opportunities;
|
| |  |  | Our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate
and other purposes may be limited;                                                                          
|
| |  |  | Failure to meet our debt covenants could result in
foreclosure by our lenders or an increase in the interest rate
or administrative fees associated with our debt;                                                                
|
| |  |  | We may be at a competitive disadvantage to similar companies that have less debt; and                                                                                                                                             
|
| |  |  | Our vulnerability to adverse economic and industry conditions may increase.                                                                                                                                                       

Our business could be harmed if payors decrease or delay their
payments to us or seek to recoup payments already made.

Our profitability depends on payment from governmental and
non-governmental payors, and we could be materially and adversely
affected by cost containment trends in the health care industry or by
financial difficulties suffered by non-governmental payors. Cost
containment measures affect pricing, purchasing and usage patterns in
health care. Payors also influence decisions regarding the use of a
particular drug treatment and focus on product cost in light of how
the product may impact the overall cost of treatment. Further, some
payors, including large managed care organizations and some private
physician practices, have recently experienced financial trouble. The
timing of payments and our ability to collect from payors also
affects our revenue and profitability. Payors also have contractual
rights to audit our books and records to determine if they have
overpaid us. If we are unable to collect from payors or if payors
fail to pay us in a timely manner, or if payors seek to recoup
payments already made to us, it could have a material adverse effect
on our business and financial condition.

If any of our relationships with medical centers are disrupted or
cancelled, our business could be harmed.

We have joint venture relationships with four medical centers
that provide services primarily related to hemophilia, growth
hormone-related disorders and RSV. For the fiscal years ended June
30, 2001, 2002 and 2003, we derived approximately 4% of our income
before income taxes from equity in the net income of unconsolidated
joint ventures. We derived approximately 2% of our income before
income taxes from equity in the net income of unconsolidated joint
ventures during the recent quarter.

Since April 2000, we have owned 80% of one of our joint ventures
with Childrens Home Care, Inc. and the financial results of this
joint venture are included in our consolidated financial results.
This consolidated joint venture represented approximately 10% of our
income before income taxes for the fiscal years ended June 30, 2001
and 2002, 17% of our income before income taxes for the fiscal year
ended June 30, 2003 and 7% of our income before income taxes in the
most recent quarter.

Recently, the OIG issued a Special Advisory Bulletin focused on
complex contractual joint ventures that could potentially violate the
anti-kickback statute. In this bulletin, the OIG discussed the
characteristics that potentially indicate a prohibited arrangement.
Some of these characteristics are present in our existing joint
ventures. As a result, some of our joint ventures may be
restructured.

In addition to joint venture relationships, we also provide
pharmacy management services to several medical centers.

Our agreements with medical centers have terms of between one
and five years, and may be cancelled by either party without cause
upon notice of between one and twelve months. Adverse changes in our
relationships with those medical centers could be caused, for
example, by:



| |  |  | changes caused by consolidation within the hospital
industry;
| | - |  | -------------------------------------------------------------





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| |  |  | changes caused by regulatory uncertainties inherent in
the structure of the relationships; or restrictive changes to
regulatory requirements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

Any termination or adverse change of these relationships could
have a material adverse effect on our business, financial condition
and results of operations.

If additional providers obtain access to favorable PHS pricing for
drugs we handle, our business could be harmed.

The federal pricing program of the Public Health Service,
commonly known as PHS, allows hospitals and hemophilia treatment
centers to obtain discounts on clotting factor. While we are able to
access PHS pricing through our contracts to provide contract pharmacy
services to hemophilia treatment centers, we are not eligible to
participate directly in these programs. Increased competition from
hospitals and hemophilia treatment centers that have such favorable
pricing may reduce our profit margins.

Our acquisition and joint venture strategy may not be successful,
which could cause our business and future growth prospects to suffer.

As part of our growth strategy, we continue to evaluate
acquisition and joint venture opportunities, but we cannot predict or
provide assurance that we will complete any future acquisitions or
joint ventures. Acquisitions and joint ventures involve many risks,
including:



| |  |  | difficulty in identifying suitable candidates and negotiating and consummating acquisitions on attractive terms;
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | difficulty in assimilating the new operations;                                                                  
|
| |  |  | increased transaction costs;                                                                                    
|
| |  |  | diversion of our managements attention from existing operations;                                               
|
| |  |  | dilutive issuances of equity securities that may negatively impact the market price of our stock;               
|
| |  |  | increased debt; and                                                                                             
|
| |  |  | increased amortization expense related to intangible assets that would decrease our earnings.                   

We could also be exposed to unknown or contingent liabilities
resulting from the pre-acquisition operations of the entities we
acquire, such as liability for failure to comply with health care or
reimbursement laws. We also face exposure if Gentiva is not able to
fulfill its indemnification obligations under the terms of our asset
purchase agreement. The purchase price we paid to Gentiva for the SPS
business was distributed directly to the shareholders of Gentiva, and
should any significant payment be required, Gentiva may not have
sufficient funds and may not be able to obtain the funds to satisfy
its potential indemnification obligation to us. We may suffer
impairment of assets or have to bear a liability for which we are
entitled to indemnification but are unable to collect.

Fluctuations in our quarterly financial results may cause our stock
price to decline.

Our results of operations may fluctuate on a quarterly basis,
which could adversely affect the market price of our common stock.
Our results may fluctuate as a result of:



| |  |  | lower prices paid by Medicare or Medicaid for the
drugs that we sell, including lower prices resulting from
recent revisions in the method of establishing AWP;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | below-expected sales or delayed launch of a new drug;                                                                                                          
|
| |  |  | price and term adjustments with our drug suppliers;                                                                                                            
|
| |  |  | increases in our operating expenses in anticipation of the launch of a new drug;                                                                               
|
| |  |  | product shortages;                                                                                                                                             
|
| |  |  | inaccuracies in our estimates of the costs of ongoing programs; the timing and integration of our acquisitions;                                                





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##### Table of Contents





| |  |  | changes in our estimates used to prepare our financial statements;                                  
| | - |  | ----------------------------------------------------------------------------------------------------
|
| |  |  | effectiveness of our sales force;                                                                   
|
| |  |  | changes in governmental regulations;                                                                
|
| |  |  | the annual renewal of deductibles and co-payment requirements that affect patient ordering patterns;
|
| |  |  | our provision of drugs to treat seasonal illnesses, such as RSV;                                    
|
| |  |  | physician prescribing patterns;                                                                     
|
| |  |  | general political and economic conditions;                                                          
|
| |  |  | interest rate fluctuations; and                                                                     
|
| |  |  | adverse experience in collection of accounts receivable.                                            

Our business would be harmed if the biopharmaceutical industry
reduces research, development and production of the types of drugs
that are compatible with the services we provide.

Our business is highly dependent on continued research,
development, manufacturing and marketing expenditures of
biopharmaceutical companies, and the ability of those companies to
develop, supply and generate demand for drugs that are compatible
with the services we provide. Our business would be materially and
adversely affected if those companies stopped outsourcing the
services we provide or failed to support existing drugs or develop
new drugs. Our business could also be harmed if the biopharmaceutical
industry undergoes any of the following developments:



| |  |  | supply shortages;                                                                                                                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adverse drug reactions;                                                                                                                                
|
| |  |  | drug recalls;                                                                                                                                          
|
| |  |  | increased competition among biopharmaceutical companies;                                                                                               
|
| |  |  | an inability of drug companies to finance product development because of capital shortages;                                                            
|
| |  |  | a decline in product research, development or marketing;                                                                                               
|
| |  |  | a reduction in the retail price of drugs from governmental or private market initiatives;                                                              
|
| |  |  | changes in the FDA approval process; or                                                                                                                
|
| |  |  | governmental or private initiatives that would alter
how drug manufacturers, health care providers or pharmacies
promote or sell products and services.

Our business could be harmed if the supply of any of the products
that we distribute becomes scarce.

The biopharmaceutical industry is susceptible to product
shortages. Some of the products that we distribute, such as
anti-hemophilic factor, IVIG and some other blood-related products,
are collected and processed from human donors. Accordingly, the
supply of these products is highly dependent on human donors and
their availability has been constrained from time to time. For
example, an industry wide recombinant factor VIII product shortage
existed for some time, as a result of the manufacturers being unable
to increase production to meet rising global demand, and has only
recently returned to normal levels. If these products, or any of the
other drugs that we distribute, are in short supply for long periods
of time, our business could be harmed.

If some of the drugs that we provide lose their orphan drug status,
we could face more competition.

Our business could also be adversely affected by the expiration
or challenge to the orphan drug status that has been granted by the
FDA to some of the drugs that we handle. When the FDA grants orphan
drug status, it will not approve a





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##### Table of Contents



second drug for the same treatment for a period of seven years
unless the new drug is chemically different or clinically superior.
Not all of the drugs that we sell which are related to our core
disease states have orphan drug status.

Despite orphan drug status, there are competing products on the
market for Nutropin® Depot. Tracleer, Remodulin® and Flolan® also
compete in the treatments of PAH. The loss of orphan drug status, or
approval of new drugs notwithstanding orphan drug status, could
result in additional competitive drugs entering the market, which
could harm our business.

We rely heavily on a single shipping provider, and our business would
be harmed if our rates are increased or our provider is unavailable.

Almost all of our revenues result from the sale of drugs we
deliver to our patients and a single carrier, FedEx, ships
principally all of our products. We depend heavily on these
outsourced shipping services for efficient, cost effective delivery
of our product. The risks associated with this dependence include:



| |  |  | any significant increase in shipping rates;                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | strikes or other service interruptions by our primary
carrier, FedEx, or by another carrier that could affect FedEx;
or
|
| |  |  | spoilage of high cost drugs during shipment, since our
drugs often require special handling, such as refrigeration.    

Disruptions in commercial activities such as those following the
September 2001 terrorist attacks on the U.S. may adversely impact our
results of operations, our ability to raise capital or our future
growth.

Our operations have been and could again be harmed by terrorist
attacks on the U.S. For example, transportation systems and couriers
that we rely upon to deliver our drugs have been and could again be
disrupted, thereby causing a decrease in our revenues. In addition,
we may experience a rise in operating costs, such as costs for
transportation, courier services, insurance and security. We also may
experience delays in payments from payors, which would harm our cash
flow. The U.S. economy in general may be adversely affected by
terrorist attacks or by any related outbreak of hostilities. Any such
economic downturn could adversely impact our results of operations,
impair our cost of or ability to raise debt or equity capital or
impede our ability to continue growing our business.

If we are unable to manage our growth effectively, our business will
be harmed.

Our rapid growth over the past several years has placed a strain
on our resources, and if we cannot effectively manage our growth, our
business, financial condition and results of operations could be
materially and adversely affected. We have experienced a large
increase in the number of our employees, the size of our programs and
the scope of our operations. Our ability to manage this growth and be
successful in the future will depend partly on our ability to retain
skilled employees, enhance our management team and improve our
management information and financial control systems.

We could be adversely affected by an impairment of the significant
amount of goodwill and other intangibles on our financial statements.

Our formation and our acquisitions have resulted in the
recording of a significant amount of goodwill on our financial
statements. The goodwill was recorded because the fair value of the
tangible net assets acquired was less than the purchase price. There
can be no assurance that we will realize the full value of this
goodwill. We evaluate on an on-going basis whether events and
circumstances indicate that all or some of the carrying value of
goodwill is no longer recoverable, in which case we would write off
the unrecoverable goodwill in a charge to our earnings. As of
September 30, 2003, we had goodwill, net of accumulated amortization,
of approximately $352.3 million, or 38% of total assets and 66% of
stockholders equity.

Since our growth strategy may involve the acquisition of other
companies, we may record additional goodwill in the future. The
possible write-off of this goodwill could negatively impact our
future earnings. We will also be required to allocate a portion of
the purchase price of any acquisition to the value of non-competition
agreements, patient base and contracts that are acquired. The amount
allocated to these items could be amortized over a fairly short
period. As a result, our earnings and the market price of our common
stock could be negatively impacted.

We rely on a few key employees whose absence or loss could adversely
affect our business.

We depend on a few key executives, and the loss of their
services could cause a material adverse effect to our company. We do
not maintain key person life insurance policies on any of those
executives. As a result, we are not insured against the losses
resulting from the death of our key executives. Further, we must be
able to attract and retain other qualified, essential





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employees for our technical operating and professional staff,
such as pharmacists and nurses. If we are unable to attract and
retain these essential employees, our business could be harmed.

We have been named in several shareholder class action lawsuits and a
shareholders derivative lawsuit asserting claims under the
securities laws.

The uncertainty associated with these unresolved lawsuits could
harm our business and financial condition. The defense of these
lawsuits also could result in litigation fees and costs, as well as
the diversion of resources. Negative developments with respect to the
lawsuits could cause our stock price to decline significantly. The
indemnification provisions contained in our Certificate of
Incorporation and Bylaws require us to indemnify our current and
former officers and directors who are named as defendants against the
allegations contained in these suits. Even though we maintain
directors and officers insurance applicable to the lawsuits, there
can be no guarantee that the proceeds of such insurance will be
available for defense fees and costs, or payment of any settlement or
judgment in the lawsuits or, if available, will be sufficient to
cover the fees and costs and any settlement or judgment imposed
against us.

The ultimate cost and effect of these lawsuits on our financial
condition, results of operations, customer relations and management
is unknown at this time.

In addition to the securities litigation currently pending
against us and our officers and directors, we may also in the future
be the target of similar litigation. Additional securities
litigation could result in substantial costs and divert our attention
and resources.

We may need additional capital to finance our growth and capital
requirements, which could prevent us from fully pursuing our growth
strategy.

In order to implement our growth strategy, we will need
substantial capital resources and will incur, from time to time,
short- and long-term indebtedness, the terms of which will depend on
market and other conditions. We cannot be certain that existing or
additional financing will be available to us on acceptable terms, if
at all. As a result, we could be unable to fully pursue our growth
strategy. Further, additional financing may involve the issuance of
equity or debt securities that would reduce the percentage ownership
of our then current stockholders.

Our industry is subject to extensive government regulation and
noncompliance by us or our suppliers could harm our business.

The marketing, sale and purchase of drugs and medical supplies
is extensively regulated by federal and state governments, and if we
fail or are accused of failing to comply with laws and regulations,
we could suffer a material adverse effect on our business, financial
condition and results of operations. Our business could also be
materially and adversely affected if the suppliers or others we work
with are accused of violating laws or regulations. The applicable
regulatory framework is complex, and the laws are very broad in
scope. Many of these laws remain open to interpretation, and have not
been addressed by substantive court decisions.

The health care laws and regulations that especially apply to
our activities include:



| |  |  | The federal Anti-Kickback Law prohibits the offer or
solicitation of compensation in return for the referral of
patients covered by almost all governmental programs, or the
arrangement or recommendation of the purchase of any item,
facility or service covered by those programs. HIPAA created
new violations for fraudulent activity applicable to both
public and private health care benefit programs and prohibits
inducements to Medicare or Medicaid eligible patients. The
potential sanctions for violations of these laws range from
significant fines, to exclusion from participation in the
Medicare and Medicaid programs, to criminal sanctions.
Although some safe harbor regulations attempt to clarify
when an arrangement will not violate the Anti-Kickback Law,
our business arrangements and the services we provide may not
fit within these safe harbors. Failure to satisfy a safe
harbor requires analysis of whether the parties intended to
violate the Anti-Kickback Law. The finding of a violation
could have a material adverse effect on our business.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | DHHS has issued regulations implementing the
Administrative Simplification provisions of HIPAA concerning
the maintenance of privacy and security of individually
identifiable health information. These new regulations require
the development and implementation of measures to maintain the
privacy and security of health information and require that
certain health claims transactions be conducted in accordance
with uniform standards. These regulations govern health care
providers, health plans and health clearinghouses. Failure to
comply with these regulations, or wrongful disclosure of
confidential patient information could result in the
imposition of administrative or criminal sanctions, including
exclusion from the Medicare and state Medicaid programs. In
addition, if we choose to distribute drugs                                                                                                                                                                                                                                                         





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##### Table of Contents





| |   |  | through new distribution channels such as the Internet, we will
have to comply with government regulations that apply to those
distribution channels, which could have a material adverse effect
on our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Ethics in Patient Referrals Act of 1989, as
amended, commonly referred to as the Stark Law, prohibits
physician referrals to entities with which the physician or
their immediate family members have a financial
relationship. A violation of the Stark Law is punishable by
civil sanctions, including significant fines and exclusion
from participation in Medicare and Medicaid.                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | State laws prohibit the practice of medicine, pharmacy
and nursing without a license. To the extent that we assist
patients and providers with prescribed treatment programs, a
state could consider our activities to constitute the practice
of medicine. If we are found to have violated those laws, we
could face civil and criminal penalties and be required to
reduce, restructure, or even cease our business in that state.                                                                                                                                                                                                                                                                                               
|
| |  |  | Pharmacies and pharmacists must obtain state licenses
to operate and dispense drugs. Pharmacies must also obtain
licenses in some states to operate and provide goods and
services to residents of those states. Our entities that
provide nursing for our patients and our nurses must obtain
licenses in certain states to conduct our business. If we are
unable to maintain our licenses or if states place burdensome
restrictions or limitations on non-resident pharmacies or
nurses, this could limit or affect our ability to operate in
some states which could adversely impact our business and
results of operations.                                                                                                  
|
| |  |  | Federal and state investigations and enforcement
actions continue to focus on the health care industry,
scrutinizing a wide range of items such as joint venture
arrangements, referral and billing practices, product discount
arrangements, home health care services, dissemination of
confidential patient information, clinical drug research
trials and gifts for patients. Recently, the OIG issued a
Special Advisory Bulletin focused on complex contractual joint
ventures that could potentially violate the anti-kickback
statute. In this bulletin, the OIG discussed the
characteristics that potentially indicate a prohibited
arrangement. Some of these characteristics are present in our
existing joint ventures.
|
| |  |  | The False Claims Act encourages private individuals to
file suits on behalf of the government against health care
providers such as us. Such suits could result in significant
financial sanctions or exclusion from participation in the
Medicare and Medicaid programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                           

The market price of our common stock may experience substantial
fluctuations for reasons over which we have little control.

Our common stock is traded on the Nasdaq National Market System.
The market price of our common stock could fluctuate substantially
based on a variety of factors, including the following:



| |  |  | future announcements concerning us, our competitors,
the drug manufacturers with whom we have relationships or the
health care market;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in government regulations;                                                                                                    
|
| |  |  | overall volatility of the stock market;                                                                                               
|
| |  |  | changes in estimates by analysts; and                                                                                                 
|
| |  |  | changes in operating results from quarter to quarter.                                                                                 

Furthermore, stock prices for many companies fluctuate widely
for reasons that may be unrelated to their operating results. These
fluctuations, coupled with changes in our results of operations and
general economic, political and market conditions, may adversely
affect the market price of our common stock.

Some provisions of our charter documents and the Stockholder
Protection Rights Plan may have anti-takeover effects that could
discourage a change in control, even if an acquisition would be
beneficial to our stockholders.

Our certificate of incorporation, our bylaws and Delaware law
contain provisions that could make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our
stockholders. In addition, our Board of Directors has adopted a
Stockholder Protection Rights Plan, sometimes referred to as a poison
pill, that would substantially dilute the interest sought by an
acquiror.





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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to the impact of financial market risk is significant.
Our primary financial market risk exposure consists of interest rate
risk related to interest that we are obligated to pay on our
variable-rate debt.

We use derivative financial instruments to manage some of our
exposure to rising interest rates on our variable-rate debt,
primarily by entering into variable-to-fixed interest rate swaps. We
have fixed the interest rate through July 21, 2004 on $120.0 million
of our variable-rate debt through the use of a variable-to-fixed
interest rate swap. As a result, we will not benefit from any
decrease in interest rates nor will we be subjected to any detriment
from rising interest rates on this portion of our debt during the
period of the swap agreement. Accordingly, a 100 basis point decrease
in interest rates along the entire yield curve would not increase
pre-tax income by $300,000 for a quarter as would be expected without
this financial instrument. However, a 100 basis point increase in
interest rates along the entire yield curve would also not decrease
pre-tax income by $300,000 for the same period as a result of using
this derivative financial instrument.

For the remaining portion of our variable-rate debt, we have not
hedged against our interest rate risk exposure. As a result, we will
benefit from decreasing interest rates, but rising interest rates on
this portion of our debt will also harm us. Accordingly, if we
maintain our current level of total debt, a 100 basis point decrease
in interest rates along the entire yield curve would result in an
increase in pre-tax income of approximately $175,000 during a
quarter. However, a 100 basis point increase in interest rates would
result in a decrease in pre-tax income of $175,000 for the same
period.

Actual changes in rates may differ from the hypothetical assumptions
used in computing the exposures in the examples cited above.




ITEM 4. CONTROLS AND PROCEDURES

The Companys Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of the end of the
period covered by this report. The Companys Chief Executive Officer
and Chief Financial Officer concluded that as of the end of the
period covered by this report the Company maintains disclosure
controls and procedures that provide reasonable assurance that
information required to be disclosed in the Companys reports under
the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is
accumulated and communicated to the Companys management, including
its Chief Executive Officer and its Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Companys internal control over
financial reporting during the quarter ended September 30, 2003 that
have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.





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##### Table of Contents






PART II  OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



|(a) |  | Exhibits
|--- |  | --------

|              |  |                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.1  |  | Stock Option Agreement of David D. Stevens dated September 5, 2003                                                      
|              |  |                                                                                                                         
|Exhibit 10.2  |  | Stock Option Agreement of John R. Grow dated September 5, 2003                                                          
|              |  |                                                                                                                         
|Exhibit 10.3  |  | Stock Option Agreement of Joel R. Kimbrough dated September 5, 2003                                                     
|              |  |                                                                                                                         
|Exhibit 10.4  |  | Stock Option Agreement of Kyle J. Callahan dated September 5, 2003                                                      
|              |  |                                                                                                                         
|Exhibit 10.5  |  | Stock Option Agreement of Thomas W. Bell, Jr. dated September 5, 2003                                                   
|              |  |                                                                                                                         
|Exhibit 10.6  |  | Stock Option Agreement of Barbara H Biehner dated September 5, 2003                                                     
|              |  |                                                                                                                         
|Exhibit 10.7  |  | Stock Option Agreement of Steve Fitzpatrick dated September 5, 2003                                                     
|              |  |                                                                                                                         
|Exhibit 31.1  |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              |  |                                                                                                                         
|Exhibit 31.2  |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              |  |                                                                                                                         
|*Exhibit 32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002  
|              |  |                                                                                                                         
|*Exhibit 32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002  



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

We filed a report on Form 8-K on September 4, 2003 to furnish as an
exhibit the press release reporting our financial results for the
quarter ended June 30, 2003.



---

|* |  | In accordance with Release No. 34-47986, this exhibit is
hereby furnished to the SEC as an accompanying document and is not
deemed to be filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of
that Section, nor shall it be deemed incorporated by reference
into any filing under the Securities Act of 1933.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents






Signature

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

|                  |                             
|----------------- | ----------------------------
|November 14, 2003 | Accredo Health, Incorporated



| |     |  |                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------
| | BY: |  | /s/ David D. Stevens
David D. Stevens
Chairman of the Board and
Chief Executive Officer



| |  |  |                                                                                                     
| |  |  | ----------------------------------------------------------------------------------------------------
| |  |  | /s/ Joel R. Kimbrough
Joel R. Kimbrough
Senior Vice President, Chief
Financial Officer and Treasurer





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##### Table of Contents



Exhibit Index

|        |  |                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                         
|Number  |  | Description of Exhibits                                                                                                 
|        |  |                                                                                                                         
|10.1    |  | Stock Option Agreement of David D. Stevens dated September 5, 2003                                                      
|        |  |                                                                                                                         
|10.2    |  | Stock Option Agreement of John R. Grow dated September 5, 2003                                                          
|        |  |                                                                                                                         
|10.3    |  | Stock Option Agreement of Joel R. Kimbrough dated September 5, 2003                                                     
|        |  |                                                                                                                         
|10.4    |  | Stock Option Agreement of Kyle J. Callahan dated September 5, 2003                                                      
|        |  |                                                                                                                         
|10.5    |  | Stock Option Agreement of Thomas W. Bell, Jr. dated September 5, 2003                                                   
|        |  |                                                                                                                         
|10.6    |  | Stock Option Agreement of Barbara H Biehner dated September 5, 2003                                                     
|        |  |                                                                                                                         
|10.7    |  | Stock Option Agreement of Steve Fitzpatrick dated September 5, 2003                                                     
|        |  |                                                                                                                         
|31.1    |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|        |  |                                                                                                                         
|31.2    |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|        |  |                                                                                                                         
|*32.1   |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  
|        |  |                                                                                                                         
|*32.2   |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  



---

|* |  | In accordance with Release No. 34-47986, this exhibit is
hereby furnished to the SEC as an accompanying document and is not
deemed to be filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of
that Section, nor shall it be deemed incorporated by reference
into any filing under the Securities Act of 1933.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------