##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| | þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|
| |   | For the fiscal year ended June 30,
    2003                                             

OR



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

Commission File Number 000-25769

Accredo Health, Incorporated

(Exact name of company 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, Tennessee 38134

(Address, including Zip Code, of principal
executive offices)


Registrants telephone number, including
area code:  (901) 385-3688

Securities registered pursuant to
Section 12(b) of the Act:

None

Securities registered pursuant to section
12(g) of the Act:

Common Stock, $.01 par value

Series A Junior Participating Preferred
Stock Purchase Rights


(Title of Class)


Indicate by check mark whether the Company
(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 Company was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  Yes þ  No o

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).  Yes þ  No o

The aggregate market value of the voting stock
held by non-affiliates of the Company was $1,635,898,744 as of
December 31, 2002, based upon the last sale of such stock
as reported on the Nasdaq National Market System (Nasdaq
Stock Market) on that day (assuming for purposes of this
calculation, without conceding, that all executive officers and
directors are affiliates). There were 47,859,475 shares of
common stock, $.01 par value, outstanding at September 19,
2003.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrants Proxy Statement
for its 2003 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Annual Report.









---

TABLE OF CONTENTS



|                                              |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                       
|PART II                                      
|                                              | Item 5. Market for Companys Common Equity and Related Stockholder Matters                   
|                                              | Item 6. Selected Consolidated Financial Data                                                 
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                              | Item 8. Financial Statements and Supplementary Data                                          
|                                              | Item 9A. Controls and Procedures                                                             
|PART III                                     
|                                              | Item 10. Directors and Executive Officers of the Company                                     
|                                              | Item 11. Executive Compensation                                                              
|                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                              | Item 13. Certain Relationships and Related Transactions                                      
|                                              | Item 14. Principal Accounting Fees and Services                                              
|PART IV                                      
|                                              | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|REPORT OF INDEPENDENT AUDITORS               
|EX-10.73 THOMAS W BELL JR AGREEMENT 09/03/02 
|EX-10.74 THOMAS W BELL JR. AGREEMENT 09/01/01
|EX-10.75 STEVE FITZPATRICK AGREEMENT 08/01/01
|EX-10.76 STEVE FITZPATRICK AGREEMENT 01/07/02
|EX-10.77 STEVE FITZPATRICK AGREEMENT 09/03/02
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT       
|EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP     
|EX-23.2 CONSENT OF ERNST & YOUNG LLP         
|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        



---



##### Table of Contents






PART I

This report contains forward-looking
statements. Forward-looking statements relate to
expectations, beliefs, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that
are not historical facts or that necessarily depend upon future
events. In some cases, you can identify forward-looking
statements by terms such as may, will,
should, could, would,
expect, plan, anticipate,
believe, estimate, project,
predict, potential, and similar
expressions. Specifically, this report contains, among others,
forward-looking statements about:



| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding financial condition or
    results of operations for periods after June 30, 2003;                                                       
|
| |  | our future sources of and needs for liquidity and
    capital resources;                                                                                           
|
| |  | our critical accounting policies;                                                                                                                                  
|
| |  | our expectations regarding the size and growth of
    the market for our products and services;                                                                    
|
| |  | our business strategies and our ability to grow
    our business;                                                                                                  
|
| |  | the implementation or interpretation of current
    or future regulations and legislation; and                                                                     
|
| |  | our ability to maintain contracts and
    relationships with biopharmaceutical manufacturers such as
    Biogen, Genzyme, MedImmune, GlaxoSmithKline and Genentech.

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 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 risk factors beginning on
page 17 hereof.

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 expect or anticipate.

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.



|        |         
|------- | --------
|Item 1. | Business

Overview

We are one of the largest providers of specialty
retail pharmacy services in the United States. We sell a limited
number of high cost drugs for the recurring treatment of chronic
and potentially life threatening diseases. We provide services
on behalf of biopharmaceutical manufacturers to our patients,
and we are paid for our products and services in two ways. We
are paid for dispensing medications to patients similar to a
typical retail pharmacy, and we are also often paid by the
manufacturer to provide additional services. Our services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that
patients receive and take their medication as prescribed. Our
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment, addressing difficult
reimbursement issues and capturing valuable clinical information
about a new drugs effectiveness.

1



---



##### Table of Contents



Our services include specialty retail pharmacy
services, clinical services, reimbursement services and delivery
services. We provide overnight, temperature-controlled delivery
of all drugs and supplies necessary for patients to
self-administer their drug dosages safely and effectively in the
privacy of their homes. Our pharmacists and customer service
staff talk frequently with patients over the telephone, help
them comply with prescribed treatment schedules and educate them
about ways to manage their complex diseases more effectively.
Our reimbursement specialists manage the complicated paperwork
that is required to collect payment for the patients
medication from insurance companies, managed care plans and
governmental payors.

We sell a limited number of drugs to our
patients. We mainly focus our services on injectable drugs that:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | are used on a recurring basis to treat chronic
    and potentially life-threatening diseases;            
|
| |  | are expensive, with annual costs generally
    ranging from approximately $8,000 to $300,000 per patient;
|
| |  | are complex and clinically challenging with the
    potential for side effects or adverse reactions; and 
|
| |  | require temperature control or other specialized
    handling.                                           

We have agreements with fourteen
biopharmaceutical manufacturers to buy drugs and to provide
varying degrees of specialty retail pharmacy services for our
nineteen primary products. Although most of our agreements that
involve specialty retail pharmacy services are not exclusive, we
generally are a recommended provider of the manufacturers
drug to patients and physicians. These agreements also contain
favorable pricing from the manufacturer and in many cases
compensate us for our specialized services.

Accredo Health, Incorporated, was incorporated in
Delaware in 1996. Our principal executive offices are located at
1640 Century Center Parkway, Suite 101, Memphis, Tennessee
38134. Our telephone number at that address is 901-385-3688.

Products and Services

We offer the following products and services:

Sale and Delivery of
Drugs.We sell and provide timely
delivery of drugs and ancillary supplies directly to the patient
or the patients physician in packaging specially designed
to maintain appropriate temperatures. The package typically
contains all of the supplies required for administration in the
patients home or in other alternate sites. Substantially
all products are shipped from our four primary pharmacy
locations in Memphis, Tennessee; Charlotte, North Carolina;
Nashville, Tennessee and Pittsburgh, Pennsylvania. We also
maintain 30 satellite pharmacy locations across the United
States. We ship our products primarily via FedEx.

Specialty Retail Pharmacy
Services.We offer customized services
to biopharmaceutical manufacturers designed to meet specific
needs that arise at various stages in the life cycles of their
products.

Prior to product launch, we offer:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consulting services related to strategic pricing
    decisions;                                                                                                                                                      
|
| |  | analyses and information to assist manufacturers
    in evaluating payor mix and pricing strategies for their new
    drugs;                                                                                         
|
| |  | testing of a manufacturers packaging to
    assess maintenance of product temperatures and to determine
    whether the packaging system will meet the products unique
    needs during normal shipping conditions;
|
| |  | advice on injection and infusion supplies related
    to the drug therapy and assistance in procuring supplies and
    customized packaging for infusion supply kits; and                                            
|
| |  | clinical guidelines that assist nurses and
    caregivers in learning how to safely and effectively administer
    a drug, including sterilization techniques, supplies needed and
    infusion time required.       

2



---



##### Table of Contents



Following product launch, we offer:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | clinical hotlines that allow the physician or
    patient caregiver to inquire about product usage, adverse drug
    reactions and other clinical questions;              
|
| |  | reimbursement hotlines for patients and health
    care professionals;                                                                                                    
|
| |  | support for manufacturers patient
    assistance programs for patients without the financial ability
    to otherwise acquire needed drugs and services;                 
|
| |  | replacement drug and supply programs that
    replenish patients inventory of products or supplies that
    become damaged;                                              
|
| |  | home care coordination programs that provide
    patient assistance in training, identify home care providers and
    transfer clinical information to all caregivers; and
|
| |  | triage services that refer patients to the
    appropriate provider based on the patients insurance
    provider network.                                                

Results of our interaction with patients, which
is primarily via telephone, are coded to protect privacy and
tracked to compile valuable information, including side effects,
drug interactions, administration problems, supply issues,
physician prescription habits and reasons for therapy
discontinuation and non-compliance.

We will also report on adverse drug reactions,
log the occurrence, and complete an initial preliminary report
of the occurrence to assist manufacturers in completing adverse
event reports in a timely manner. We can also create a wide
variety of additional reports that can be customized to meet
specific manufacturers needs. Examples of reports include
sales by physician, sales by zip code, sales trending, first
time patient orders, Medicaid and Medicare sales, inventory
status and reasons for patient discontinuations. Due to the
nature of the data we collect, we have established procedures
designed to ensure compliance with laws regarding
confidentiality of patient information.

Clinical Services.We work with the patient and the patients physician to
implement the prescribed plan of care. Each patient is assigned
to a team consisting of a pharmacist, a customer service
representative and a reimbursement specialist, and with certain
therapies, a Registered Nurse. Generally, each patients
team members specialize only in that patients disease and
work only with payors and providers in that patients
geographic region. In helping to implement the prescribed plan
of care; we:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | help patients understand their medication and
    treatment program;                                                                             
|
| |  | help patients manage potential side effects and
    adverse reactions that may occur so that patients are less
    likely to discontinue therapy;
|
| |  | help coordinate backup care in the event of a
    medical emergency; and                                                                         
|
| |  | help patients establish an inventory management
    and record keeping system.                                                                   

In addition, we assist patients and their
families in coping with a variety of difficult emotional and
social challenges presented by their diseases, participate in
patient advocacy organizations, assist in the formation of
patient support groups, advocate legislation to advance patient
interests and publish newsletters and educational materials for
our patients.

Reimbursement
Services.By focusing on specific
chronic diseases, we have developed significant expertise in
managing reimbursement issues related to the patients
condition and treatment program. Due to the long duration and
high cost of therapy generally required to treat chronic
disorders, the availability of adequate health insurance is a
continual concern for chronically ill patients and their
families. Generally, we contact the payor prior to each shipment
to determine the patients health plan coverage and the
portion of costs that the payor will reimburse. Our
reimbursement specialists review issues such as
pre-certification or other prior approval requirements, lifetime
limits, pre-existing condition clauses, and the availability of
special state programs. By identifying coverage limitations as
part of an initial consultation, we can assist the patient in
planning for alternate coverage, if necessary. From time to
time, we negotiate with payors to facilitate or

3



---



##### Table of Contents



expand coverage for the chronic diseases we
serve. In addition, we accept assignment of benefits from
numerous payors, which substantially eliminates the claims
submission process for most patients.


Disease Markets and Related Products

Many of the biopharmaceutical drugs that we sell,
including growth hormones, anti-hemophilic factor, intravenous
immunoglobin (IVIG) and other blood-related products, are
available from multiple sources. Currently, we sell and provide
our specialty services primarily with respect to 19 products.
The drugs we sell with respect to seven core disease markets
account for over 85% of our revenues. These seven disease
markets and the drugs that we sell to service these markets are
described below.

With respect to drugs that we sell for our seven
core disease markets, Synagis® and Cerezyme® are only
available from single sources. We have also agreed with Biogen
to not sell drugs that compete with AVONEX® for the
treatment of Multiple Sclerosis. There are other drugs that we
do not sell that are similar to or that compete with some of the
other drugs that we sell.

Hemophilia.Hemophilia is an inherited, genetic, lifelong bleeding disorder
caused by the absence or inactivity of an essential blood
clotting protein or factor. Two major disease
categories exist, hemophilia A, or Factor VIII deficiency, and
hemophilia B, or Factor IX deficiency. It is estimated that
there are approximately 20,000 people with hemophilia in the
United States, and presently there is no known cure. Individuals
with hemophilia may suffer from bleeding episodes that can occur
spontaneously or as a result of physical activity or trauma.
While small surface cuts can usually be treated with a pressure
bandage, the most frequent complication of hemophilia is
internal bleeding into muscles and joints, which can cause
arthritis and debilitating orthopedic problems. More serious
complications include internal bleeding in the head, neck,
spinal cord or internal organs, which can cause death.

Hemophilia is generally treated by infusing
anti-hemophilic factor concentrates intravenously when the
symptoms of a bleed are detected. This therapy is generally
administered by the patient or his or her family members,
without the assistance of a nurse, in response to bleeding
episodes. Approximately 60% of the persons with hemophilia in
the United States have a severe form of the disorder as measured
by the level of factor naturally present in the body. In
general, the more severe the factor deficiency, the more
frequently the bleeding episodes may occur. On average, someone
with severe hemophilia will need to infuse factor weekly. In
many individuals with severe hemophilia, factor therapy is
administered prophylactically to maintain high enough
circulating factor levels to minimize the risk of bleeding.

Many hemophilia patients contracted hepatitis or
human immunodeficiency virus, commonly known as HIV, as a result
of contaminated blood derivative therapies they received prior
to the mid-1980s. It is estimated that approximately
one-half of the hemophilia population who received
anti-hemophilic factor prior to the mid-1980s was exposed
to HIV and is at risk of developing acquired immune deficiency
syndrome, commonly known as AIDS. We offer medications used in
treating AIDS as a convenience to our hemophilia patients that
have contracted HIV. In the early 1990s, recombinant
clotting factor, a biotechnological alternative to
plasma-derived factor, was introduced and to date has proved to
be as effective as the blood-derived products with virtually no
risk of viral transmission. Current utilization reflects
increased use of recombinant and monoclonal products by
physicians because of the advantages of increased purity.

There are currently six major suppliers of Food
and Drug Administration (FDA) approved products used
for treating hemophilia. We purchase products from all six
suppliers. Historically, no supplier has been responsible for a
majority of our hemophilia product purchases. However, the
majority of our hemophilia product was purchased in the fiscal
years ended June 30, 2002 and 2003 from Baxter Healthcare
Corporation.

We have entered into hemophilia distribution
agreements with Baxter Healthcare Corporation and Aventis
Behring LLC naming us as a non-exclusive hemophilia specialty
pharmacy provider of hemophilia products to home care patients
in the United States and Puerto Rico. These agreements provide
for minimum purchase commitments by us and our acquisition cost
of the drugs is based upon the volume of product we purchase.

4



---



##### Table of Contents



Pulmonary Arterial
Hypertension.Pulmonary Arterial
Hypertension (PAH) is a chronic pulmonary disease for which
there is no known cure. Patients with this disease experience an
increase in pulmonary arterial pressure that results in symptoms
such as dyspnea, palpitations and syncope. Generally, PAH
impacts adults between the ages of 20 and 40. It is estimated
that 1 to 2 out of every 1 million Americans will develop
Primary Pulmonary Hypertension, a common form of PAH, and
approximately 400 persons per year in the United States will be
diagnosed with some form of PAH. Once diagnosed, PAH patients
receive therapy for the remainder of their lifetime or until
they receive a lung transplant. This disease is treated with
one, or a combination, of the following three products:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | Flolan®, which is an epoprosternol sodium
    product manufactured by GlaxoSmithKline;                 
|
| |  | Tracleer, which is a bosentan product
    manufactured by Actelion Pharmaceuticals U.S., Inc.; and    
|
| |  | Remodulin®, which is a treprostinil sodium
    product manufactured by United Therapeutics Corporation.

We have agreements with GlaxoSmithKline for the
sale of Flolan®, United Therapeutics Corporation for the
sale of Remodulin®, and Actelion Pharmaceuticals U.S., Inc.
for the sale of Tracleer. These agreements have multiple
year terms, may be terminated without cause on 90 to
365 days prior notice and obligate us to provide varying
degrees of specialized services.

Autoimmune Disorders and Primary
Immunodeficiency Disease.Autoimmune
disorders describe a group of chronic diseases in which the body
treats its own tissues or cells as if they were foreign
substances and produces antibodies to attack and destroy those
tissues or cells. Most autoimmune disorders currently are
incurable and tend to become progressively severe. Various
therapies, including IVIG, are administered to minimize the
effects of autoimmune disorders and the severity of their
associated symptoms. Although typically administered via
infusion in a hospital or physicians office, IVIG can be
administered at home by patients who require repeated treatment.

Primary Immunodeficiency diseases (PID) are
a group of disorders caused by an absence or malfunction of a
component of the immune system. The component most often missing
or malfunctioning is antibodies or immunoglobulins. Due to the
lack of antibodies these patients have an increased
susceptibility to life threatening infections and chronic lung
disease. Primary immunodeficiencies can occur at any age. IVIG
treatment replaces the antibodies missing or malfunctioning.
Currently there is no other alternative therapy.

Because IVIG is collected and processed from
human donors, the IVIG product market can be somewhat limited by
supply constraints. We have supply contracts with all five major
suppliers of IVIG in the United States, including volume
commitment purchase contracts with Baxter Healthcare Corporation
and Aventis Behring LLC. Historically, no supplier is
responsible for a majority of our IVIG product purchases.

Multiple Sclerosis.Multiple Sclerosis is a progressive neurological disease in
which the body loses the ability to transmit messages among
nerve cells, leading to a loss of muscle control, paralysis and,
in some cases, death. Patients with active relapsing Multiple
Sclerosis experience an uneven pattern of disease progression
characterized by periods of stability interrupted by flare-ups
of the disease. Industry sources estimate that Multiple
Sclerosis affects between 250,000 and 350,000 people in the
United States, approximately two-thirds of whom are women.
Disease onset typically occurs in young adults between the ages
of 20 and 40. Of the patients diagnosed with Multiple Sclerosis
in the United States, about 90% of patients initially have
relapsing Multiple Sclerosis and about half of those patients go
on to develop a progressive form of the disease. About 10% of
patients exhibit a progressive form of the disease at onset.
Industry sources estimate that of the persons currently affected
by Multiple Sclerosis in the United States, approximately 50%
have a relapsing form of the disease, and approximately 50% have
a progressive form. There are currently four FDA-approved
products used for treating relapsing Multiple Sclerosis:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | AVONEX®, which is manufactured by Biogen,
    Inc.;                            
|
| |  | Betaseron®, which is manufactured by Chiron
    Corporation;                   
|
| |  | Copaxone®, which is manufactured by Teva
    Pharmaceutical Industries Limited;

5



---



##### Table of Contents





| |   |                                              
| | - | ---------------------------------------------
| |  | Rebif®, which is manufactured by Serono, S.A.

AVONEX® is generally administered via a
single intramuscular injection once per week.

Effective September 1, 2002, we entered into
amended and restated agreements with Biogen pursuant to which we
are a preferred distributor of AVONEX® and provide various
services and information to Biogen. The agreements are for a
term ending December 31, 2005. Our agreements with Biogen
are terminable by either party in the event of a breach. Our
agreements provide that as long as we are the only preferred
home delivery service provider approved by Biogen, we may not,
without Biogens approval, sell any products that compete
with AVONEX® for the treatment of Multiple Sclerosis. In
some circumstances we may not sell competing products for a year
following the termination of the agreements. We do not have
exclusive rights to sell AVONEX®, and Biogen has reserved
the right under our agreements to sell AVONEX® directly or
to appoint other providers of AVONEX®, but any such action
would eliminate our exclusivity obligations.

Gaucher Disease.Gaucher Disease is a seriously debilitating, sometimes fatal,
genetic disorder caused by a deficiency of an important enzyme
in the body called glucocerebrosidase. This deficiency results
in the accumulation of the glucocerebroside lipid in the cells
of organs in the body. The disease is characterized by an
enlarged liver or spleen, anemia, bleeding problems, fatigue,
bone and joint pain and other orthopedic complications such as
repeated fractures and bone erosion. Type I Gaucher Disease is
the most common form of Gaucher Disease, affecting about 90% of
all Gaucher patients. Genzymes Ceredase® and
Cerezyme® products are FDA-approved products used for
treating Type I Gaucher Disease. Cerezyme® is the newer
product, and we have very few patients receiving Ceredase®.

We have a longstanding relationship with Genzyme
relating to Cerezyme®. Cerezyme® is administered by
intravenous infusion. Dosing frequencies vary, but a typical
dosing regimen involves administration once every two weeks.
Pursuant to our current agreements with Genzyme, we are a
preferred distributor of Cerezyme® in the United States and
its Territories and provide various information and other
services to Genzyme. The pricing of Cerezyme® under our
agreements with Genyzme, as well as the scope and pricing of
services that we provide, are subject to periodic review. Our
agreements with Genzyme are for a term ending September 30,
2003. The agreements automatically renew on an annual basis
unless either party provides 90 days prior notice of
non-renewal, and are terminable by either party for any reason
with 90 days prior notice. In addition, the agreements
provide that, during the term of the agreements and for a period
of five years after their termination, we may not sell any
prescription drug for the treatment of Gaucher Disease other
than Cerezyme®. We do not have exclusive rights to sell
Cerezyme®. Genzyme has reserved the right under the
agreements to sell Cerezyme® directly or to appoint other
distributors of this product.

Growth Hormone-Related
Disorders.A major treatable cause of
growth delay in children is growth hormone deficiency. It is
estimated that there are approximately 20,000 pediatric patients
in the United States who are candidates for growth hormone
therapy. The market for growth hormone products is relatively
mature, and currently five manufacturers sell eleven
FDA-approved growth hormone products for a variety of
indications. However, a majority of patients currently being
treated with growth hormone products use one of Genentechs
growth hormone products, Protropin®, Nutropin®,
Nutropin AQ® or Nutropin Depot, the first long-acting
dosage form of recombinant human growth hormone.

We have purchasing relationships with all five
manufacturers of growth hormone products used in the United
States, including a longstanding relationship with Genentech.
Typically, patients or family members administer growth hormone
products at home without the presence of a nurse. Most growth
hormone products require administration by injection several
times per week, and in some cases daily. In contrast, Nutropin
Depot may be administered as infrequently as monthly or
bi-monthly. We have entered into an amended and restated
national distribution agreement with Genentech in which we also
provide compliance programs, nursing coordination, various
information and other services relating to Genentechs
human growth hormone products, Protropin®, Nutropin®,
Nutropin AQ® and Nutropin Depot in the United States.
The pricing of Protropin®, Nutropin®, Nutropin
AQ® and Nutropin Depot under the distribution
agreement, as well as the scope and pricing of the services
provided by us, are subject to adjustment depending on the
Company meeting certain performance criteria. The distribution
agreement has a term expiring December 31, 2006. The
agreement may be terminated by Genentech if we have change of
control and may be terminated by either

6



---



##### Table of Contents



party following 90-days notice. We do not have
exclusive rights to distribute Protropin®, Nutropin®,
Nutropin AQ® and Nutropin Depot. Genentech has
reserved the right under our agreement to sell these drugs
directly or to appoint other distributors of these drugs.


Respiratory Syncytial
Virus.Respiratory Syncytial Virus
(RSV) is a serious lower respiratory tract disease that
primarily attacks pediatric patients. RSV is the most common
cause of pneumonia and bronchiolitis in infants and children.
Approximately two-thirds of infants are infected with RSV during
the first year of life, and almost all have been infected by age
two. It has been estimated that, nationwide, there are
approximately 300,000 children at risk of RSV each year and
approximately 90,000 hospitalizations due to RSV infections.

Synagis® (palivizumab), a drug manufactured
by MedImmune, Inc. has been shown to significantly reduce RSV
hospitalizations in pediatric patients at risk of the disease.
Clinical studies have shown that preventive treatment with
Synagis® was associated with a 55% reduction in overall
hospitalizations due to RSV. Physicians prescribe Synagis®
to immunize infants who are at high risk for serious lung
impairment. Synagis® is typically administered by
intramuscular injection once a month over a six month period.

RSV is seasonal, with the disease striking
primarily during the period of October through April. Our
distribution agreement with MedImmune renews on an annual basis
upon the mutual consent of the parties and is terminable by
either party for any reason on 30 days notice. We do not
have the exclusive right to sell Synagis®, although we were
a national preferred assignment of benefits distributor of the
drug for the 2002-2003 respiratory syncytial virus season. We
have recently renewed our agreement with MedImmune to continue
as one of three national preferred assignment of benefits
distributors for the 2003-2004 season.

Suppliers

We primarily dispense growth hormones,
anti-hemophilic factor, IVIG, other blood-related products and
other drugs obtained from the following sources:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | Actelion Pharmaceuticals U.S., Inc., with respect
    to Tracleer;                           
|
| |  | Allergan, Inc., with respect to Botox®;                                                       
|
| |  | Aventis Behring, LLC, with respect to
    Zemaira;                                           
|
| |  | Baxter Healthcare Corporation with respect to
    Aralast;                                   
|
| |  | Biogen, Inc., with respect to AVONEX®;                                                        
|
| |  | Enzon, Inc., with respect to Adagen®;                                                         
|
| |  | Genentech, Inc. with respect to Xolair;                                                      
|
| |  | Genzyme Corporation, with respect to
    Ceredase®, Cerezyme®, Aldurazyme® and
    Fabrazyme®;
|
| |  | GlaxoSmithKline PLC, with respect to Flolan®;                                                 
|
| |  | Immunex Corporation, with respect to Enbrel®;                                                 
|
| |  | InterMune, Inc., with respect to Actimmune®;                                                  
|
| |  | MedImmune, Inc. with respect to Synagis®;                                                     
|
| |  | Rare Disease Therapeutics, Inc., with respect to
    Orfadin®; and                            
|
| |  | United Therapeutics Corporation, with respect to
    Remodulin®.                              

7



---



##### Table of Contents



Although there are four other manufacturers of
FDA-approved growth hormone products, Genentechs products
collectively enjoy a market share that exceeds the aggregate of
all other individual manufacturers of growth hormone products.
Accordingly, in the event that one or more of our current
suppliers of products (other than IVIG and other blood-related
products) were to cease selling products to us, our business,
financial condition and results of operations would be
materially and adversely affected.

Our agreements with our key suppliers generally
may be canceled by either party, without cause, upon between 30
and 365 days prior notice. In addition, our agreements with
our suppliers generally provide that during the term of the
agreements (and, in some instances, for as much as five years
after termination of the agreements), we may not distribute any
competing products. We generally do not have any exclusive
rights to dispense our products, and our suppliers have
generally reserved the right under their agreements with us to
distribute their products directly or to appoint other
distributors of their products. See Risk Factors  We
are highly dependent on our relationships with a limited number
of biopharmaceutical manufacturers. and Business
 Disease Markets and Related Products.

We have supply relationships with all six major
suppliers of clotting factor and all five major suppliers of
IVIG in the United States, and historically no supplier has been
responsible for a majority of our hemophilia or IVIG product
purchases. However, the majority of our hemophilia product was
purchased for the years ended June 30, 2002 and 2003 from
Baxter Healthcare Corporation.

Relationships with Medical Centers

At June 30, 2003, we had joint ventures with
four medical centers (or their affiliates):



| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | Childrens Home Care located in Los Angeles,
    California;    
|
| |  | Alternative Care Systems, Inc. located in Dallas,
    Texas;    
|
| |  | Cook Childrens Home Health located in Ft.
    Worth, Texas; and
|
| |  | Childrens Hospital located in Washington
    D.C.              

In our typical joint venture arrangement, we and
the medical center (or its affiliate) form a joint venture
entity to which we provide specialty retail pharmacy services.
Under the terms of the joint venture agreement, we manage the
sales, marketing, and provision of specialty pharmacy services
in exchange for a monthly management fee and the reimbursement
of some expenses. We share in the profits and losses of the
joint venture entity with the medical center (or its affiliate)
in proportion to our respective capital contributions and
receive a management fee for our management services. The
agreements generally have initial terms of between one and five
years and contain restrictive covenants and rights of first
refusal.

In addition to joint venture relationships, we
have entered into management agreements with other childrens
hospitals and adult medical centers (or their affiliates) to
provide specialty retail pharmacy services.

Under our management agreements, we provide goods
and services used in the hospitals or joint ventures
specialty retail pharmacy business, including drugs and related
supplies, patient education, clinical consultation, and
reimbursement services. While the payment terms under such
management agreements may vary, we are generally reimbursed for
our costs and are paid a monthly management fee generally
calculated as a percentage of revenues. These agreements usually
have terms of between one and five years and are terminable by
either party, with or without cause, with between one and twelve
months prior notice. See Risk Factors  If our
relationships with some medical centers are disrupted, our
business could be harmed.

Acquisition of Specialty Pharmaceuticals
Division of Gentiva Health Services, Inc.

On June 13, 2002, we acquired substantially
all of the assets of the Specialty Pharmaceuticals Services
Division, or SPS business, of Gentiva Health Services, Inc.
(Gentiva). The aggregate purchase price paid was
$463.8 million (including $13.8 million of acquisition
related costs) and consisted of $217.1 million in cash and
7,591,464 shares of our common stock valued at $246.7 million.
As part of the acquisition, we acquired 100% of the outstanding
stock of three Gentiva subsidiaries that were engaged
exclusively in the SPS business.

8



---



##### Table of Contents



Payors

The following table sets forth the approximate
percentages of the Companys gross patient revenue
attributable to various payor categories for the fiscal years
ended June 30, 2001, 2002 and 2003. This table reflects the
acquisition of the SPS business only since June 14, 2002.
The percentage of the SPS business reimbursed by Medicare and
Medicaid was higher than the comparable percentage of
Accredos business. Therefore, the payor mix after the
acquisition reflects an increase in the percentage of revenue
attributable to Medicare and Medicaid and a decrease in the
percentage of revenue attributable to private payors.

|                                       |       |               |    |               |   |               |    |     |   |  |    |     |  
|-------------------------------------- | ----- | ------------- | -- | ------------- | - | ------------- | -- | --- | - |  | -- | --- | -
|                                       |       | Year Ended    |    | Year Ended    |   | Year Ended   
|                                       |       | June 30, 2001 |    | June 30, 2002 |   | June 30, 2003
|                                       |       |               |    |               |   |              
|Private payors (including self pay)(1) |       |               | 81 | %             |   |               | 79 | %   |   |  | 73 | %  
|Medicaid and other state programs      |       |               | 17 | %             |   |               | 19 | %   |   |  | 20 | %  
|Medicare and other federal programs    |       |               | 2  | %             |   |               | 2  | %   |   |  | 7  | %  
|                                       |       |               |    |               |   |               |    |     |   |  |    |    
|                                       | Total |               |    | 100           | % |               |    | 100 | % |  |    | 100 | %
|                                       |       |               |    |               |   |               |    |     |   |  |    |    



---



|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales to private physician practices,
    whose ultimate payor is typically Medicare, which accounted for
    approximately 4%, 3% and 1% of gross patient revenue,
    respectively, for the fiscal years ended June 30, 2001,
    2002 and 2003.

The primary trend in the United States health
care industry is toward cost containment. The increasing
prevalence of managed care, centralized purchasing decisions,
consolidation among and integration of health care providers,
and competition for patients has affected, and continues to
affect, pricing, purchasing, and usage patterns in health care.
Decisions regarding the use of a particular drug treatment are
increasingly influenced by large private payors, including
managed care organizations, pharmacy benefit managers, group
purchasing organizations, regional integrated delivery systems,
and similar organizations, and are based increasingly on
economic considerations including product cost and whether a
product reduces the cost of treatment. Efforts by payors to
eliminate, contain or reduce costs through coverage exclusions,
lower reimbursement rates, greater claims scrutiny, closed
provider panels, restrictions on required formularies, claim
delays or denials and other similar measures could have a
material adverse effect on our business, financial condition and
results of operations.

Some payors set lifetime limits on the amount
reimbursable to patients for medical costs. Some of our patients
may reach these limits because of the high cost of their medical
treatment and associated pharmaceutical regimens. Some payors
may attempt to further control costs by selecting some firms to
be their exclusive providers of pharmaceutical or other medical
product benefits. If any such arrangements were with our
competitors, we would be unable to be reimbursed for purchases
made by such patients.

We derive a significant portion of our revenue
from governmental programs such as Medicare and Medicaid. 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.

Many government payors, including Medicare and
Medicaid, pay us directly or indirectly at the drugs
average wholesale price (AWP) or at a percentage off AWP.
The Department of Health and Human Services, Office of Inspector
General (OIG) has raised concerns since 1992 about how
certain manufacturers have established AWP for certain Medicare
covered drugs. Federal and state agencies continue to examine
perceived discrepancies between reported AWP of drugs and the
actual manufacturers selling price.

In February 2000, First DataBank, Inc.,
which reports AWP to Medicaid programs, announced that it will
report based on market prices rather than prices submitted by
manufacturers. As a result, a number of state Medicaid agencies
have lowered the amount of reimbursement that they pay for
certain drugs, including clotting factor.

In September 2001, the OIG issued a report
titled Medicaids Use of Revised Average Wholesale
Prices, which in part summarized the results of a joint
investigation conducted by the United States

9



---



##### Table of Contents



Department of Justice and the National
Association of Medicaid Control Fraud Units of actual wholesale
pricing data for 51 drugs. The report concluded the current
method of determining AWP was fundamentally flawed.
In response to this report, the Centers for Medicare and
Medicaid Services (CMS) indicated it would continue to look
for administrative and legislative solutions to the problem of
accurately determining AWP. On September 16, 2002, the OIG
revised its August, 2001 report entitled Medicaid Pharmacy
 Actual Acquisition Costs of Brand Name Prescription Drug
Products. In its revised report, OIG estimates that
pharmacies receive an average 17% discount on drugs purchased
from wholesalers.


There has been an increase in the number of suits
instituted by private consumer groups and state attorney
generals against drug manufacturers over prescription drug
pricing alleging, in part, fraud through manipulating the AWP.
The eventual effect of such suits, if any, on the AWP is unknown.

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. With respect to Medicare, the Senate is
proposing to reduce clotting factor reimbursement from AWP minus
5% to AWP minus 15% while the House is proposing a new rate of
Average Selling Price plus 12%. 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. Similarly, 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.
Other states have proposed or are considering similar changes to
their pharmacy payment plans. We expect that these developments
will reduce prices and margins on some of the drugs that we
distribute.

A number of states are also considering other
types of legislation designed to reduce their Medicaid
expenditures and provide universal coverage and additional care
for some populations, including proposals to impose additional
taxes on providers to help finance or expand such programs. Some
states may require us to maintain a licensed pharmacy in their
states in order to qualify for reimbursement under
state-administered reimbursement plans. Any of these changes
could result in significant reductions in payment levels for
drugs handled and services provided by us, which would have a
material adverse effect on our business, financial condition and
results of operations.

At least thirteen states have implemented
preferred drug list programs, under which drugs
would not appear on an approved and reimbursable Medicaid
formulary unless the Medicaid programs receive significant
discounts or other concessions. The drug industry has instituted
litigation to halt these programs but the outcome of this
litigation is unknown. If the states prevail in these lawsuits,
then this could result in reductions in the reimbursement we
receive from Medicaid programs for our services and could
materially and adversely affect our business, financial
condition and results of operations.

Hemophilia treatment centers may purchase factor
from manufacturers at a discount under a government program
established in 1992 which extended the Medicaid best price
rebate program to hemophilia treatment centers. Manufacturers
that sell outpatient drugs to hemophilia treatment centers agree
with the Department of Health and Human Services
(DHHS) that they will not charge a price for covered
outpatient drugs that is higher than a statutorily set amount.
We do provide contract pharmacy services to several hemophilia
treatment centers, but we do not directly own or operate a
hemophilia treatment center that is eligible for this special
pricing. This places us at a competitive disadvantage as a
provider of factor, except where our affiliated medical centers
are eligible for the special pricing. Under DHHS guidelines, an
eligible hemophilia treatment center may obtain factor at this
special pricing and use a contract pharmacy to dispense it to
the centers patients. However, if a hemophilia treatment
center does not comply with DHHS guidelines or sells factor
bought at this special pricing to patients who are not patients
of the center, it may incur civil penalties or liability to drug
manufacturers for the amount of the discount that the center
received from the manufacturer.

We expect that these developments will reduce
prices and margins on some of the drugs that we distribute.

10



---



##### Table of Contents



Competition

The specialty pharmacy industry is highly
competitive and is undergoing consolidation. The industry is
fragmented, with many public and private companies focusing on
different product or customer niches. Some of our current and
potential competitors include:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | specialty pharmacy distributors, such as Caremark
    Therapeutic Services, and Priority Healthcare Corporation;                   
|
| |  | specialty pharmacy divisions of national
    wholesale drug distributors;                                                          
|
| |  | pharmacy benefit management companies;                                                                                             
|
| |  | hospital-based pharmacies;                                                                                                         
|
| |  | retail pharmacies;                                                                                                                 
|
| |  | home infusion therapy companies;                                                                                                   
|
| |  | manufacturers that sell their products both to
    distributors and directly to users, including clinics and
    physician offices;
|
| |  | comprehensive hemophilia treatment centers; and                                                                                    
|
| |  | other alternative site health care providers.                                                                                      

Some of our competitors have greater financial,
technical, marketing and managerial resources than we have.

While competition is often based primarily on
price and quality of care and service, it can also be affected
by the ability to develop and maintain relationships with
patients and referral sources, depth of product line, technical
support systems, specific patient requirements and reputation.
There can be no assurance that competitive pressures will not
have a material adverse affect on our business, financial
condition and results of operations.

Government Regulation

Federal and state governments heavily regulate
the drug and medical supply industry. Manufacturers,
distributors, health care providers and patients are all subject
to these regulations. Particular government attention currently
focuses on:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | manufacturer calculated and reported average
    wholesale pricing
|
| |  | the payment of inducements for patient referrals;                 
|
| |  | prohibited financial relationships with
    physicians;           
|
| |  | joint venture and management arrangements;                        
|
| |  | product discounts;                                                
|
| |  | inducements given to patients; and                                
|
| |  | professional licensing.                                           

The laws are very broad, the regulations are
complicated, and in many cases the courts interpret them
differently. This makes compliance difficult. Federal and state
civil and criminal fines and penalties may be imposed on persons
who violate these laws. While we structure our transactions in a
manner we believe complies with all laws, a violation could
result in fines or criminal penalties, which could reduce our
profitability. The following are particular areas of government
regulation that apply to our business.

Licensing and
Registration.A number of state laws
require that we be licensed as an in-state pharmacy. We also
currently ship prescription drugs to many other states that
require us to be licensed as an out-of-state pharmacy. We
believe that we substantially comply with all state licensing
laws applicable to our business.

11



---



##### Table of Contents



Some pharmacy associations and state boards of
pharmacy are attempting to protect local pharmacies by
restricting the activities of out-of-state pharmacies. In
addition, some states impose limits on financial incentives paid
to insurance companies and other payors offering managed drug
programs. Restrictions on our operations imposed by these laws
could reduce our profitability.

Laws enforced by the federal Drug Enforcement
Agency, as well as some similar state agencies, require our
pharmacy locations to individually register in order to handle
controlled substances, including prescription drugs. A separate
registration is required at each principal place of business
where the applicant manufactures, distributes, or dispenses
controlled substances. Federal and state laws also require that
we follow specific labeling and record-keeping requirements for
controlled substances. We maintain federal and state controlled
substance registrations for each of our facilities that require
it, and follow procedures intended to comply with all such
record-keeping requirements.

Pharmacists and Nursing
Licenses.Our nurses must obtain state
licenses to provide teaching services and the hands on nursing
which we provide to some of our patients, and our pharmacists
must obtain state licenses to dispense drugs. Our pharmacists
and nurses are licensed in those states where their activity
requires it. Pharmacists and nurses must also comply with
professional practice rules. We believe that the activities
undertaken by our nurses or pharmacists comply with all
applicable laws or rules governing the practice of pharmacy,
nursing or medicine.

Pharmacy Counseling.Federal law requires that states offering Medicaid prescription
drug benefits implement a drug use review program. The program
requires before and after drug use reviews, the use
of predetermined standards, and patient education. Its purpose
is to improve the quality of care by ensuring drug prescriptions
are medically necessary, and not likely to cause adverse
effects. Participating states must develop standards for
pharmacy counseling. These standards apply as well to
non-resident pharmacies like us. We believe our pharmacists
monitor these requirements, and provide the necessary counseling.

Federal Mail Order.Federal law imposes standards for:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | the labeling, packaging and repackaging,
    advertising and adulteration of prescription drugs; and
|
| |  | the dispensing of controlled substances and
    prescription drugs.                                 

The Federal Trade Commission and the United
States Postal Service regulate mail order drug sellers. The law
requires truth in advertising, a reasonable supply of drugs to
fill orders, and a right to a refund if an order cannot be
filled within thirty days. We believe that we substantially
comply with all of these requirements.

Prescription Drug Marketing
Act.This federal law exempts many
drug and medical devices from federal labeling and packaging
requirements, as long as they are not adulterated or misbranded
and were prescribed by a physician. The law also prohibits the
sale, purchase or trade of drug samples that are not intended
for sale or intended to promote the sale of the drug. Records
must be kept of drug sample distribution, and proper storage and
maintenance methods used. To the extent that this law applies to
us, we believe that we comply with the documentation,
record-keeping and storage requirements.

Anti-Kickback and
Self-Referral.We are subject to the
federal Medicare Anti-Kickback law that prohibits offering,
paying, soliciting or receiving, directly or indirectly, in cash
or in kind, remuneration to induce or in exchange for:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the referral of patients covered by Medicare,
    Medicaid or other government healthcare reimbursement programs;
    or                                               
|
| |  | the leasing, purchasing, ordering or arranging
    for or recommending the lease, purchase or order of any item,
    good, facility or service covered by the programs.

Violations by individuals or entities are
punishable by criminal fines, civil penalties, imprisonment, or
exclusion from participation in the reimbursement programs.
Sanctions imposed under this law on us, our business partners
(such as drug suppliers), or our customers could reduce our
business and our profits.

12



---



##### Table of Contents



Many states have similar state laws, which, if
violated, could result in similar penalties. Courts have not
applied the Anti-Kickback law or similar state laws
consistently, and some courts have found a violation if only one
purpose of an otherwise acceptable arrangement was to induce
referrals.

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.

DHHS published a set of safe harbor
regulations and continues to publish clarifications to the safe
harbors. Arrangements that fully comply with a safe harbor are
deemed not to violate the Anti-Kickback law. We have several
business arrangements (for example, our joint venture and
management arrangements with medical centers, service
arrangements with physicians and product pricing arrangements
with suppliers) that do not satisfy all of the requirements
necessary to fall within the safe harbors. Failure to satisfy a
safe harbor does not mean that a transaction is necessarily
illegal. The law requires the government to evaluate the intent
in each situation. We believe our business arrangements comply
with the Anti-Kickback law, the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) and similar state laws.
However, if we are found to violate any of these laws, we could
suffer penalties, fines, or possible exclusion, which could
reduce our revenues and profits.

OIG Fraud Alerts and Advisory
Opinions.The OIG periodically issues
Fraud Alerts and Advisory Opinions identifying practices it
believes may violate federal fraud and abuse laws. One Fraud
Alert addresses joint venture and contractual arrangements
between health care providers. Another concerns prescription
drug marketing practices. Drug marketing activities may
implicate the federal fraud and abuse laws because the cost of
drugs are often reimbursed by Medicare and Medicaid. According
to the Fraud Alert, questionable practices may include payments
to pharmacists to recommend a particular drug or product. One
Advisory Opinion indicates that management fees calculated as a
percentage of net revenues, where marketing services are
included, could implicate the federal fraud and abuse laws if
the fee is intended to induce patient referrals. We believe our
business arrangements comply with federal fraud and abuse laws.
However, if we are found to have violated any of these laws, we
could suffer penalties, fines or possible exclusion from the
Medicare, Medicaid or other governmental programs, which could
adversely affect our results of operations.

State Consumer Protection
Laws.A number of states are involved
in enforcement actions involving pharmaceutical marketing
programs, including programs offering incentives for pharmacists
to dispense one product rather than another. State consumer
protection laws generally prohibit false advertising, deceptive
trade practices and the like. A number of the states have
requested that the FDA exercise greater regulatory oversight in
the area of pharmaceutical promotional activities by
pharmacists. It is not possible to determine whether the FDA
will act in this regard or what effect, if any, FDA involvement
would have on our operations.

The Stark Law.Federal law prohibits physicians from making a referral for
certain health items or services if they, or their family
members, have a financial relationship with the entity receiving
the referral. No bill may be submitted in connection with a
prohibited referral. Violations are punishable by civil monetary
penalties upon both the person making the referral and the
provider rendering the service. Such persons or entities are
also subject to exclusion from Medicare and Medicaid. The Stark
Law applies to our products and services, and we believe our
relationships comply with the law. However, if our practices are
found to violate the Stark Law, we may be subject to sanctions
or be required to alter or discontinue some of our practices.
This could reduce our revenues or profits.

Beneficiary
Inducement.HIPAA penalizes the
offering of remuneration or other inducements to beneficiaries
of federal health care programs to influence the
beneficiaries decision to seek specific governmentally
reimbursable items or services, or to choose a particular
provider. HIPAA excludes items provided to promote the delivery
of preventive care. The statutory exception would apply where
such care is provided or directly supervised by the
medical provider that has provided the incentive.

The OIG recently issued final regulations
concerning inducements to beneficiaries. Under the new
regulations, permissible incentives are those given in
connection with preventive care, including pre and post

13



---



##### Table of Contents



natal care, and services described in the U.S.
Preventive Service Task Forces Guide to Preventive Care.
OIG also believes that items of nominal value given to
beneficiaries are permissible even if not related to preventive
care. However, permissible incentives would not include cash or
cash equivalents. We from time to time provide some items at no
charge to our patients in connection with their drug therapies,
not all of which are included on the list of items specifically
stated not to violate the new regulations. However, we believe
that those items are allowed by the underlying statute. A
determination that we violated the regulations or the statute,
however, could result in sanctions that reduce our revenue or
profits.


The False Claims
Act.We are also subject to federal
and state laws prohibiting individuals or entities from
knowingly and willfully making claims for payment to Medicare,
Medicaid, or other third party payors that contain false or
fraudulent information. These laws provide for both criminal and
civil penalties. Health care providers who submit claims which
they knew or should have known were false, fraudulent, or for
items or services that were not provided as claimed, may be
excluded from Medicare and Medicaid participation, required to
repay previously collected amounts, and subject to substantial
civil monetary penalties.

Government
Investigations.The government
increasingly examines arrangements between health care providers
and potential referral sources to ensure that they are not
designed to exchange remuneration for patient care referrals.
Investigators are increasingly willing to look behind
formalities of business transactions to determine the underlying
purpose of payments. Enforcement actions have increased and are
highly publicized. Any investigation may cause publicity that
would cause potential customers to avoid us, reducing potential
revenues and profits.

In addition to investigations and enforcement
actions initiated by governmental agencies, we could be the
subject of an action brought under the False Claims Act by a
private individual on behalf of the government. Actions under
the False Claims Act, commonly known as
whistleblower lawsuits are generally filed under
seal to allow the government adequate time to investigate and
determine whether it will intervene in the action, and defendant
health care providers are often without knowledge of such
actions until the government has completed its investigation and
the seal is lifted.

Confidentiality, Privacy and
HIPAA.Federal and state laws protect
confidentiality of medical records and information. We maintain
medical records for each patient to whom we dispense drugs. We
are thus subject to some of these medical record and patient
confidentiality laws, including HIPAA. As part of the
Administrative Simplification provision of HIPAA, DHHS published
final regulations governing electronic transactions involving
health information on August 17, 2000. These regulations
are commonly referred to as the Transaction Standards Rule. The
Transaction Standards Rule establishes standards for the most
common health care transactions. Under the new standards, any
party transmitting or receiving health transactions
electronically must send and receive data in a single format,
rather than the large number of different data formats currently
used. The Transaction Standards Rule applies to us in connection
with submitting and processing health claims. The Transaction
Standards Rule also applies to many of our payors and to our
relationships with those payors. We submitted an extension plan
to DHHS describing how we would come into compliance with the
Transaction Standards Rule. We will be required to comply with
the uniform standards for data reporting, formatting, and coding
by October 16, 2003.

On December 28, 2000, DHHS published final
regulations implementing HIPAA that adopted standards for the
privacy of individually identifiable health information (Privacy
Rules). The regulations cover health care providers, health care
clearinghouses and health plans (Covered Entities). The Privacy
Rule imposes significant administrative and financial
obligations on companies that use or disclose individually
identifiable information relating to the health of a patient.

Earlier this year, DHHS published final
regulations implementing that portion of HIPAA governing the
security of health information. Most Covered Entities will be
required to comply with these regulations by April 21,
2005. We are reviewing these regulations and may be required to
change some of our practices to comply with them.

The HIPAA regulations impose criminal penalties
on wrongful disclosure of protected health information. We
maintain procedures and provide training to our employees in an
effort to comply with all of the

14



---



##### Table of Contents



medical record and patient confidentiality laws
to which we are subject. We intend to comply with the privacy
provisions of HIPPA. While we attempt to comply with all
confidentiality requirements, a violation of any confidentiality
law could subject us to sanctions that could reduce revenues or
profits.


In addition to its provisions regarding the
confidentiality of patient health information described above,
HIPAA also imposes criminal penalties for fraud against any
health care benefit program, for theft or embezzlement involving
health care and for false statements in connection with the
payment of any health benefits. These HIPAA fraud and abuse
provisions apply not only to federal programs, but also to
private health benefit programs. HIPAA also broadened the
authority of the OIG to exclude participants from federal health
care programs. Although we do not know of any current violations
of the fraud and abuse provisions of HIPAA, if we were found to
be in violation of these provisions, the government could seek
penalties against us including exclusion from participation in
government payor programs. Significant fines could cause
liquidity problems and adversely affect our results of
operations.

Balanced Budget Act.Each state operates a Medicaid program funded in part by the
Federal government. The states may customize their programs
within federal limitations. Each state program has its own
payment formula and recipient eligibility criteria. In recent
years, changes in Medicare and Medicaid programs have resulted
in limitations on, and reduced levels of, payment and
reimbursement for a substantial portion of health care goods and
services. For example, the Federal Balanced Budget Act of 1997
(even after the restoration of some funding in 1999) will
continue to cause significant reductions in spending levels for
the Medicare and Medicaid programs. A more recent example is the
action of a number of state Medicaid agencies to reduce their
reimbursement rates in response to the new AWP prices published
by First DataBank, Inc.

Laws governing Medicare, Medicaid, TriCare/
CHAMPUS and other governmental programs may change, and various
administrative rulings, interpretations and determinations make
compliance difficult. Any changes may materially increase or
decrease program payments or the cost of providing services.
Final determinations of government program reimbursement often
require years, because of audits, providers rights of
appeal and numerous technical requirements. We believe we make
adequate provision for adjustments. However, future reductions
in reimbursement could reduce our revenues and profits.

Reform.The U.S.
health care industry continues to undergo significant change. We
anticipate that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and
payment methods and that public debate of these issues will
likely continue in the future. We cannot predict which, if any,
reform proposals will be adopted. Future changes in the nature
of the health care system could reduce revenues and profits.

Employees

As of June 30, 2003, we had 1,756 full-time
and 420 part-time employees. Our employees include approximately
144 full-time and 53 part-time pharmacists. Our employees are
not represented by a labor union, and we believe we have good
relations with our employees.

Liability Insurance

Providing health care services and products
entails an inherent risk of liability. In recent years,
participants in the health care industry have become subject to
an increasing number of lawsuits, many of which involve large
claims and significant defense costs. We may from time to time
be subject to such suits as a result of the nature of our
business. We maintain general liability insurance, including
professional and product liability, in an amount deemed adequate
by our management. There can be no assurance, however, that
claims in excess of, or beyond the scope of, our insurance
coverage will not arise. In addition, our insurance policies
must be renewed annually. Although we have not experienced
difficulty in obtaining insurance coverage in the past, there
can be no assurance that we will be able to do so in the future
on acceptable terms or at all.

15



---



##### Table of Contents



Internet Website

The Companys Internet website can be found
at www.accredohealth.com. The Company makes available free of
charge on or through our internet website, access to our annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after such
material is filed, or furnished, to the Securities and Exchange
Commission.

16



---



##### 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 are notthe 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 38% of our revenue in the fiscal year
ended June 30, 2003 was derived from the sale of IVIG and
hemophilia product. During the fiscal years ended June 30,
2002 and 2003, 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 40% of our revenue for the fiscal year
ended June 30, 2003.

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 19 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 89% of our revenues, with the drugs for hemophilia
and autoimmune disorders constituting approximately 38% of our
revenue for the fiscal year ended June 30, 2003:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | 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.

17



---



##### Table of Contents



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;                                                                                 
|
| |  | 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.

18



---



##### Table of Contents



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
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.

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 to patients covered by MediCal by us or our two
partnerships in California. 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

19



---



##### Table of Contents



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, we derived approximately 81%,
79% and 73% respectively of our gross patient revenue from
non-governmental payors (including self-pay), which included 4%,
3% 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.

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

20



---



##### Table of Contents



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.

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 and 17%
of our income before income taxes for the fiscal year ended
June 30, 2003.

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;                                                                                    
|
| |  | 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;                                               

21



---



##### Table of Contents





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | 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;                                                    
|
| |  | 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

22



---



##### Table of Contents



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
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 principally all of our
products are shipped by a single carrier, FedEx. 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.    

23



---



##### Table of Contents



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 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 June 30, 2003, we had goodwill, net
of accumulated amortization, of approximately
$352.5 million, or 39% of total assets and 69% 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 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

24



---



##### Table of Contents



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.

The lawsuits are described in Part I, Item 3
 Legal Proceedings.

In addition to the securities litigation
currently pending against us and our officers and directors, as
more fully described above, 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 through new distribution channels
    such as the Internet, we will have to                                                                                                                                                                                             

25



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.

26



---



##### Table of Contents



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.



|        |           
|------- | ----------
|Item 2. | Properties

Facilities

Our corporate headquarters are located in
Memphis, Tennessee and our other principal facilities are
located in Nashville, Tennessee, Charlotte, North Carolina,
Warrendale, Pennsylvania, Pittsburgh, Pennsylvania and Overland
Park, Kansas. In addition, we have many smaller satellite
pharmacy locations in other states.

Memphis, Tennessee.We currently lease approximately 160,000 square feet of space in
an office/warehouse business park in Memphis. The leases on this
space expire at varying times beginning in July 2006
through March 2008, but we have an option to extend our
lease terms for one additional five-year period.

Nashville,
Tennessee.We currently lease
approximately 35,000 square feet of space in Nashville. Our
lease expires in December 2005.

Charlotte, North
Carolina.We currently lease
approximately 25,000 square feet of space in Charlotte, North
Carolina. Our lease expires in July 2006.

Warrendale,
Pennsylvania.We currently lease
approximately 29,000 square feet of space in Warrendale,
Pennsylvania. Our lease expires in March 2005.

Pittsburgh,
Pennsylvania.We currently lease
approximately 38,000 square feet of space in Pittsburgh,
Pennsylvania. Our lease expires in September 2007.

Overland Park,
Kansas.We currently lease
approximately 122,000 square feet of space in Overland Park,
Kansas. We sublease approximately 40% of this space to Gentiva.
Our lease expires in August 2005.



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

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 and in one case John
R. Grow, as Defendants. One of the lawsuits also named our
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 our
stock during the period June 16, 2002 through April 7, 2003
and who supposedly suffered damages from the alleged violations
of the securities laws. We believe 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 our 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

27



---



##### Table of Contents



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. We believe
that the claims asserted in the derivative lawsuit are without
merit.


As previously disclosed on a Form 8-K filed
on May 5, 2003, we filed a lawsuit against our former
independent auditor, Ernst & Young LLP (E&Y). Subsequent
to filing this claim, E&Y filed a Motion to Compel
Arbitration and to Dismiss or in the Alternative to Stay
Proceedings. In response to this Motion, we have filed a Notice
of Voluntary Nonsuit in the Circuit Court and we will resolve
our claims against E&Y through arbitration.

Also, from time to time, we are involved in
lawsuits, claims, audits and investigations arising in the
normal course of our business. In our opinion, in the aggregate
these lawsuits, claims, audits and investigations should not
have a material adverse effect on our business, financial
condition, or results of operations. In addition, the business
that we 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 we
are entitled to indemnification from liability by Gentiva.



|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None

28



---



##### Table of Contents






PART II






|        |                                                                       
|------- | ----------------------------------------------------------------------
|Item 5. | Market for Companys Common Equity and
    Related Stockholder Matters

Price
Range of Common Stock

The Companys common stock is traded on the
Nasdaq National Market System under the symbol ACDO.
The following table sets forth the quarterly high and low sales
prices as reported on the Nasdaq National Market System for the
fiscal years ended June 30, 2002 and 2003.

|                                       |  |      |       |     |  |   |       | 
|-------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal Years 2002 and 2003             |  | High |       | Low
|                                       |  |      |       |    
|Fourth Quarter ended June 30, 2003     |  | $    | 26.31 |     |  | $ | 11.95 | 
|Third Quarter ended March 31, 2003     |  |      | 39.67 |     |  |   | 21.02 | 
|Second Quarter ended December 31, 2002 |  |      | 38.65 |     |  |   | 25.19 | 
|First Quarter ended September 30 2002  |  |      | 36.29 |     |  |   | 24.87 | 
|Fourth Quarter ended June 30, 2002     |  |      | 43.21 |     |  |   | 28.00 | 
|Third Quarter ended March 31, 2002     |  |      | 38.59 |     |  |   | 25.35 | 
|Second Quarter ended December 31, 2001 |  |      | 27.87 |     |  |   | 19.84 | 
|First Quarter ended September 30 2001  |  |      | 26.17 |     |  |   | 18.40 | 

Holders

As of September 19, 2003, the approximate
number of registered stockholders was 18,427 including 1,177
stockholders of record and approximately 17,250 persons or
entities holding common stock in nominee name.

Dividend
Policy

We have never paid any cash dividends on our
common stock. We currently anticipate that all of our earnings
will be retained to finance the growth and development of our
business, and therefore, do not anticipate that any cash
dividend will be declared or paid on our common stock in the
foreseeable future. Any future declaration of dividends will be
subject to the discretion of our Board of Directors and their
review of our earnings, financial condition, capital
requirements and surplus, contractual restrictions to pay such
dividends and other factors they deem relevant.

Securities
Authorized for Issuance Under Equity Compensation
Plans

The following table summarizes our equity
compensation plans as of June 30, 2003:

|                                                           |       |                      |           |                   |  |                      |       |       |  |  |           |           | 
|---------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | -------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                           |       |                      |           |                   |  | (c)                 
|                                                           |       |                      |           |                   |  | Number of shares    
|                                                           |       |                      |           |                   |  | remaining available 
|                                                           |       | (a)                  |           | (b)               |  | for future issuance 
|                                                           |       | Number of shares to  |           | Weighted-average  |  | under equity        
|                                                           |       | be issued upon       |           | exercise price of |  | compensation plans  
|                                                           |       | exercise of          |           | outstanding       |  | (excluding          
|                                                           |       | outstanding options, |           | options, warrants |  | securities reflected
|Plan Category                                              |       | warrants and rights  |           | and rights        |  | in column (a))      
|                                                           |       |                      |           |                   |  |                     
|Equity compensation plans approved by Stockholders         |       |                      | 4,023,732 |                   |  | $                    | 23.38 |       |  |  | 1,738,462 |          
|Equity compensation plans not approved by
    stockholders |       |                      | 0         |                   |  |                      | 0     |       |  |  | 0         |          
|                                                           |       |                      |           |                   |  |                      |       |       |  |  |           |          
|                                                           | Total |                      |           | 4,023,732         |  |                      | $     | 23.38 |  |  |           | 1,738,462 | 
|                                                           |       |                      |           |                   |  |                      |       |       |  |  |           |          

Sales
of Unregistered Securities

None.

29



---



##### Table of Contents








|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

SELECTED FINANCIAL DATA

You should read the following selected financial
data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our Financial Statements and the Notes thereto included
elsewhere in this Annual Report on Form 10-K. The selected
financial data as of and for the fiscal years ended
June 30, 1999, 2000, 2001, 2002 and 2003 have been derived
from our audited financial statements. The information set forth
below is not necessarily indicative of the results of future
operations.

|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |           |           | 
|-------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | --------- | --------- | 
|                                                                                                                     |                                        |                                      
|                                                                                                                     |                                        | Years Ended June 30,                 
|                                                                                                                     |                                        |                                      
|                                                                                                                     |                                        | 1999                                  |        | 2000    |         | 2001 |        | 2002(1) |         | 2003(2)
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |        
|                                                                                                                     |                                        |                                      
|                                                                                                                     |                                        | (in thousands, except per share data)
|Statements of Operations Data:                                                                                       |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Revenues:                                                                                                            |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|                                                                                                                     | Net patient revenue                    |                                       | $      | 244,158 |         |      | $      | 335,601 |         |         | $      | 446,007 |         |   | $      | 633,249 |         |   | $      | 1,337,414 |          
|                                                                                                                     | Other revenue                          |                                       |        | 12,277  |         |      |        | 15,432  |         |         |        | 14,985  |         |   |        | 18,257  |         |   |        | 33,982    |          
|                                                                                                                     | Equity in net income of joint ventures |                                       |        | 1,919   |         |      |        | 2,002   |         |         |        | 1,148   |         |   |        | 2,067   |         |   |        | 1,940     |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|                                                                                                                     |                                        | Total revenues                        |        |         | 258,354 |      |        |         | 353,035 |         |        |         | 462,140 |   |        |         | 653,573 |   |        |           | 1,373,336 | 
|Operating expenses:                                                                                                  |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|                                                                                                                     | Cost of sales                          |                                       |        | 220,517 |         |      |        | 300,973 |         |         |        | 395,365 |         |   |        | 544,902 |         |   |        | 1,086,334 |          
|                                                                                                                     | General and administrative             |                                       |        | 17,637  |         |      |        | 23,831  |         |         |        | 29,871  |         |   |        | 45,571  |         |   |        | 129,803   |          
|                                                                                                                     | Bad debts                              |                                       |        | 4,739   |         |      |        | 6,117   |         |         |        | 6,131   |         |   |        | 5,833   |         |   |        | 87,418    |          
|                                                                                                                     | Restructuring charge                   |                                       |        |        |         |      |        |        |         |         |        |        |         |   |        | 3,893   |         |   |        |          |          
|                                                                                                                     | Depreciation and amortization          |                                       |        | 3,911   |         |      |        | 3,397   |         |         |        | 4,263   |         |   |        | 3,675   |         |   |        | 10,386    |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|                                                                                                                     |                                        | Total operating expenses              |        |         | 246,804 |      |        |         | 334,318 |         |        |         | 435,630 |   |        |         | 603,874 |   |        |           | 1,313,941 | 
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Operating income                                                                                                     |                                        |                                       | 11,550 |         |         |      | 18,717 |         |         |         | 26,510 |         |         |   | 49,699 |         |         |   | 59,395 |          
|Interest expense (income), net                                                                                       |                                        |                                       | 3,165  |         |         |      | 2,136  |         |         |         | (2,770 | )       |         |   | (359   | )       |         |   | 9,564  |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Income before minority interest in income of
    consolidated joint venture, income taxes and
    extraordinary item |                                        |                                       | 8,385  |         |         |      | 16,581 |         |         |         | 29,280 |         |         |   | 50,058 |         |         |   | 49,831 |          
|Minority interest in income of consolidated joint
    venture                                                        |                                        |                                       |       |         |         |      | (177   | )       |         |         | (692   | )       |         |   | (1,273 | )       |         |   | (2,044 | )        
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Income before income taxes and
    extraordinary item                                                                |                                        |                                       | 8,385  |         |         |      | 16,404 |         |         |         | 28,588 |         |         |   | 48,785 |         |         |   | 47,787 |          
|Income tax expense                                                                                                   |                                        |                                       | 4,003  |         |         |      | 6,508  |         |         |         | 11,333 |         |         |   | 19,025 |         |         |   | 18,252 |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Income before extraordinary item                                                                                     |                                        |                                       | 4,382  |         |         |      | 9,896  |         |         |         | 17,255 |         |         |   | 29,760 |         |         |   | 29,535 |          
|Extraordinary item for early extinguishment of
    debt, Net of income tax benefit                                   |                                        |                                       | (1,254 | )       |         |      |       |         |         |         |       |         |         |   |       |         |         |   |       |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Net income                                                                                                           |                                        |                                       | 3,128  |         |         |      | 9,896  |         |         |         | 17,255 |         |         |   | 29,760 |         |         |   | 29,535 |          
|Mandatorily redeemable cumulative preferred
    Stock dividends                                                      |                                        |                                       | (1,617 | )       |         |      |       |         |         |         |       |         |         |   |       |         |         |   |       |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Net income to common stockholders                                                                                    |                                        | $                                     | 1,511  |         |         | $    | 9,896  |         |         | $       | 17,255 |         |         | $ | 29,760 |         |         | $ | 29,535 |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Diluted earnings per common share:                                                                                   |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Income before extraordinary item                                                                                     |                                        | $                                     | 0.19   |         |         | $    | 0.30   |         |         | $       | 0.44   |         |         | $ | 0.73   |         |         | $ | 0.61   |          
|Extraordinary item                                                                                                   |                                        |                                       | (0.06  | )       |         |      |       |         |         |         |       |         |         |   |       |         |         |   |       |          
|Preferred stock dividends                                                                                            |                                        |                                       | (0.07  | )       |         |      |       |         |         |         |       |         |         |   |       |         |         |   |       |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Net income to common stockholders                                                                                    |                                        | $                                     | 0.06   |         |         | $    | 0.30   |         |         | $       | 0.44   |         |         | $ | 0.73   |         |         | $ | 0.61   |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          
|Cash dividends declared on common stock                                                                              |                                        | $                                     |       |         |         | $    |       |         |         | $       |       |         |         | $ |       |         |         | $ |       |          
|                                                                                                                     |                                        |                                       |        |         |         |      |        |         |         |         |        |         |         |   |        |         |         |   |        |          

30



---



##### Table of Contents



|                          |  |          |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------- |  | -------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                          |  |         
|                          |  | June 30,
|                          |  |         
|                          |  | 1999     |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                          |  |          |         |      |  |      |         |      |  |     
|Balance Sheet Data:       |  |          |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents |  | $        | 5,542   |      |  | $    | 10,204  |      |  | $    | 54,520  |  |  | $ | 42,913  |  |  | $ | 48,006  | 
|Working capital           |  |          | 28,906  |      |  |      | 35,639  |      |  |      | 88,288  |  |  |   | 309,780 |  |  |   | 295,874 | 
|Total assets              |  |          | 146,746 |      |  |      | 205,229 |      |  |      | 289,244 |  |  |   | 924,829 |  |  |   | 914,783 | 
|Long-term debt            |  |          | 20,500  |      |  |      | 37,000  |      |  |      |        |  |  |   | 224,688 |  |  |   | 178,438 | 
|Stockholders equity      |  |          | 64,127  |      |  |      | 77,544  |      |  |      | 189,170 |  |  |   | 471,054 |  |  |   | 512,708 | 



---



|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our results for the fiscal year ended 2002
    include the operations of the SPS division from June 14,
    2002 through June 30, 2002.                                                                                                                                                     
|   
|(2) | Bad debts expense for our fiscal year 2003
    includes the effect of a significant change in estimate as
    described below in the heading Change in Accounting
    Estimate in Item 7 Managements Discussion
    and Analysis of Financial Conditions and Results of
    Operations.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion and analysis should
be read in conjunction with the Selected Financial
Data and our Financial Statements and the Notes thereto
included elsewhere in this Annual Report on Form 10-K. The
discussion in this Form 10-K contains forward-looking
statements that involve risks and uncertainties, such as
statements regarding our plans, objectives, expectations and
intentions. The cautionary statements made in this
Form 10-K should be read as being applicable to all
forward-looking statements wherever they appear in this Report.
Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences
include those discussed in Item 1 under the heading
Risk Factors, as well as those discussed elsewhere
herein.

Overview

We provide specialty retail pharmacy services for
the treatment of patients with costly, chronic diseases. We
derive revenues primarily from the 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 served in the years ended June 30:

|                                         |  |      |    |      |  |      |    |   |  |  |    |  
|---------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                         |  | 2001 |    | 2002 |  | 2003
|                                         |  |      |    |      |  |     
|Hemophilia, Autoimmune Disorders and PID |  |      | 21 | %    |  |      | 27 | % |  |  | 38 | %
|Multiple Sclerosis                       |  |      | 38 | %    |  |      | 31 | % |  |  | 14 | %
|Pulmonary Arterial Hypertension          |  |      |   |      |  |      | 2  | % |  |  | 14 | %
|Gaucher Disease                          |  |      | 23 | %    |  |      | 18 | % |  |  | 10 | %
|Growth Hormone-Related Disorders         |  |      | 9  | %    |  |      | 9  | % |  |  | 7  | %
|Respiratory Syncytial Virus              |  |      | 6  | %    |  |      | 10 | % |  |  | 6  | %

The increases in revenues from the diseases
hemophilia, autoimmune disorders, PID and PAH and the related
decreases in revenues from the diseases multiple sclerosis,
Gaucher, growth hormone related disorders and RSV are primarily
due to the acquisition of the SPS division. The majority of the
revenues of the SPS division related to hemophilia, autoimmune
disorders, PID and PAH.

Sales and services with respect to Multiple
Sclerosis, Gaucher Disease, RSV, PAH and growth hormone-related
disorders are dependent upon our relationships with Biogen,
Genzyme, MedImmune, GlaxoSmithKline, Actelion Pharmaceuticals
U.S., United Therapeutics and Genentech. Our agreements with
these

31



---



##### Table of Contents



manufacturers describe the services to be
provided by us, including contract pharmacy, information,
clinical, reimbursement and customized delivery services. These
agreements generally:




| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | allow the manufacturer to distribute directly or
    through other parties; and                                       
|
| |  | are short-term and may be cancelled by either
    party, without cause, upon between 30 and 365 days prior
    notice.

These agreements vary in level of exclusivity and
scope of services provided. We typically purchase products at
prices at or below the manufacturers average wholesale
sales prices, and our resulting contribution margins vary for
each product line. Pricing is customized to reflect specific
services to be provided by us and in some cases is subject to
periodic adjustments to reflect changing market conditions. A
few of these agreements limit our ability to supply competing
drugs during (and in some cases up to five years after) the term
of the agreement.

We purchase drugs for hemophilia and autoimmune
disorders from all available sources on a volume discount basis.
We are one of the national assignment of benefits providers
selected by MedImmune, Inc. to distribute drugs for RSV. During
2002, we began providing specialty retail pharmacy services for
the treatment of patients with PAH. We distribute all three of
the drug therapies for this disease.

We recognize revenue in the period the drugs are
delivered or when we have performed the contractual service.
While we may experience revenue changes from price fluctuations
on our existing product lines, our revenue growth will depend
principally on the introduction of new drugs and on volume
growth in existing drug lines.

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    |   | Year Ended   
|                 |          | June 30, 2001 |    | June 30, 2002 |   | June 30, 2003
|                 |          |               |    |               |   |              
|Non-governmental |          |               | 81 | %             |   |               | 79 | %  |   |  | 73 | % 
|Governmental:    |          |               |    |               |   |               |    |    |   |  |    |   
|                 | Medicaid |               |    | 17            | % |               |    | 19 | % |  |    | 20 | %
|                 | Medicare |               |    | 2             | % |               |    | 2  | % |  |    | 7  | %

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 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 fiscal year 2004 will be similar to the payor mix
achieved in fiscal year 2003.

We have five joint venture agreements with
various medical centers (or their affiliates) in which we own
50% of each venture and one joint venture agreement with a
medical center affiliate in which we own 80% of the joint
venture. Many of our patient populations have diseases that are
discovered before or during adolescence and require ongoing care
from physician specialists, many of whom are based at pediatric,
academic and other acute care medical centers. To date, these
ventures have primarily derived revenues from the treatment of
patients with hemophilia, growth hormone-related disorders and
RSV. We share profits and losses with our joint venture partners
in equal proportion to our respective equity ownership. We
account for our interests in the net income or loss in our 50%
owned joint ventures under the equity method of accounting and
in our 80% owned joint venture under the consolidated method of
accounting. Our equity interest in the net income of the 50%
owned joint ventures represented approximately 4% of our income
before income taxes in each of the years ended June 30,
2001, 2002 and 2003.

Cost of sales include drug acquisition costs,
pharmacy and warehouse personnel costs, freight and other direct
costs associated with the delivery of our products and costs of
clinical services provided. General and administrative expenses
include the personnel costs of the reimbursement, sales,
marketing, administrative

32



---



##### Table of Contents



and support staffs as well as corporate overhead
and other general expenses. Bad debts include our provision for
patient accounts receivable which we estimate will prove to be
uncollectible after routine collection efforts have been
exhausted. We typically hire personnel and incur legal,
recruiting, marketing and other expenses in anticipation of the
commercial launch of a new biopharmaceutical drug. In some
instances, a portion of these expenses are reimbursed to us by
the biopharmaceutical manufacturer. We have not historically
capitalized any of these start-up expenses.


Due to the increasing sensitivity to drug cost
within governmental and non-governmental payors, we are
continuously susceptible to reimbursement and operating margin
pressures. In recent years, pharmacy benefit managers and other
non-governmental payors have aggressively attempted to discount
their reimbursement rates for our products. This aggressive
discounting has resulted in some reduced margins for some of our
products and services.

Many government payors, including Medicare and
Medicaid, pay us directly or indirectly for some of the drugs
that we sell at the drugs AWP or a percentage discount off
AWP. Recent government investigations into the reporting of AWP
by drug manufacturers have led First DataBank, Inc. to publish a
Market Price Survey of 437 drugs that significantly reduces
reimbursement for a number of the clotting factor and the IVIG
products we sell.

A number of state Medicaid agencies now pay us
for clotting factor at the prices shown on the Market Price
Survey or at a percentage discount off those prices. Other
states have not changed their pricing structure or have changed
back to their pre-Market Price Survey reimbursement rates.

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. With respect to Medicare, the Senate is
proposing to reduce clotting factor reimbursement from AWP minus
5% to AWP minus 15% while the House is proposing a new rate of
Average Selling Price plus 12%. 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. Similarly, Californias Medicaid
program, Medi-Cal, 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.
Other states have proposed or are considering similar changes to
their pharmacy payment plans. We expect that these developments
will reduce prices and margins on some of the drugs that we
distribute.

Both federal and state legislators are continuing
to scrutinize the healthcare industry for the purpose of
reducing healthcare costs. While we are unable to predict what,
if any, future healthcare-reform legislation may be enacted at
the federal or state level, we expect continuing pressure to
limit expenditures by governmental healthcare programs, which
could impact the amount of revenue we receive. Approximately
19%, 21% and 27% of gross patient revenues (excluding the acute
business acquired from Gentiva) for the years ended June 30,
2001, 2002 and 2003, respectively, was from Medicare and
state-sponsored Medicaid programs. With the purchase of the SPS
division the percentage of our revenue reimbursed by Medicare
and Medicaid was higher in 2003 when compared to the percentages
experienced by us prior to the acquisition.

Acquisition

On June 13, 2002, we acquired the SPS
division of Gentiva. We acquired substantially all of the assets
used in the SPS division including 100% of the outstanding stock
in three of Gentivas subsidiaries that were exclusively in
the business conducted by the SPS division. The SPS business
provides specialty retail pharmacy and related services relating
to the treatment of patients with certain costly chronic
diseases. In addition to the diseases previously served by us,
the SPS business is also a leading provider of specialty
pharmacy and related services to patients with PAH. As a result
of the acquisition, we have become a leading provider of
specialty retail pharmacy and related services, as measured by
revenue. The aggregate purchase price was $463.8 million
(including $13.8 million of acquisition related costs) and
consisted of $217.1 million

33



---



##### Table of Contents



of cash and 7,591,464 shares of common stock
valued at $246.7 million. The results of the SPS business
have been included in the consolidated financial statements
since June 14, 2002.


Results of Operations

The following table sets forth for the periods
indicated, the percentages of total revenues represented by the
respective financial items:

|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |      |       | 
|---------------------------------------------------- | -------------------------------------- | ------------------------ | --- | ---- | ----- | ---- | --- | ---- | ----- |  | ---- | ---- | ----- | 
|                                                     |                                        |                         
|                                                     |                                        | Years Ended June 30,    
|                                                     |                                        |                         
|                                                     |                                        | 2001                     |     | 2002 |       | 2003
|                                                     |                                        |                          |     |      |       |     
|Revenues:                                            |                                        |                          |     |      |       |      |     |      |       |  |      |     
|                                                     | Net patient revenue                    |                          |     | 96.5 | %     |      |     | 96.9 | %     |  |      | 97.4 | %    
|                                                     | Other revenue                          |                          |     | 3.2  |       |      |     | 2.8  |       |  |      | 2.5  |      
|                                                     | Equity in net income of joint ventures |                          |     | 0.3  |       |      |     | 0.3  |       |  |      | 0.1  |      
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|                                                     |                                        | Total revenues           |     |      | 100.0 |      |     |      | 100.0 |  |      |      | 100.0 | 
|Operating expenses:                                  |                                        |                          |     |      |       |      |     |      |       |  |      |     
|                                                     | Cost of sales                          |                          |     | 85.6 |       |      |     | 83.4 |       |  |      | 79.1 |      
|                                                     | General and administrative             |                          |     | 6.5  |       |      |     | 7.0  |       |  |      | 9.4  |      
|                                                     | Bad debts                              |                          |     | 1.3  |       |      |     | 0.9  |       |  |      | 6.4  |      
|                                                     | Restructuring charge                   |                          |     |     |       |      |     | 0.6  |       |  |      |     |      
|                                                     | Depreciation and amortization          |                          |     | 0.9  |       |      |     | 0.5  |       |  |      | 0.8  |      
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|                                                     |                                        | Total operating expenses |     |      | 94.3  |      |     |      | 92.4  |  |      |      | 95.7  | 
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|Operating income                                     |                                        |                          | 5.7 |      |       |      | 7.6 |      |       |  | 4.3  |     
|Interest income (expense), net                       |                                        |                          | 0.6 |      |       |      | 0.1 |      |       |  | (0.7 | )   
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|Income before minority interest and
    income taxes |                                        |                          | 6.3 |      |       |      | 7.7 |      |       |  | 3.6  |     
|Minority interest                                    |                                        |                          | 0.1 |      |       |      | 0.2 |      |       |  | 0.1  |     
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|Income before income taxes                           |                                        |                          | 6.2 |      |       |      | 7.5 |      |       |  | 3.5  |     
|Income tax expense                                   |                                        |                          | 2.5 |      |       |      | 2.9 |      |       |  | 1.3  |     
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     
|Net income                                           |                                        |                          | 3.7 | %    |       |      | 4.6 | %    |       |  | 2.2  | %   
|                                                     |                                        |                          |     |      |       |      |     |      |       |  |      |     

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 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. The
items in our financial statements requiring significant
estimates and judgments are as follows:



| |                    
| | -------------------
| | Revenue Recognition

Net patient revenues are from the sales of
biopharmaceutical drugs to patients and are reported at the net
amount billed to patients, third-party payors and others in the
period the products are delivered. We have agreements with
certain third-party payors that provide for payments to us at
amounts discounted from their established rates.

34



---



##### Table of Contents



From time to time we enter into management
contracts with hemophilia treatment centers, medical centers and
joint ventures in which we have an interest. Pursuant to these
contracts, we will provide certain billing, pharmacy dispensing,
inventory management, shipping, reimbursement, collection and
other management services in exchange for fees that range from a
reimbursement of our costs to a percentage of the managed
entities billed charges, less contractual allowances. These
contracts are for terms of up to five years and are usually
cancelable on short notice. Revenue from the management
contracts is recognized when the services are rendered and is
included in other revenue.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

The procedure for estimating the allowance for
doubtful accounts requires significant judgment and assumptions.
Our primary collection risks are for patient co-payments and
deductibles. The risk of collection varies based upon the
product, the payor and the patients ability to pay the
amounts not reimbursed by the payor. Some of the drugs we
distribute are primarily reimbursed by prescription card benefit
plans, which reimbursement is subject to lower co-payment and
deductible amounts (typically $15-$30 per prescription). Other
drugs are primarily reimbursed through major medical benefit
plans, which reimbursement is subject to higher deductible
amounts. We estimate the allowance for doubtful accounts based
upon a variety of factors including the age of the outstanding
receivables and our historical experience of collecting the
patient co-payments and deductibles. However, economic and other
factors could result in collections that differ from our
estimates. We continually review the estimation process and make
changes to the estimates as necessary.



| |                                        
| | ---------------------------------------
| | Allowance for Contractual
    Discounts

We are reimbursed for the drugs we sell by many
different payors including insurance companies, Medicare and all
of the state Medicaid programs. The revenues and related
accounts receivable are recorded net of payor contractual
discounts to reflect the estimated net billable amounts for the
products delivered. We estimate the allowance for contractual
discounts on a payor-specific basis, given our interpretation of
the contract terms or applicable regulations. However, the
reimbursement rates are often subject to interpretation that
could result in payments that differ from our estimates.
Additionally, updated regulations and contract negotiations
occur frequently, necessitating our continual review and
assessment of the estimation process.



| |                                     
| | ------------------------------------
| | Patient Credit Balance
    Liability

Patient credit balances arise due to many factors
including overpayments from payors, unapplied payments due to
insufficient information and payments against invoices that have
previously been written off. We estimate the amount of credit
balances that relate to overpayments from payors based upon
historical trends and other available information and classify
those credit balances as accounts payable in the financial
statements.



| |                        
| | -----------------------
| | Medical Claims Reserves

We maintain self-insured medical and dental plans
for employees. Claims expense is accrued under these plans as
the incidents that give rise to them occur. We use a third-party
administrator to process all such claims. Unpaid claim accruals
are estimated based on historical costs of settlement and
average lag times. We believe that the estimation methodology
used effectively captures our medical claims costs, however,
payments could differ from our estimates due to changes in the
healthcare cost structure or changes in the volume of claims
filed.



| |                 
| | ----------------
| | Asset Impairment

Management periodically evaluates the carrying
values of long-lived assets, including property and equipment,
to determine whether events and circumstances indicate that
these assets have been impaired. An asset is considered impaired
when undiscounted cash flows to be realized from such asset are
less than its carrying value. In that event, a loss is
determined based on the amount the carrying value exceeds the
fair market value of such asset.

35



---



##### Table of Contents



Effective on July 1, 2001, we adopted
Statement of Financial Accounting Standards SFAS No. 142,
Goodwill and Other Intangible Assets.This statement
addresses the accounting and reporting of goodwill and other
intangible assets subsequent to their acquisition. Since
adoption of SFAS No. 142 in July 2001, amortization of
goodwill has discontinued, and goodwill is reviewed at least
annually for impairment.

We evaluate goodwill for impairment based on a
two-step process. The first step compares the fair value of a
reporting unit with its carrying amount, including goodwill. If
the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not impaired and the second
step of the impairment test is unnecessary. If the carrying
amount of the reporting unit exceeds its fair value, the second
step of the goodwill impairment test is necessary to measure the
amount of impairment loss, if any. The second step compares the
implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting
unit goodwill exceeds the implied fair value of that goodwill,
an impairment loss would be recognized in an amount equal to
that excess. We have one reporting unit and the fair value of
the reporting unit exceeded its carrying amount resulting in no
impairment charges in fiscal year 2003.



| |             
| | ------------
| | Income Taxes

We are subject to audit by federal and state tax
authorities. These audits could result in proposed assessments
that challenge certain tax positions, which, if upheld through
the administrative and legal process, could have a material
impact on our earnings and cash flow. We believe that our tax
positions comply with applicable tax law, and we do not
anticipate any material impact on earnings or cash flows.



| |                              
| | -----------------------------
| | Change in Accounting Estimate

In preparing our financial statements, we are
required to make certain estimates, including those related to
the allowance for doubtful accounts, refundable credit balances,
self-insurance accruals, income tax liabilities and impairment
tests on goodwill. We periodically review our estimates to
ensure that the estimates appropriately reflect changes in our
business or as new information becomes available.

During the March 2003 quarter, we analyzed
historical collection rates and other data used in estimating
the allowance for doubtful accounts. Our calculations indicated
that the accounts receivable reserve needed to be increased. As
a result of the new information obtained through the analysis
completed subsequent to the March 2003 quarter, in the third
quarter of fiscal year 2003 we recorded a net $49 million charge
to bad debt expense and increased the allowance for doubtful
accounts related to the accounts receivable of the SPS division.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2003
    Compared to Fiscal Year Ended June 30, 2002

Revenues.Total
revenues increased 110% from $653.6 million to
$1,373.3 million from fiscal year 2002 to fiscal year 2003.
Net patient revenues increased 111% from $633.2 million to
$1,337.4 million from fiscal year 2002 to fiscal year 2003.
The increase in revenues is attributable to the SPS acquisition
completed on June 13, 2002 and volume growth in our
products for the treatments of growth hormone disorders,
hemophilia, Gaucher disease and autoimmune disorders as a result
of the addition of new patients and additional sales of product
to existing patients. We also had a significant increase in our
seasonal drug Synagis® for the treatment of RSV as a result
of increased patient volume. We also benefited from the addition
of new and expanded contracts with managed care organizations.

Cost of Sales.Cost
of sales increased 99% from $544.9 million to
$1,086.3 million from fiscal year 2002 to fiscal year 2003,
which is commensurate with the increase in our revenues
discussed above. As a percentage of revenues, cost of sales
decreased from 83.4% to 79.1% from fiscal year 2002 to fiscal
year 2003 resulting in gross margins of 16.6% in fiscal year
2002 and 20.9% in fiscal year 2003. Gross margins for the
individual products have remained relatively stable; however, a
change in product mix resulted in an increase in the composite
gross margin in fiscal year 2003. The primary drivers were
increased revenues from hemophilia factor, IVIG for the
treatment of autoimmune disorders and Flolan® for the
treatment of PAH, which have lower acquisition costs as a
percentage of revenue than most of the other products we
distribute.

36



---



##### Table of Contents



General and
Administrative.General and
administrative expenses increased from $45.6 million to
$129.8 million, or 185%, from fiscal year 2002 to fiscal
year 2003. The increase is due to the SPS acquisition completed
on June 13, 2002 and 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 the
revenue growth. General and administrative expenses represented
7.0% and 9.4% of revenues for fiscal years 2002 and 2003,
respectively. The increase to 9.4% in fiscal year 2003 is due to
product mix changes. The higher margin products, which were a
higher percentage of our total revenues in fiscal year 2003,
have higher general and administrative expenses associated with
them than many of the other product lines that we distribute.

Bad Debts.Bad debts
increased from $5.8 million to $87.4 million from
fiscal year 2002 to fiscal year 2003. As a percentage of
revenues, bad debt expense increased from 0.9% to 6.4% from
fiscal year 2002 to fiscal year 2003. The increase in expense is
primarily due to the change described above in Change in
Accounting Estimate. During the March 2003 quarter, we
analyzed historical collection rates and other data used in
estimating the allowance for doubtful accounts. Our calculations
indicated that the accounts receivable reserve needed to be
increased. As a result of the new information obtained through
the analysis completed subsequent to the March 2003 quarter, in
the third quarter of fiscal year 2003 we recorded a net $49
million charge to bad debt expense and increased the allowance
for doubtful accounts related to the accounts receivable of the
SPS division.

Depreciation and
Amortization.Depreciation expense
increased from $2.3 million to $5.8 million from
fiscal year 2002 to fiscal year 2003 as a result of the assets
acquired in the SPS acquisition, purchases of property and
equipment associated with our revenue growth and the expansion
of our leasehold facility improvements. Amortization expense
related to other intangible assets increased from
$1.3 million to $4.6 million from fiscal year 2002 to
fiscal year 2003 due to the SPS acquisition.

Interest Income/ Expense,
Net.Interest income, net was
$0.4 million in fiscal year 2002 and interest expense, net
was $9.6 million in fiscal year 2003. The change, amounting
to $10.0 million, is primarily due to the debt outstanding
during fiscal year 2003 that was incurred in June 2002 to
finance the cash portion of the SPS acquisition and the related
acquisition costs.

Income Tax Expense.Our effective tax rate decreased from 39.0% to 38.2% from fiscal
year 2002 to fiscal year 2003. The difference between the
recognized effective tax rate and the statutory tax rate is
primarily attributed to state income taxes.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2002
    Compared to Fiscal Year Ended June 30, 2001

Revenues.Total
revenues increased 41% from $462.1 million to
$653.6 million from fiscal year 2001 to fiscal year 2002.
Acquisitions completed during 2002 accounted for
$57.6 million of the increase in total revenues. Net
patient revenues increased 42% from $446.0 million to
$633.2 million from fiscal year 2001 to fiscal year 2002.
Acquisitions completed during 2002 accounted for
$55.8 million of the increase in net patient revenues. In
fiscal year 2002, we experienced growth in our products for the
treatments of multiple sclerosis, growth hormone disorders,
hemophilia and Gaucher disease and autoimmune disorders as a
result of volume growth with the addition of new patients,
additional sales of product to existing patients and
acquisitions. We also had a significant increase in our seasonal
drug Synagis® for the treatment of RSV as a result of
increased patient volume. We also benefited from the addition of
new and expanded contracts with managed care organizations.

Cost of Sales.Cost
of sales increased 38% from $395.4 million to $544.9
million from fiscal year 2001 to fiscal year 2002, which is
commensurate with the increase in our revenues discussed above.
As a percentage of revenues, cost of sales decreased from 85.6%
to 83.4% from fiscal year 2001 to fiscal year 2002 resulting in
gross margins of 14.4% in fiscal year 2001 and 16.6% in fiscal
year 2002. Gross margins for the individual products have
remained relatively stable; however, a change in product mix
resulted in an increase in the composite gross margin in fiscal
year 2002. The primary drivers were increased revenues from
hemophilia factor, IVIG for the treatment of autoimmune
disorders and Flolan® for the treatment of PAH, which have
lower acquisition costs as a percentage of revenue than most of
the other products we distribute.

37



---



##### Table of Contents



General and
Administrative.General and
administrative expenses increased from $29.9 million to
$45.6 million, or 53%, from fiscal year 2001 to fiscal year
2002. Acquisitions completed during 2002 accounted for
$5.5 million of the increase in general and administrative
expenses. The balance of the increase was primarily the result
of 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 the revenue growth. General
and administrative expenses represented 6.5% and 7.0% of
revenues for fiscal years 2001 and 2002, respectively.

Bad Debts.Bad debts
decreased from $6.1 million to $5.8 million from
fiscal year 2001 to fiscal year 2002. As a percentage of
revenues, bad debt expense decreased from 1.3% to 0.9% from
fiscal year 2001 to fiscal year 2002. The decrease in bad debts
as a percentage of revenues is primarily due to the increased
percentage of our revenues that was reimbursed by prescription
card benefits versus major medical benefit plans. The majority
of the reimbursement for both AVONEX® and Synagis® is
being provided by prescription card benefit plans, and therefore
is subject to much lower co-payment and deductible amounts
(typically $15-$30 per prescription) resulting in lower bad debt.

Restructuring
Charge.In connection with the
acquisition of the SPS business, we recorded a restructuring
charge of $3.9 million. The charge includes a
$3.6 million write-off (of which $3.2 million is
non-cash) of a software application we were developing that will
not be implemented as a result of the decision to enhance and
implement company wide the software application acquired with
the SPS business. The restructuring charge also includes
$0.3 million for future lease commitments that will be
abandoned once the facility integration plan related to the
acquisition has been completed.

Depreciation and
Amortization.Depreciation expense
increased from $1.5 million to $2.3 million from fiscal
year 2001 to fiscal year 2002 as a result of purchases of
property and equipment associated with our revenue growth and
the expansion of our leasehold facility improvements.
Amortization expense associated with goodwill and other
intangible assets decreased from $2.8 million to
$1.3 million from fiscal year 2001 to fiscal year 2002 due
to the adoption of Statement of Financial Accounting Standards
(SFAS) 142, Goodwill and Other Intangible
Assets, during the first quarter of fiscal year 2002. The
application of the non-amortization of goodwill provisions
resulted in a reduction in amortization expense (net of income
taxes) of approximately $1.5 million or $0.06 per diluted
share.

Interest Income/ Expense,
Net.Interest income, net decreased
from $2.8 million to $0.4 million from fiscal year
2001 to fiscal year 2002. The decrease is due to a decrease in
the average amount of cash invested during the year primarily as
a result of cash used for acquisitions and earn-out payments
related to prior year acquisitions and a decrease in the
interest rate earned on the amounts invested. In addition, we
incurred $230 million in debt on June 13, 2002 to
acquire the SPS division of Gentiva Health Services.

Income Tax Expense.Our effective tax rate decreased from 39.6% to 39.0% from fiscal
year 2001 to fiscal year 2002. The decrease in the effective tax
rate is primarily due to the adoption of the non-amortization
provisions of SFAS No. 142 discussed above. The difference
between the recognized effective tax rate and the statutory tax
rate is primarily attributed to state income taxes.

Liquidity and Capital Resources

As of June 30, 2003 and June 30, 2002,
we had working capital of $295.9 million and
$309.8 million, respectively. Our net cash provided by
operating activities was approximately $72.3 million for
the year ended June 30, 2003 and $34.1 million for the
year ended June 30, 2002. This increase is due to the SPS
acquisition and the timing of the collection of receivables,
inventory purchases and payments of accounts payable and accrued
expenses.

Net cash used by investing activities was
$39.7 million for the year ended June 30, 2003 and
$266.0 million for the year ended June 30, 2002. Cash
used by investing activities in the year ended June 30,
2003 consisted primarily of $21.9 million for acquisitions,
which included a $16.0 million earn out payment related to
a fiscal year 2002 acquisition, $16.0 million for purchases
of property and equipment and $1.8 million of undistributed
earnings from our joint ventures. Cash used by investing
activities in fiscal 2002

38



---



##### Table of Contents



consisted primarily of $256.2 million for
acquisitions most of which related to the acquisition of the SPS
business, $8.9 million for purchases of property and
equipment, $2.9 million of undistributed earnings from our
joint ventures less $2.0 million for net sales of
marketable securities.


Net cash used in financing activities was
$27.5 million for the year ended June 30, 2003 and
$220.2 million was provided by financing activities for the
year ended June 30, 2002. Cash used in financing activities
for the year ended June 30, 2003 consisted primarily of
$35.3 million of repayments on our credit facility less
$7.8 million from the issuance of common stock. Cash
provided by financing activities for the year ended
June 30, 2002 consisted primarily of $223.9 million of
net borrowings on our credit facility, which was used to acquire
the SPS business in June 2002.

Historically, we have funded our operations and
continued internal growth through cash provided by operations.
Capital expenditures amounted to $16.0 million in fiscal
year 2003 and $8.9 million in fiscal year 2002. 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
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 agreement 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 expiring 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 June 30, 2003, the total amount available to borrow is
approximately $256 million. As of June 30, 2003, the
total amount outstanding under the credit facility was
$194.7 million, which included $71.3 million under the
Tranche A Term Loan and $123.4 million under the Tranche B
Term Loan.

Amounts outstanding under the credit agreement
bear interest at varying rates based upon a London Inter-Bank
Offered Rate LIBOR or prime rate of interest (as selected by
us), plus a variable margin rate based upon our leverage ratio
as defined by the credit agreement. The combination of a
variable rate margin and LIBOR base rate resulted in an
effective rate of 4.36% and 3.67% at June 30, 2002 and
2003, respectively. 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

39



---



##### Table of Contents



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.

Previously, we had effectively converted, for the
period through October 31, 2001, $25.0 million of
floating-rate borrowings to fixed-rate borrowings. We had
secured a 5.5% fixed interest rate (exclusive of the margin
rate) using an interest rate swap agreement. On August 21,
2000, in conjunction with the repayment of the outstanding
principal balance of our revolving line of credit, we
surrendered our swap agreement and received $350,000 in
consideration for the early termination of the agreement.

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.

Impact of Recently Issued Accounting
Standards

In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141,
Business Combinations,which requires all business
combinations initiated after June 30, 2001 to be accounted
for under the purchase method. SFAS No. 141 also sets forth
guidelines for applying the purchase method of accounting in the
determination of intangible assets, including goodwill acquired
in a business combination, and expands financial disclosures
concerning business combinations completed after June 30,
2001. The adoption of SFAS No. 141 did not have any effect
on our financial position or results of operations.

Effective July 1, 2001, we early adopted
SFAS No. 142, Goodwill and Other Intangible Assets,which established new accounting and reporting requirements
for goodwill and other intangible assets. Under SFAS
No. 142, all goodwill amortization ceased effective
July 1, 2001, and goodwill was tested for impairment.
Impairment tests are required to be performed at the date of
adoption of SFAS No. 142 and at least annually thereafter.
Absent any impairment indicators, we perform our annual
impairment tests during the fourth quarter. The impairment tests
performed at adoption and in the fourth quarter of 2002 and 2003
resulted in no adjustment to the carrying value of goodwill.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.SFAS No. 144 supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of.SFAS No. 144
removes goodwill from its scope and clarifies other
implementation issues related to SFAS No. 121. SFAS
No. 144 also provides a single framework for evaluating
long-lived assets to be disposed of by sale. The adoption of the
provisions of SFAS No. 144 in fiscal year 2003 did not have
a material effect on our financial position or results of
operations.

In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44,
and 62, Amendment of FASB Statement No. 13, and Technical
Corrections.SFAS No. 145 requires gains and losses on
extinguishment of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as
previously required under SFAS No. 4, Reporting Gains
and Losses from Extinguishment of Debt.SFAS No. 145
also amends SFAS No. 13, Accounting for Leasesto
require certain modifications to capital leases treated as a
sale-leaseback and modifies the accounting for sub-leases when
the

40



---



##### Table of Contents



original lessee remains a secondary obligor or
guarantor. The adoption of the provisions of SFAS No. 145
in fiscal year 2003 did not have a material effect on our
financial position or results of operations.


In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities,which addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity.SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue No. 94-3,
a liability for an exit cost was recognized at the date of an
entitys commitment to an exit plan. The provisions of SFAS
No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 in fiscal year 2003 did not have
a material effect on our financial position or results of
operations.

In November 2002, the FASB issued
Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosures Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others.FIN
No. 45 requires an entity to recognize an initial liability
for the fair value of an obligation assumed by issuing a
guarantee. The provision for initial recognition and measurement
of the liability are applied to guarantees issued or modified
after December 31, 2002. The adoption of the provisions of
FIN No. 45 in fiscal year 2003 did not have a material
effect on our financial position or results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. This Statement amends SFAS
No. 123, Accounting for Stock-Based Compensation,to
provide for alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. This statement also amends
the disclosure provisions of SFAS No. 123 and APB Opinion
No. 28, Interim Financial Reporting,to require
disclosure in the summary of significant accounting policies the
effects of an entitys accounting policy with respect to
stock based employee compensation on reported net income and
earnings per share in annual and interim financial statements.
We adopted the disclosure provisions of SFAS No. 148 on
January 1, 2003, which did not have any effect on our
financial position or results of operations. We have not adopted
the other provisions of SFAS No. 148.

In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable Interest Entities,which clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements.FIN No. 46 requires certain variable interest entities
to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not
provide sufficient equity at risk for the entity to support its
activities. FIN No. 46 is effective for all variable
interest entities created after January 31, 2003. For
variable interest entities acquired or created prior to
February 1, 2003, the provisions of FIN No. 46 must be
applied to the first interim or annual period beginning after
June 15, 2003. We do not expect the adoption of FIN
No. 46 to have a material effect on our financial position
or results of operations.

In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities.This Statement amends
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities,by requiring that contracts with
comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships
designated after June 30, 2003 and must be applied
prospectively. We do not expect the adoption of SFAS
No. 149 to have a material effect on our financial position
or results of operations.

In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.This
statement established standards for how an issuer classifies and
measures in its statement of financial position certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 13, 2003 and must be applied
prospectively by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the

41



---



##### Table of Contents



beginning of the interim period of adoption. We
do not expect the adoption of SFAS No. 150 to have a
material effect on our financial position or results of
operations since we do not currently have any financial
instruments with characteristics of both liabilities and equity.


Impact of Inflation

Changes in prices charged by the
biopharmaceutical manufacturers for the drugs we dispense, along
with increasing labor costs, freight and supply costs and other
overhead expenses, affect our cost of sales and general and
administrative expenses. Historically, we have been able to pass
all, or a portion, of the effect of such increases to the
biopharmaceutical manufacturers pursuant to negotiated
adjustments made under our preferred distribution agreements. As
a result, changes due to inflation have not had significant
adverse effects on our operations.

Forward Looking Information

Certain matters discussed in the preceding pages
of this Form 10-K, particularly regarding implementation of
the our strategy, development of new drugs by the pharmaceutical
and biotechnology industries, anticipated growth and revenues,
anticipated working capital and sources of funding for growth
opportunities, expenditures, interest, costs and income
constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended (See Item 1  Risk Factors).






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | 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 $1.2 million for the year 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
$1.2 million 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 $0.75 million for the year.
However, a 100 basis point increase in interest rates would
result in a decrease in pre-tax income of $0.75 million 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 8. | Financial Statements and Supplementary
    Data

The Consolidated Financial Statements and
financial statement schedule in Part IV, Item 14(a)(1)
and (2) of the report are incorporated by reference into
this Item 8.



|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On May 5, 2003, the Company dismissed Ernst
& Young LLP as its independent public accountant. The
decision to terminate the engagement of Ernst & Young LLP
was recommended and approved by the Audit Committee of the
Companys Board of Directors, which determined that such
termination was in the best interests of the Company, and
approved by the Companys Board of Directors.

42



---



##### Table of Contents



Ernst & Young LLP was retained as the
Companys independent auditor at the time of the
Companys formation on May 29, 1996. Ernst & Young
LLPs reports on the financial statements of the Company
for each of the years ended June 30, 2002 and June 30,
2001 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.

During the years ended June 30, 2002 and
June 30, 2001 and the interim period between June 30,
2002 and May 5, 2003, the date of this Form 8-K, there
were no disagreements between the Company and Ernst & Young
LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused it to make reference to
the subject matter of the disagreements in connection with its
reports for such years. During the years ended June 30,
2002 and June 30, 2001 and the interim period between
June 30, 2002 and the date of Ernst & Young LLPs
dismissal on May 5, 2003, there were no reportable events
(as defined in Item 304(a)(1)(v) of Regulation S-K
promulgated by the Securities and Exchange Commission).

The Company requested that Ernst & Young LLP
furnish it with a letter addressed to the Securities and
Exchange Commission stating whether or not it agreed with the
above statements. A copy of the letter from Ernst & Young
LLP dated May 19, 2003 was filed as Exhibit 16.1 to
the Form 8-K/A filed May 19, 2003.

On June 10, 2003, the Audit Committee of the
Board of Directors of the Company approved the engagement of
Deloitte & Touche LLP to serve as the Companys new
independent auditors, effective June 10, 2003.

During the fiscal years ended June 30, 2002
and June 30, 2001, and the interim period between
June 30, 2002 and the date of the Companys engagement
of Deloitte & Touche LLP, the Company did not consult with
Deloitte & Touche LLP with respect to any matters described
in paragraphs (a)(2)(i) or (ii) of Item 304 of
Regulation S-K.






|         |                        
|-------- | -----------------------
|Item 9A. | 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.

The Companys changes in internal controls
during the fiscal year ended June 30, 2003 have primarily
been in response to the integration of the SPS Division acquired
on June 13, 2002, and the migration of the Companys
technology infrastructure to a common platform. The nature of
the changes was to enhance the internal controls of the acquired
business and modify the controls to improve their consistency
with the Companys internal controls. We do not believe
that these changes have materially affected, or are reasonably
likely to materially affect, the Companys internal
controls over financial reporting.

43



---



##### Table of Contents






PART III






|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Company

The information required by this item will appear
in, and is incorporated by reference from, the sections entitled
Proposals for Stockholder Action  Election of
Directors, Section 16(a) Beneficial Ownership
Reporting Compliance, Management and
Compensation Committee Interlocks and Insider
Participation included in the Companys definitive
Proxy Statement relating to the 2003 Annual Meeting of
Stockholders.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item will appear
in the section entitled Executive Compensation
included in the Companys definitive Proxy Statement
relating to the 2003 Annual Meeting of Stockholders, which
information, other than the Compensation Committee Report and
Performance Graph required by Items 402(k) and (l) of
Regulation S-K, is incorporated herein by reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Securities Authorized for Issuance Under Equity
Compensation Plans in Part II, Item 5, of the report
are incorporated by reference into this Item 12.

The information required by this item will appear
in, and is incorporated by reference from, the section entitled
Security Ownership of Directors, Officers and Principal
Stockholders included in the Companys definitive
Proxy Statement relating to the 2003 Annual Meeting of
Stockholders.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item will appear
in, and is incorporated by reference from, the sections entitled
Compensation Committee Interlocks and Insider
Participation and Certain Relationships and Related
Transactions included in the Companys definitive
Proxy Statement relating to the 2003 Annual Meeting of
Stockholders.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by this item will appear
in, and is incorporated by reference from, the sections entitled
Principal Accounting Fees and Services included in
the Companys definitive Proxy Statement relating to the
2003 Annual Meeting of Stockholders.

44



---



##### Table of Contents






PART IV




Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K



| |     |                                       
| | --- | --------------------------------------
| | (a) | Document filed as part of this Report:

|    |  |                                                                                                                                                                                                                                                    |  |      |      | 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|    |  |                                                                                                                                                                                                                                                    |  | Page
|    |  |                                                                                                                                                                                                                                                    |  |     
|(1) |  | Financial Statements:                                                                                                                                                                                                                              |  |      |      | 
|    |  | Report of Independent Auditors                                                                                                                                                                                                                     |  |      | F-1  | 
|    |  | Consolidated Balance Sheets at June 30, 2002
    and 2003                                                                                                                                                                                          |  |      | F-3  | 
|    |  | Consolidated Statements of Income for the years
    ended June 30, 2001, 2002 and 2003                                                                                                                                                             |  |      | F-4  | 
|    |  | Consolidated Statements of Stockholders
    Equity for the years ended June 30, 2001, 2002 and 2003                                                                                                                                               |  |      | F-5  | 
|    |  | Consolidated Statements of Cash Flows for the
    years ended June 30, 2001, 2002 and 2003                                                                                                                                                         |  |      | F-6  | 
|    |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                         |  |      | F-7  | 
|(2) |  | Financial Statement Schedule:                                                                                                                                                                                                                      |  |      |      | 
|    |  | Schedule II  Consolidated Schedule
     Valuation and Qualifying Accounts                                                                                                                                                                        |  |      | F-26 | 
|    |  | All other schedules for which provision is made
    in the applicable accounting Regulations of the Securities and
    Exchange Commission are not required under the related
    instructions or are inapplicable and therefore have been omitted |  |      |      | 
|(3) |  | The Index of Exhibits Required by Item 601
    of Regulation S-K included herewith, which is incorporated
    herein by reference                                                                                                                  |  |      |      | 



| |     |                                          
| | --- | -----------------------------------------
| | (b) | Reports filed by the Company on Form 8-K:

We filed a report on Form 8-K on
April 8, 2003 to furnish as an exhibit a press release
announcing that we revised estimates for our fiscal year ending
June 30, 2003 and the examination of certain acquired
accounts receivable.

We filed a report on Form 8-K on
April 9, 2003 to furnish the transcript of the conference
call that we held on April 8, 2003 discussing the revised
estimates for our fiscal year ending June 30, 2003 and the
examination of certain acquired accounts receivable.

We filed a report on Form 8-K on
April 21, 2003, announcing the declaration of a
distribution of one right for each outstanding share of our
common stock to stockholders of record at the close of business
on April 28, 2003 and for each share of common stock issued
(including shares distributed from treasury) by us thereafter
and prior to the Separation Time (as defined in the
Form 8-K). Each right entitles the registered holder to
purchase from us one ten-thousandth (1/10,000th) of a share of
Series A Junior Participating Preferred Stock, par value
$1.00 per share, at a purchase price of $100.00 per unit.
Attached as an exhibit to the 8-K was the description and terms
of the rights set forth in the Stockholder Protection Rights
Agreement between Accredo Health, Incorporated and American
Stock Transfer and Trust Company, as rights agent, to be entered
into in substantially the form attached to the 8-K.

We filed a report on Form 8-K on May 5,
2003 to furnish as an exhibit the press release reporting our
financial results for the quarter ended March 31, 2003.

We filed a report on Form 8-K on May 5,
2003, announcing (i) the dismissal of Ernst & Young LLP
as our independent public accountant, and (ii) that we had
filed a lawsuit against Ernst & Young LLP seeking in excess
of $53.3 million in connection with the auditing and accounting
procedures

45



---



##### Table of Contents



used by Ernst & Young LLP relating to our
purchase of the Specialty Pharmaceutical Services division of
Gentiva Health Services, Inc. We furnished a press release
announcing our decision to dismiss Ernst & Young LLP as our
independent public accountant and the filing of the lawsuit
against Ernst & Young LLP as an exhibit to the 8-K.


We filed a report on Form 8-K/ A on
May 19, 2003, amending the Form 8-K filing of
May 5, 2003 (related to the dismissal of Ernst & Young
LLP). The amendment was filed to attach as an exhibit a letter
from Ernst & Young LLP, our former independent accountants.

We filed a report on Form 8-K on
June 12, 2003, announcing that Deloitte & Touche LLP
had been engaged to serve as our new independent public
accountants, effective June 10, 2003.

46



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

Accredo Health, Incorporated


We have audited the accompanying consolidated
balance sheet of Accredo Health, Incorporated and subsidiaries
as of June 30, 2003, and the related consolidated
statements of income, stockholders equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial
statements of Accredo Health, Incorporated as of June 30,
2002, and for the years ended June 30, 2002 and 2001, were
audited by other auditors whose report, dated August 16,
2002, expressed an unqualified opinion on those statements.

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

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Accredo Health, Incorporated and
subsidiaries as of June 30, 2003, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.

Our audit was conducted for the purpose of
forming an opinion on the basic consolidated financial
statements as of and for the year ended June 30, 2003,
taken as a whole. The supplemental schedule listed in the table
of contents is presented for the purpose of additional analysis
and is not a required part of the basic consolidated financial
statements. This schedule is the responsibility of Accredo
Health, Incorporateds management. Such schedule as of and
for the year ended June 30, 2003, has been subjected to the
auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, is fairly
stated in all material respects when considered in relation to
the basic consolidated financial statements as of and for the
year ended June 30, 2003, taken as a whole.



| |                          
| | -------------------------
| | /s/ DELOITTE & TOUCHE LLP

Memphis, Tennessee

September 4, 2003


F-1



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors

Accredo Health, Incorporated


We have audited the accompanying consolidated
balance sheet of Accredo Health, Incorporated (the
Company) as of June 30, 2002, and the related
consolidated statements of income, stockholders equity and
cash flows for each of the two years in the period ended
June 30, 2002. Our audits also included the financial
statement schedule listed in the Index at Item 14(a) as of
and for the years ended June 30, 2001 and 2002. These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Accredo Health, Incorporated
at June 30, 2002, and the results of its operations and its
cash flows for each of the two years in the period ended
June 30, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.

As discussed in Notes 2 and 6 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible Assets, in 2002.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Memphis, Tennessee

August 16, 2002


F-2



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED BALANCE SHEETS

(000s omitted, except share
data)


|                            |                                           |                                 |                      |         |         |         |         |         |          |         | 
|--------------------------- | ----------------------------------------- | ------------------------------- | -------------------- | ------- | ------- | ------- | ------- | ------- | -------- | ------- | 
|                            |                                           |                                
|                            |                                           | June 30                        
|                            |                                           |                                
|                            |                                           | 2002                            |                      | 2003   
|                            |                                           |                                 |                      |        
|ASSETS                     
|Current assets:             |                                           |                                 |                      |         |         |         |         |        
|                            | Cash and cash equivalents                 |                                 | $                    | 42,913  |         |         | $       | 48,006  |         
|                            | Receivables:                              |                                 |                      |         |         |         |         |         |         
|                            |                                           | Patient accounts                |                      |         | 417,011 |         |         |         | 434,523  |        
|                            |                                           | Allowance for doubtful accounts |                      |         | (81,758 | )       |         |         | (126,541 | )      
|                            |                                           |                                 |                      |         |         |         |         |        
|                            |                                           |                                 | 335,253              |         |         |         | 307,982 |        
|                            |                                           | Due from affiliates             |                      |         | 2,255   |         |         |         | 3,933    |        
|                            |                                           | Other                           |                      |         | 22,555  |         |         |         | 21,226   |        
|                            |                                           |                                 |                      |         |         |         |         |        
|                            |                                           |                                 | 360,063              |         |         |         | 333,141 |        
|                            | Inventories                               |                                 |                      | 120,809 |         |         |         | 89,985  |         
|                            | Prepaid expenses and other current assets |                                 |                      | 3,470   |         |         |         | 4,625   |         
|                            | Income taxes receivable                   |                                 |                      |        |         |         |         | 1,546   |         
|                            | Deferred income taxes                     |                                 |                      | 5,954   |         |         |         | 24,579  |         
|                            |                                           |                                 |                      |         |         |         |         |        
|                            |                                           |                                 | Total current assets |         |         | 533,209 |         |         |          | 501,882 | 
|Property and equipment, net |                                           |                                 | 23,796               |         |         |         | 31,681  |        
|Other assets:               |                                           |                                 |                      |         |         |         |         |        
|                            | Joint venture investments                 |                                 |                      | 4,637   |         |         |         | 5,908   |         
|                            | Goodwill, net                             |                                 |                      | 334,919 |         |         |         | 352,509 |         
|                            | Other intangible assets, net              |                                 |                      | 28,268  |         |         |         | 22,803  |         
|                            |                                           |                                 |                      |         |         |         |         |        
|                            |                                           |                                 | Total assets         |         | $       | 924,829 |         |         | $        | 914,783 | 
|                            |                                           |                                 |                      |         |         |         |         |        

|                                                    |                                                                                                                                                     |                                                |         |         |         |  |         |         |         | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|LIABILITIES AND STOCKHOLDERS EQUITY                |                                                                                                                                                     |                                                |         |        
|                                                    |                                                                                                                                                     |                                                |         |        
|Current liabilities:                                |                                                                                                                                                     |                                                |         |         |         |  |         |        
|                                                    | Accounts payable                                                                                                                                    |                                                | $       | 185,047 |         |  | $       | 169,664 |        
|                                                    | Accrued expenses                                                                                                                                    |                                                |         | 31,369  |         |  |         | 19,518  |        
|                                                    | Due to affiliates                                                                                                                                   |                                                |         |        |         |  |         | 576     |        
|                                                    | Income taxes payable                                                                                                                                |                                                |         | 1,701   |         |  |         |        |        
|                                                    | Current portion of long-term debt                                                                                                                   |                                                |         | 5,312   |         |  |         | 16,250  |        
|                                                    |                                                                                                                                                     |                                                |         |         |         |  |         |        
|                                                    |                                                                                                                                                     | Total current liabilities                      |         |         | 223,429 |  |         |         | 206,008 | 
|Long-term debt                                      |                                                                                                                                                     |                                                | 224,688 |         |         |  | 178,438 |        
|Deferred income taxes                               |                                                                                                                                                     |                                                | 4,383   |         |         |  | 14,810  |        
|Minority interest in consolidated
    joint venture |                                                                                                                                                     |                                                | 1,275   |         |         |  | 2,819   |        
|Commitments                                         |                                                                                                                                                     |                                                |        |         |         |  |        |        
|Stockholders equity:                               |                                                                                                                                                     |                                                |         |         |         |  |         |        
|                                                    | Undesignated preferred stock, 5,000,000 shares
    authorized, no shares issued                                                                     |                                                |         |        |         |  |         |        |        
|                                                    | Common stock, $.01 par value; 100,000,000 shares
    authorized; 46,993,261 shares in 2002 and 47,838,257 shares in
    2003 issued and outstanding |                                                |         | 470     |         |  |         | 478     |        
|                                                    | Additional paid-in capital                                                                                                                          |                                                |         | 413,004 |         |  |         | 425,183 |        
|                                                    | Accumulated other comprehensive loss                                                                                                                |                                                |         |        |         |  |         | (68     | )      
|                                                    | Retained earnings                                                                                                                                   |                                                |         | 57,580  |         |  |         | 87,115  |        
|                                                    |                                                                                                                                                     |                                                |         |         |         |  |         |        
|                                                    |                                                                                                                                                     | Total stockholders equity                     |         |         | 471,054 |  |         |         | 512,708 | 
|                                                    |                                                                                                                                                     | Total liabilities and
    stockholders equity |         | $       | 924,829 |  |         | $       | 914,783 | 
|                                                    |                                                                                                                                                     |                                                |         |         |         |  |         |        

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(000s omitted, except share and per
share data)


|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |            |           | 
|-------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------ | ------ | ---------- | ------- | ---- | ------ | ---------- | ------- |  | ------ | ---------- | --------- | 
|                                                                                             |                                        |                         
|                                                                                             |                                        | Years Ended June 30     
|                                                                                             |                                        |                         
|                                                                                             |                                        | 2001                     |        | 2002       |         | 2003
|                                                                                             |                                        |                          |        |            |         |     
|Revenues:                                                                                    |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Net patient revenue                    |                          | $      | 446,007    |         |      | $      | 633,249    |         |  | $      | 1,337,414  |          
|                                                                                             | Other revenue                          |                          |        | 14,985     |         |      |        | 18,257     |         |  |        | 33,982     |          
|                                                                                             | Equity in net income of joint ventures |                          |        | 1,148      |         |      |        | 2,067      |         |  |        | 1,940      |          
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             |                                        | Total revenues           |        |            | 462,140 |      |        |            | 653,573 |  |        |            | 1,373,336 | 
|Operating expenses:                                                                          |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Cost of sales                          |                          |        | 395,365    |         |      |        | 544,902    |         |  |        | 1,086,334  |          
|                                                                                             | General and administrative             |                          |        | 29,871     |         |      |        | 45,571     |         |  |        | 129,803    |          
|                                                                                             | Bad debts                              |                          |        | 6,131      |         |      |        | 5,833      |         |  |        | 87,418     |          
|                                                                                             | Restructuring charge                   |                          |        |           |         |      |        | 3,893      |         |  |        |           |          
|                                                                                             | Depreciation                           |                          |        | 1,509      |         |      |        | 2,338      |         |  |        | 5,834      |          
|                                                                                             | Amortization                           |                          |        | 2,754      |         |      |        | 1,337      |         |  |        | 4,552      |          
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             |                                        | Total operating expenses |        |            | 435,630 |      |        |            | 603,874 |  |        |            | 1,313,941 | 
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|Operating income                                                                             |                                        |                          | 26,510 |            |         |      | 49,699 |            |         |  | 59,395 |           
|Interest income (expense):                                                                   |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Interest expense                       |                          |        | (467       | )       |      |        | (662       | )       |  |        | (10,281    | )        
|                                                                                             | Interest income                        |                          |        | 3,237      |         |      |        | 1,021      |         |  |        | 717        |          
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             |                                        |                          | 2,770  |            |         |      | 359    |            |         |  | (9,564 | )         
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|Income before minority interest in income of
    consolidated joint venture and income taxes |                                        |                          | 29,280 |            |         |      | 50,058 |            |         |  | 49,831 |           
|Minority interest in income of consolidated
    joint venture                                |                                        |                          | (692   | )          |         |      | (1,273 | )          |         |  | (2,044 | )         
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|Income before income taxes                                                                   |                                        |                          | 28,588 |            |         |      | 48,785 |            |         |  | 47,787 |           
|Income tax expense                                                                           |                                        |                          | 11,333 |            |         |      | 19,025 |            |         |  | 18,252 |           
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             |                                        | Net income               |        | $          | 17,255  |      |        | $          | 29,760  |  |        | $          | 29,535    | 
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|Net income per common share:                                                                 |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Basic                                  |                          | $      | 0.46       |         |      | $      | 0.75       |         |  | $      | 0.62       |          
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Diluted                                |                          | $      | 0.44       |         |      | $      | 0.73       |         |  | $      | 0.61       |          
|                                                                                             |                                        |                          |        |            |         |      |        |            |         |  |        |           
|Weighted average shares outstanding:                                                         |                                        |                          |        |            |         |      |        |            |         |  |        |           
|                                                                                             | Basic                                  |                          |        | 37,491,744 |         |      |        | 39,547,712 |         |  |        | 47,509,682 |          
|                                                                                             | Diluted                                |                          |        | 39,188,294 |         |      |        | 40,919,625 |         |  |        | 48,442,723 |          

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(000s omitted, except share
data)


|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |         | 
|----------------------------------------------------------------------------- | --------------------------------- | ------ | ---------- | --------- |  | ---------- | --- | ------------- |  | ----------- | ------- | ------------- |  | - | --- | - |  | - | ------ | - |  | - | ------- | ------- | 
|                                                                              |                                   |        |            |           |  |            |     | Accumulated   |  |             |         |              
|                                                                              |                                   | Common |            |           |  | Additional |     | Other         |  | Accumulated |         | Total        
|                                                                              |                                   | Stock  |            | Common    |  | Paid-In    |     | Comprehensive |  | Retained    |         | Stockholders
|                                                                              |                                   | Shares |            | Stock     |  | Capital    |     | Loss          |  | Earnings    |         | Equity       
|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |              
|Balance at June 30, 2000                                                      |                                   |        | 31,740,356 |           |  | $          | 317 |               |  | $           | 66,662  |               |  | $ |    |   |  | $ | 10,565 |   |  | $ | 77,544  |        
|Issuance of common stock:                                                     |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|                                                                              | Public offering                   |        |            | 6,210,000 |  |            |     | 62            |  |             |         | 88,865        |  |   |     |  |  |   |        |  |  |   |         | 88,927  | 
|                                                                              | Exercise of stock options         |        |            | 937,589   |  |            |     | 9             |  |             |         | 2,433         |  |   |     |  |  |   |        |  |  |   |         | 2,442   | 
|                                                                              | Employee stock purchase plan      |        |            | 43,082    |  |            |     | 1             |  |             |         | 651           |  |   |     |  |  |   |        |  |  |   |         | 652     | 
|Costs related to public offering                                              |                                   |        |           |           |  |            |    |               |  |             | (605    | )             |  |   |    |   |  |   |       |   |  |   | (605    | )      
|Tax benefit of exercise of stock options                                      |                                   |        |           |           |  |            |    |               |  |             | 2,840   |               |  |   |    |   |  |   |       |   |  |   | 2,840   |        
|Compensation resulting from stock Transactions,
    net of income tax benefit |                                   |        |           |           |  |            |    |               |  |             | 115     |               |  |   |    |   |  |   |       |   |  |   | 115     |        
|Net income                                                                    |                                   |        |           |           |  |            |    |               |  |             |        |               |  |   |    |   |  |   | 17,255 |   |  |   | 17,255  |        
|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|Balance at June 30, 2001                                                      |                                   |        | 38,931,027 |           |  |            | 389 |               |  |             | 160,961 |               |  |   |    |   |  |   | 27,820 |   |  |   | 189,170 |        
|Issuance of common stock:                                                     |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|                                                                              | In connection with an acquisition |        |            | 7,591,464 |  |            |     | 76            |  |             |         | 246,647       |  |   |     |  |  |   |        |  |  |   |         | 246,723 | 
|                                                                              | Exercise of stock options         |        |            | 427,442   |  |            |     | 4             |  |             |         | 2,193         |  |   |     |  |  |   |        |  |  |   |         | 2,197   | 
|                                                                              | Employee stock purchase plan      |        |            | 43,328    |  |            |     | 1             |  |             |         | 895           |  |   |     |  |  |   |        |  |  |   |         | 896     | 
|Tax benefit of exercise of stock options                                      |                                   |        |           |           |  |            |    |               |  |             | 2,204   |               |  |   |    |   |  |   |       |   |  |   | 2,204   |        
|Compensation resulting from stock Transactions,
    net of income tax benefit |                                   |        |           |           |  |            |    |               |  |             | 104     |               |  |   |    |   |  |   |       |   |  |   | 104     |        
|Net income                                                                    |                                   |        |           |           |  |            |    |               |  |             |        |               |  |   |    |   |  |   | 29,760 |   |  |   | 29,760  |        
|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|Balance at June 30, 2002                                                      |                                   |        | 46,993,261 |           |  |            | 470 |               |  |             | 413,004 |               |  |   |    |   |  | $ | 57,580 |   |  | $ | 471,054 |        
|Issuance of common stock:                                                     |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|                                                                              | Exercise of stock options         |        |            | 762,250   |  |            |     | 7             |  |             |         | 6,008         |  |   |     |  |  |   |        |  |  |   |         | 6,015   | 
|                                                                              | Employee stock purchase plan      |        |            | 82,746    |  |            |     | 1             |  |             |         | 1,794         |  |   |     |  |  |   |        |  |  |   |         | 1,795   | 
|Tax benefit of exercise of stock options                                      |                                   |        |           |           |  |            |    |               |  |             | 4,377   |               |  |   |    |   |  |   |       |   |  |   | 4,377   |        
|Mark to market interest rate swap, net of taxes
    of $43                    |                                   |        |           |           |  |            |    |               |  |             |        |               |  |   | (68 | ) |  |   |       |   |  |   | (68     | )      
|Net income                                                                    |                                   |        |           |           |  |            |    |               |  |             |        |               |  |   |    |   |  |   | 29,535 |   |  |   | 29,535  |        
|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        
|Balance at June 30, 2003                                                      |                                   |        | 47,838,257 |           |  | $          | 478 |               |  | $           | 425,183 |               |  | $ | (68 | ) |  | $ | 87,115 |   |  | $ | 512,708 |        
|                                                                              |                                   |        |            |           |  |            |     |               |  |             |         |               |  |   |     |   |  |   |        |   |  |   |         |        

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(000s omitted)


|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |         |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------------- | ------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------- | -
|                                                                                           |                                                               |                    
|                                                                                           |                                                               | Years Ended June 30
|                                                                                           |                                                               |                    
|                                                                                           |                                                               | 2001                |         | 2002    |   | 2003
|                                                                                           |                                                               |                     |         |         |   |     
|Operating activities                                                                       |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Net income                                                                                 |                                                               | $                   | 17,255  |         |   | $    | 29,760   |         |   | $ | 29,535  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities:      |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|                                                                                           | Depreciation and amortization                                 |                     |         | 4,263   |   |      |          | 3,675   |   |   |         | 13,761  |  
|                                                                                           | Restructuring charge                                          |                     |         |        |   |      |          | 3,893   |   |   |         |        |  
|                                                                                           | Provision for losses on accounts receivable                   |                     |         | 6,131   |   |      |          | 5,833   |   |   |         | 87,418  |  
|                                                                                           | Deferred income taxes                                         |                     |         | (872    | ) |      |          | 949     |   |   |         | (8,198  | )
|                                                                                           | Compensation resulting from
    stock transactions            |                     |         | 185     |   |      |          | 164     |   |   |         |        |  
|                                                                                           | Tax benefit of exercise of stock options                      |                     |         | 2,840   |   |      |          | 2,204   |   |   |         | 4,377   |  
|                                                                                           | Minority interest in income of consolidated
    joint venture |                     |         | 692     |   |      |          | 1,273   |   |   |         | 2,044   |  
|Changes in operating assets and liabilities, net
    of effect from business acquisitions: |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|                                                                                           | Patient and other receivables                                 |                     |         | (18,050 | ) |      |          | (34,703 | ) |   |         | (62,960 | )
|                                                                                           | Due from affiliates                                           |                     |         | (806    | ) |      |          | 185     |   |   |         | (1,102  | )
|                                                                                           | Inventories                                                   |                     |         | 2,192   |   |      |          | (34,577 | ) |   |         | 30,825  |  
|                                                                                           | Prepaid expenses and other current assets                     |                     |         | 115     |   |      |          | (1,945  | ) |   |         | (1,155  | )
|                                                                                           | Accounts payable and accrued expenses                         |                     |         | 9,439   |   |      |          | 56,804  |   |   |         | (19,698 | )
|                                                                                           | Income taxes payable                                          |                     |         | (218    | ) |      |          | 589     |   |   |         | (2,507  | )
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Net cash provided by operating activities                                                  |                                                               |                     | 23,166  |         |   |      | 34,104   |         |   |   | 72,340  |        
|                                                                                          
|Investing activities                                                                       |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Purchases of marketable securities                                                         |                                                               |                     | (13,500 | )       |   |      | (6,000   | )       |   |   |        |        
|Proceeds from sales and maturities of
    marketable securities                            |                                                               |                     | 11,500  |         |   |      | 8,000    |         |   |   |        |        
|Purchases of property and equipment                                                        |                                                               |                     | (2,635  | )       |   |      | (8,858   | )       |   |   | (16,005 | )      
|Business acquisitions and joint
    venture investments                                    |                                                               |                     | (27,088 | )       |   |      | (256,172 | )       |   |   | (21,970 | )      
|Change in joint venture investments, net                                                   |                                                               |                     | (1,343  | )       |   |      | (2,927   | )       |   |   | (1,770  | )      
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Net cash used in investing activities                                                      |                                                               |                     | (33,066 | )       |   |      | (265,957 | )       |   |   | (39,745 | )      
|                                                                                          
|Financing activities                                                                       |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|(Payment of) proceeds from notes payable and line
    of credit                            |                                                               |                     | (37,200 | )       |   |      | 223,889  |         |   |   | (35,313 | )      
|Payment of deferred financing costs                                                        |                                                               |                     |        |         |   |      | (6,737   | )       |   |   |        |        
|Issuance of common stock                                                                   |                                                               |                     | 92,021  |         |   |      | 3,094    |         |   |   | 7,811   |        
|Payment of costs related to public offering                                                |                                                               |                     | (605    | )       |   |      |         |         |   |   |        |        
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Net cash provided by (used in)
    financing activities                                    |                                                               |                     | 54,216  |         |   |      | 220,246  |         |   |   | (27,502 | )      
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Increase (decrease) in cash and
    cash equivalents                                       |                                                               |                     | 44,316  |         |   |      | (11,607  | )       |   |   | 5,093   |        
|Cash and cash equivalents at beginning
    of year                                         |                                                               |                     | 10,204  |         |   |      | 54,520   |         |   |   | 42,913  |        
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Cash and cash equivalents at end of year                                                   |                                                               | $                   | 54,520  |         |   | $    | 42,913   |         |   | $ | 48,006  |        
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Supplementary cash flow disclosures                                                        |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Income taxes paid                                                                          |                                                               | $                   | 9,593   |         |   | $    | 15,279   |         |   | $ | 20,578  |        
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        
|Interest paid                                                                              |                                                               | $                   | 555     |         |   | $    | 395      |         |   | $ | 8,936   |        
|                                                                                           |                                                               |                     |         |         |   |      |          |         |   |   |         |        

See accompanying notes to consolidated financial
statements.

F-6



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Description of Business

The consolidated financial statements and related
notes to the consolidated financial statements include the
accounts of Accredo Health, Incorporated (the
Company), its wholly-owned subsidiaries and its 80%
owned joint venture. Significant inter-company accounts have
been eliminated in consolidation.

The Company provides specialty retail pharmacy
and related services pursuant to agreements with biotechnology
drug manufacturers relating to the treatment of patients with
certain costly chronic diseases. Because of the unique needs of
patients suffering from chronic diseases, biotechnology drug
manufacturers have recognized the benefits of customized
programs to facilitate alternate site drug administration,
ensure compliance with treatment regimens, provide reimbursement
assistance and capture valuable clinical and patient demographic
information. The Company addresses the needs of the
manufacturers by providing specialized services that facilitate
product launch and patient acceptance including the collection
of timely drug utilization and patient compliance information,
patient education and monitoring through the use of written
materials and telephonic consultation, reimbursement expertise
and overnight drug delivery.

The Company has designed its specialty retail
pharmacy services to focus primarily on biotechnology injectable
drugs that: (i) are used on a recurring basis to treat
chronic, and potentially life threatening diseases;
(ii) are expensive; and (iii) require temperature
control or other specialized handling as part of their
distribution process. Currently, the Company provides specialty
retail pharmacy and related services that address the needs of
patients with chronic diseases including Multiple Sclerosis,
Gaucher Disease, hemophilia, pulmonary arterial hypertension,
growth hormone-related disorders, primary immune deficiencies,
auto-immune disorders and respiratory syncytial virus.

2. Significant Accounting
Policies

Cash Equivalents

The Company considers all highly liquid
investments with an initial maturity of three months or less to
be cash equivalents.

Concentrations of Risks

The Companys primary concentration of
credit risk is patient accounts receivable, which consists of
amounts owed by various governmental agencies, insurance
companies and private patients. The Company manages the
receivables by regularly reviewing its accounts and contracts
and by providing appropriate allowances for uncollectible
amounts. Significant concentrations of gross patient accounts
receivable consist of the following at June 30:

|         |  |      |    |      |  |  |    |  
|-------- |  | ---- | -- | ---- |  |  | -- | -
|         |  | 2002 |    | 2003
|         |  |      |    |     
|Medicare |  |      | 7  | %    |  |  | 7  | %
|Medicaid |  |      | 13 | %    |  |  | 18 | %

Concentration of credit risk relating to accounts
receivable is limited to some extent by the diversity and number
of patients and payors and the geographic dispersion of the
Companys operations. The Company grants credit without
collateral to its patients and payors.

F-7



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company derives a substantial portion of its
revenue from the sale of drugs provided by a limited number of
biopharmaceutical suppliers. The table below shows the
concentration of the Companys revenue derived from the
sale of drugs provided by these suppliers for the years ended
June 30:

|          |  |      |    |      |  |      |    |   |  |  |    |  
|--------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|          |  | 2001 |    | 2002 |  | 2003
|          |  |      |    |      |  |     
|Biogen    |  |      | 38 | %    |  |      | 31 | % |  |  | 14 | %
|Genzyme   |  |      | 23 | %    |  |      | 18 | % |  |  | 10 | %
|MedImmune |  |      | 6  | %    |  |      | 10 | % |  |  | 6  | %
|Genentech |  |      | 5  | %    |  |      | 6  | % |  |  | 4  | %

The Company derived approximately 15% of its
revenue from a single non-governmental payor in the years ended
June 30, 2001 and 2002. No payor represented more than 10%
of the Companys revenue in the year ended June 30,
2003.

Cash, cash equivalents and marketable securities
are placed with major high credit quality financial institutions
and issuers. Management believes that there is minimal credit
risk associated with these financial institutions and issuers.

Receivables

Receivables are presented net of allowance for
doubtful accounts and contractual allowances. Receivables
include trade and patient accounts receivable. The Company
regularly reviews and analyzes the adequacy of the allowances
based on a variety of factors including the age of the
outstanding receivable and the collection history. If
circumstances related to specific customers change, estimates of
the recoverability of receivables could be further adjusted.

Inventories

Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or market value.

Fair Value of Financial Instruments

The carrying value of accounts receivable,
accounts payable and long-term debt approximates fair value of
these financial instruments at June 30, 2002 and 2003.

Property and Equipment

Property and equipment is stated at cost.
Provisions for depreciation are computed primarily by the
straight-line method based on the estimated useful lives of the
related assets of two to seven years.

Valuation of Long-Lived Assets

Management periodically evaluates carrying values
of long-lived assets, including property and equipment, to
determine whether events and circumstances indicate that these
assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less
than its carrying value. In that event, a loss is determined
based on the amount the carrying value exceeds the fair market
value of such asset, which is based on discounted cash flows.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of
businesses acquired over fair value of net tangible and
identifiable intangible assets at the date of acquisition. Prior
to the adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, goodwill was amortized

F-8



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

using the straight-line method over their
estimated useful lives of 40 years. Since adoption of SFAS
No. 142 in July 2001, amortization of goodwill was
discontinued and goodwill is reviewed at least annually for
impairment. Accumulated amortization of goodwill was
$7.0 million at June 30, 2002 and 2003. Other
intangible assets consist primarily of non-compete agreements
and acquired patient relationships in connection with business
acquisitions. Other intangibles are being amortized using the
straight-line method over their estimated useful lives of two to
ten years for the non-compete agreements, four to eight years
for acquired patient relationships and five to seven years for
the deferred financing costs. Absent any impairment indicators,
the Company performs the annual impairment tests during the
fourth quarter each year.

Income Taxes

Deferred income taxes are provided for the tax
effect of temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial
statements. The liability method is used to account for income
taxes, which requires deferred taxes to be recorded at the
statutory rate to be in effect when the taxes are paid.

Stock-Based Compensation

The Company recognizes stock-based compensation
using the intrinsic value method as permitted by SFAS
No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation expense is recorded for employee
stock-based awards issued at market value at the date such
awards are granted.

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 years ended June 30 is as follows (in
thousands, except share data):

|                                                                                                                               |                       |      |        |      |  |      |        |      |  |   |         |      | 
|------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------- | ---- | 
|                                                                                                                               |                       | 2001 |        | 2002 |  | 2003
|                                                                                                                               |                       |      |        |      |  |     
|Net income, as reported                                                                                                        |                       | $    | 17,255 |      |  | $    | 29,760 |      |  | $ | 29,535  |     
|Less stock-based employee compensation cost, net
    of related tax effects, applying the fair value method to all
    rewards |                       |      | (2,381 | )    |  |      | (3,860 | )    |  |   | (10,949 | )   
|                                                                                                                               |                       |      |        |      |  |      |        |      |  |   |         |     
|Pro forma net income                                                                                                           |                       | $    | 14,874 |      |  | $    | 25,900 |      |  | $ | 18,586  |     
|                                                                                                                               |                       |      |        |      |  |      |        |      |  |   |         |     
|Earnings per share:                                                                                                            |                       |      |        |      |  |      |        |      |  |   |         |     
|                                                                                                                               | Basic  as reported   |      | $      | 0.46 |  |      | $      | 0.75 |  |   | $       | 0.62 | 
|                                                                                                                               | Basic  pro forma     |      | $      | 0.40 |  |      | $      | 0.65 |  |   | $       | 0.39 | 
|                                                                                                                               | Diluted  as reported |      | $      | 0.44 |  |      | $      | 0.73 |  |   | $       | 0.61 | 
|                                                                                                                               | Diluted  pro forma   |      | $      | 0.38 |  |      | $      | 0.64 |  |   | $       | 0.39 | 

Revenue Recognition

Net patient revenues are from the sales of
biopharmaceutical drugs to patients and are reported at the net
amount billed to patients, third-party payors and others in the
period the products are delivered. The Company has agreements
with certain third-party payors that provide for payments to the
Company at amounts discounted from its established rates.

The revenues and related accounts receivable are
recorded net of payor contractual discounts to reflect the
estimated net billable amounts for the products delivered. We
estimate the allowance for contractual discounts on a
payor-specific basis, given our interpretation of the contract
terms or applicable regulations. However, the reimbursement
rates are often subject to interpretation that could result in
payments that differ from our estimates. Additionally, updated
regulations and contract negotiations occur frequently,
necessitating our continual review and assessment of the
estimation process.

F-9



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Approximately 19%, 21% and 27% of gross patient
revenues for the years ended June 30, 2001, 2002 and 2003,
respectively, is from participation in the Medicare and
state-sponsored Medicaid programs.

The Company from time to time enters into
management contracts with hemophilia treatment centers, medical
centers and joint ventures in which the Company has an interest.
Pursuant to these contracts, the Company will provide certain
billing, pharmacy dispensing, inventory management, shipping,
reimbursement, collection and other management services in
exchange for fees that range from a reimbursement of the
Companys costs to a percentage of the managed entities
billed charges, less contractual allowances. These contracts are
for terms of up to five years and are usually cancelable on
short notice. Revenue from the management contracts is
recognized when the services are rendered and is included in
other revenue.

Shipping and Handling Costs

Shipping and handling costs are included in cost
of sales.

Interest Rate Swap Agreements

The Company enters into interest rate swap
agreements as a means of managing its interest rate exposure.
The differential to be paid or received is recognized over the
life of the agreement as an adjustment to interest expense. The
interest rate swap is designated as an effective cash-flow
hedge. The fair value of the swap is recorded on the balance
sheet, with changes in the fair value included in other
comprehensive loss.

Segment Disclosures

SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information,establishes
standards for the way that public business enterprises that are
required to file financial statements with the Securities and
Exchange Commission report information about operating segments
in annual financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services,
geographic areas and major customers. The Company manages its
business in one operating segment.

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 June 30:

|                                                                                                                                      |  |      |            |      |  |      |            |  |  |  |            | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                                                                                                      |  | 2001 |            | 2002 |  | 2003
|                                                                                                                                      |  |      |            |      |  |     
|Weighted average number of common shares
    outstanding used as the denominator in the basic earnings per
    share calculation      |  |      | 37,491,744 |      |  |      | 39,547,712 |  |  |  | 47,509,682 | 
|Additional shares assuming exercise of dilutive
    stock options                                                                     |  |      | 1,696,550  |      |  |      | 1,371,913  |  |  |  | 933,041    | 
|                                                                                                                                      |  |      |            |      |  |      |            |  |  |  |            | 
|Weighted average number of common and equivalent
    shares used as the denominator in the diluted earnings per share
    calculation |  |      | 39,188,294 |      |  |      | 40,919,625 |  |  |  | 48,442,723 | 
|                                                                                                                                      |  |      |            |      |  |      |            |  |  |  |            | 

F-10



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Use of Estimates

The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and the accompanying
notes to the consolidated financial statements. Management makes
its best estimate of the ultimate outcome for these items based
on historical trends and other information available when the
financial statements are prepared. Actual results could differ
from those estimates. Changes in estimates are recognized in
accordance with accounting principles for the estimate, which is
typically in the period when the new information becomes
available to management. Estimates are used primarily in
recording the allowance for doubtful accounts, refundable credit
balances, self-insurance accruals, income tax liabilities and
impairment tests on goodwill.

During the March 2003 quarter, we analyzed
historical collection rates and other data used in estimating
the allowance for doubtful accounts. Our calculations indicated
that the accounts receivable reserve needed to be increased. As
a result of the new information obtained through the analysis
completed subsequent to the March 2003 quarter, in the third
quarter of fiscal year 2003 we recorded a net $49 million charge
to bad debt expense and increased the allowance for doubtful
accounts related to the accounts receivable of the SPS division.

Risk Management

The Company maintains a self-insured medical and
dental plan for employees. Claims are accrued under these plans
as the incidents that give rise to them occur. Unpaid claim
accruals are based on the estimated ultimate cost of settlement,
including claim settlement expenses. The Company has entered
into a reinsurance agreement with an independent insurance
company to limit its losses on claims. Under the terms of this
agreement, the insurance company will reimburse the Company for
individual claims generally in excess of $200,000 and when total
claims exceed an aggregate amount based on the number of covered
lives. These reimbursements are included in general and
administrative expense in the accompanying consolidated
statements of income.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business
Combinations,which requires all business combinations
initiated after June 30, 2001 to be accounted for under the
purchase method. SFAS No. 141 also sets forth guidelines
for applying the purchase method of accounting in the
determination of intangible assets, including goodwill acquired
in a business combination, and expands financial disclosures
concerning business combinations completed after June 30,
2001. The adoption of SFAS No. 141 did not have any impact
on the Companys financial position or results of
operations.

Effective July 1, 2001, the Company early
adopted SFAS No. 142, Goodwill and Other Intangible
Assets,which established new accounting and reporting
requirements for goodwill and other intangible assets. Under
SFAS No. 142, all goodwill amortization ceased effective
July 1, 2001, and goodwill was tested for impairment.
Impairment tests are required to be performed at the date of
adoption of SFAS No. 142 and at least annually thereafter.
Absent any impairment indicators, the Company performed its
annual impairment tests during the fourth quarter. The
impairment tests performed upon adoption and in the fourth
quarter of 2002 and 2003 resulted in no adjustment to the
carrying value of goodwill.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS
No. 144 removes goodwill from its scope and clarifies other
implementation issues related to SFAS No. 121. SFAS
No. 144 also provides a single framework for

F-11



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

evaluating long-lived assets to be disposed of by
sale. The adoption of the provisions of SFAS No. 144 in
fiscal year 2003 did not have a material effect on the financial
position or results of operations.

In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44 and 62,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 requires gains and losses on
extinguishment of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as
previously required under SFAS No. 4. SFAS No. 145
also amends SFAS No. 13 to require certain modifications to
capital leases treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a
secondary obligor or guarantor. The adoption of the provisions
of SFAS No. 145 in fiscal year 2003 did not have a material
effect on the financial position or results of operations.

In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities,which addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity.SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue No. 94-3,
a liability for an exit cost was recognized at the date of an
entitys commitment to an exit plan. The provisions of SFAS
No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 in fiscal year 2003 did not have
a material effect on the financial position or results of
operations.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN
No. 45 requires an entity to recognize an initial liability
for the fair value of an obligation assumed by issuing a
guarantee. The provision for initial recognition and measurement
of the liability are applied to guarantees issued or modified
after December 31, 2002. The adoption of the provisions of
FIN No. 45 in fiscal year 2003 did not have a material
effect on the financial position or results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. This Statement amends SFAS
No. 123, Accounting for Stock-Based Compensation,to
provide for alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. This Statement also amends
the disclosure provisions of SFAS No. 123 and Accounting
Principles Board (APB) Opinion No. 28, Interim Financial
Reporting,to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock based
employee compensation on reported net income and earnings per
share in annual and interim financial statements. The Company
adopted the disclosure provisions of SFAS No. 148 on
January 1, 2003, which did not have any effect on the
Companys financial position or results of operations. The
Company has not adopted the other provisions of SFAS
No. 148.

In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable Interest Entities,which clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements. FIN
No. 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not provide sufficient
equity at risk for the entity to support its activities. FIN
No. 46 is effective for all variable interest entities
created after January 31, 2003. For variable interest
entities acquired or created prior to February 1, 2003, the
provisions of FIN No. 46 must be applied to the first
interim or annual period beginning after June 15, 2003. The
Company does not expect the adoption of FIN No. 46 to have
a material effect on its financial position or results of
operations.

In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities.This statement amends
SFAS No. 133, Accounting for Derivative Instruments and

F-12



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Hedging Activities,by requiring that contracts with
comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships
designated after June 30, 2003 and must be applied
prospectively. The Company does not expect the adoption of SFAS
No. 149 to have a material effect on its financial position
or results of operations.

In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.This
Statement established standards for how an issuer classifies and
measures in its statement of financial position certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 13, 2003 and must be applied
prospectively by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. The Company does
not expect the adoption of SFAS No. 150 to have a material
effect on its financial position or results of operations since
the Company does not currently have any financial instruments
with characteristics of both liabilities and equity.

3. Business Acquisitions

Effective April 1, 2000, the Company
acquired an additional 30% interest in one of its joint
ventures, Childrens Hemophilia Services, increasing its
ownership in the joint venture to 80%. Childrens Hemophilia
Services is located in Los Angeles, California, and is a
provider of blood clotting factors and ancillary supplies to
hemophilia patients. This transaction was accounted for using
the purchase method of accounting. The price paid by the Company
for this acquisition was $2,086,000. Total assets acquired and
liabilities assumed were $1,788,000 and $479,000, respectively.
The excess of the purchase price over the fair value of the net
assets acquired of $1,309,000, which amounted to $777,000, was
allocated to goodwill. The Company also paid an additional
$417,000 in 2001 and $417,000 in 2002 for earn-out payments
based upon the achievement of targeted earnings during the
twelve-month periods ended November 2000 and 2001, respectively,
as specified in the purchase agreement for the acquisition of
the original 50% interest.

The Company acquired all of the outstanding stock
of Pharmacare Resources, Inc. (Pharmacare) and its
sister company, NCL Management, Inc. effective May 1, 2001.
Pharmacare is headquartered in Elmsford, New York, and is a
provider of pharmaceutical care for certain chronic, long-term
patient populations, including those requiring IVIG. This
transaction was accounted for using the purchase method of
accounting. The price paid by the Company for this acquisition
was $25,074,000. The Company also paid an additional $6,325,000
for a related earn-out payment based upon the achievement of
certain financial results for the twelve-month period ended
December 31, 2001, resulting in a total purchase price of
$31,399,000. Total assets acquired and liabilities assumed were
$3,659,000 and $1,030,000, respectively. The excess of the total
purchase price, including acquisition costs of $63,000, over the
fair value of the net assets acquired of $2,629,000 was
allocated as follows: $28,153,000 to goodwill and $617,000 to
acquired patient relationships. The acquired patient
relationship intangible is being amortized over five years. The
Company also paid $500,000 as consideration for an agreement
with the selling shareholders not to compete with the Company in
certain product lines for a period of six years.

The Company acquired all of the outstanding stock
of BioPartners in Care, Inc. (BioPartners) from its
shareholders effective December 1, 2001. BioPartners is
headquartered in Dayton, Ohio, and is a provider of
pharmaceutical care for certain chronic, long-term patient
populations, including those requiring hemophilia clotting
factor and IVIG. As a result of the acquisition, the Company was
able to increase its market share for the distribution of these
products. The purchase price paid by the Company for this
acquisition was $36,600,000. In addition, the Company also paid
an additional $16,000,000 during fiscal 2003 for a related
earn-out payment based upon the achievement of certain financial
results for the twelve-month period ended December 31,
2002, resulting in a total purchase price of $52,600,000. Total
assets acquired and liabilities

F-13



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assumed were $15,160,000 and $11,750,000,
respectively. The excess of the total purchase price, including
acquisition costs of $275,000, over the fair value of the net
assets acquired of $3,410,000 was allocated as follows:
$48,487,000 to goodwill and $703,000 to acquired patient
relationships. The acquired patient relationship intangible is
being amortized over five years. The entire amount allocated to
goodwill is expected to be deductible for tax purposes. The
Company also paid $1,000,000 as consideration for an agreement
with the selling shareholders not to compete with the Company in
certain product lines for periods of five to seven years.

On June 13, 2002, the Company acquired the
Specialty Pharmaceutical Services Division (SPS
division) of Gentiva Health Services, Inc.
(Gentiva). The Company acquired substantially all of
the assets used in the SPS division including 100% of the
outstanding stock in three of Gentivas subsidiaries that
were engaged exclusively in the business conducted by the SPS
division. The SPS division provides specialty retail pharmacy
and related services relating to the treatment of patients with
certain costly chronic diseases. In addition to the diseases
served by the Company, the SPS division is also a leading
provider of contract pharmacy and related services to patients
with pulmonary hypertension. As a result of the acquisition,
management expected the Company to become a leading provider of
specialty retail pharmacy and related services.

The aggregate purchase price paid for the SPS
division was $463.8 million (including $13.8 million
of acquisition related costs) and consisted of $217.1 million of
cash and 7,591,464 shares of common stock valued at
$246.7 million. The value of the common stock issued was
determined in accordance with EITF issue 99-12, Determination
of the Measurement Date for the Market Price of Acquirer
Securities Issued in a Purchase Business Combination.Accordingly, January 31, 2002, became the measurement
date, as this was the first date on which the number of shares
became fixed without subsequent revision. The value per share
was based upon the average market price over the period
including two days before and after the measurement date. The
following table summarizes the estimated fair values of the
assets acquired and the liabilities assumed at the date of
acquisition of the SPS division (in thousands).

|                                          |                                                                         |                                                                                        |                                                                            |         |         |         | 
|----------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------- | ------- | ------- | 
|Cash                                      |                                                                         | $                                                                                      | 19                                                                         |        
|Receivables:                              |                                                                         |                                                                                        |                                                                            |        
|                                          | Patient accounts, net of allowance for doubtful
    accounts of $68,949 |                                                                                        |                                                                            | 223,173 |        
|                                          | Other                                                                   |                                                                                        |                                                                            | 1,991   |        
|Inventories                               |                                                                         |                                                                                        | 50,087                                                                     |        
|Prepaid expenses and other current assets |                                                                         |                                                                                        | 836                                                                        |        
|                                          |                                                                         |                                                                                        |                                                                            |        
|                                          |                                                                         |                                                                                        | Total current assets                                                       |         |         | 276,106 | 
|Property and equipment                    |                                                                         |                                                                                        | 12,086                                                                     |        
|Other assets:                             |                                                                         |                                                                                        |                                                                            |        
|                                          |                                                                         | Intangible assets subject to amortization
    (5.1 year weighted-average useful life): |                                                                            |         |         |        
|                                          |                                                                         |                                                                                        | Acquired patient relationships (5.0 year
    weighted-average useful life) |         |         | 15,163  | 
|                                          |                                                                         |                                                                                        | Non-compete agreements (6.4 year
    weighted-average useful life)         |         |         | 2,000   | 
|                                          |                                                                         | Goodwill                                                                               |                                                                            |         | 207,780 |        
|                                          |                                                                         | Other                                                                                  |                                                                            |         | 129     |        
|                                          |                                                                         |                                                                                        |                                                                            |        
|                                          |                                                                         |                                                                                        | Total assets acquired                                                      |         |         | 513,264 | 
|Accounts payable                          |                                                                         |                                                                                        | 39,577                                                                     |        
|Accrued expenses                          |                                                                         |                                                                                        | 9,842                                                                      |        
|                                          |                                                                         |                                                                                        |                                                                            |        
|                                          |                                                                         |                                                                                        | Total liabilities assumed                                                  |         |         | 49,419  | 
|                                          |                                                                         |                                                                                        |                                                                            |        
|Net assets acquired                       |                                                                         | $                                                                                      | 463,845                                                                    |        
|                                          |                                                                         |                                                                                        |                                                                            |        

The entire amount allocated to goodwill is
expected to be deductible for tax purposes.

F-14



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As planned, the Company exited the acute pharmacy
business acquired as part of the SPS division in
December 2002. The Company retained the accounts receivable
of the acute pharmacy business and disposed of certain of the
other assets of the business, which were immaterial. The Company
has accounted for the acute division in accordance with EITF
87-11, Allocation of Purchase Price to Assets to be Sold.
In accordance with EITF 87-11, the net proceeds from the sale of
the acute division, the results of the acute operations during
the period from acquisition to disposal and the interest expense
during the holding period on the incremental debt incurred to
finance the acute business have been recorded as an adjustment
to the purchase price. The results of operations of the acute
division, amounting to a $4,000 and $3,919,000 loss (net of tax
benefit) during the periods ended June 30, 2002 and 2003,
respectively, are excluded from the Companys results of
operations in the accompanying financial statements. The amount
of interest expense allocated to the acute pharmacy business was
$53,000 and $616,000, net of tax benefit, during the periods
ended June 30, 2002 and 2003, respectively.

The pro forma results of operations for the years
ended June 30, 2001 and 2002, as if the 2001 acquisitions
had occurred on July 1, 2000, and the 2002 acquisitions
(including the results of the acute pharmacy business of the SPS
division) had occurred on July 1, 2001, are as follows (in
thousands, except share data):

|                             |         |      |           |      |  |   |           |      | 
|---------------------------- | ------- | ---- | --------- | ---- |  | - | --------- | ---- | 
|                             |         | 2001 |           | 2002
|                             |         |      |           |     
|Total revenues               |         | $    | 1,229,841 |      |  | $ | 1,401,192 |     
|Net income                   |         |      | 28,998    |      |  |   | 40,279    |     
|Net income per common share: |         |      |           |      |  |   |           |     
|                             | Basic   |      | $         | .64  |  |   | $         | 0.86 | 
|                             | Diluted |      | $         | .62  |  |   | $         | 0.84 | 

The results of these acquisitions have been
included in the Companys results from their respective
dates of acquisition.

4. Restructuring Charge

In connection with the acquisition of the SPS
division, the Company recorded a restructuring charge of
$3,893,000 ($2,355,000, or $0.06 per diluted share, after tax)
for the year ended June 30, 2002. The charge includes a
$3,553,000 write-off (of which $3,193,000 is non-cash) of a
software application that was being developed by the Company
that was not implemented as a result of the decision to enhance
and implement company-wide the software application acquired
with the SPS division. The restructuring charge also includes
$340,000 for future lease commitments related to facilities that
were abandoned upon completion of the integration plan related
to the acquisition.

5. Property and Equipment

Property and equipment consists of the following
at June 30 (in thousands):

|                         |  |      |        |      |  |   |         |  
|------------------------ |  | ---- | ------ | ---- |  | - | ------- | -
|                         |  | 2002 |        | 2003
|                         |  |      |        |     
|Equipment                |  | $    | 17,762 |      |  | $ | 29,798  |  
|Furniture and fixtures   |  |      | 12,255 |      |  |   | 16,037  |  
|                         |  |      |        |      |  |   |         |  
|                         |  |      | 30,017 |      |  |   | 45,835  |  
|Accumulated depreciation |  |      | (6,221 | )    |  |   | (14,154 | )
|                         |  |      |        |      |  |   |         |  
|                         |  | $    | 23,796 |      |  | $ | 31,681  |  
|                         |  |      |        |      |  |   |         |  

F-15



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6. Goodwill and Other Amortizable
Intangible Assets

Amortizable intangible assets consist of the
following at June 30 (in thousands):

|                         |  |                |        |              |  |                |       |              |  |   |        |  |  |   |       | 
|------------------------ |  | -------------- | ------ | ------------ |  | -------------- | ----- | ------------ |  | - | ------ |  |  | - | ----- | 
|                         |  |                |        |             
|                         |  | 2002           |        | 2003        
|                         |  |                |        |             
|                         |  | Gross Carrying |        | Accumulated  |  | Gross Carrying |       | Accumulated 
|                         |  | Amount         |        | Amortization |  | Amount         |       | Amortization
|                         |  |                |        |              |  |                |       |             
|Patient relationships    |  | $              | 19,072 |              |  | $              | 2,333 |              |  | $ | 19,072 |  |  | $ | 5,872 | 
|Non-compete agreements   |  |                | 5,900  |              |  |                | 1,126 |              |  |   | 5,900  |  |  |   | 2,139 | 
|Deferred financing costs |  |                | 7,211  |              |  |                | 456   |              |  |   | 7,818  |  |  |   | 1,976 | 
|                         |  |                |        |              |  |                |       |              |  |   |        |  |  |   |       | 
|                         |  | $              | 32,183 |              |  | $              | 3,915 |              |  | $ | 32,790 |  |  | $ | 9,987 | 
|                         |  |                |        |              |  |                |       |              |  |   |        |  |  |   |       | 

Amortization of deferred financing costs has been
included in interest expense.

Estimated amortization expense consists of the
following for the years ending June 30 (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 4,543 | 
|2005 |  |   | 4,147 | 
|2006 |  |   | 4,022 | 
|2007 |  |   | 3,588 | 
|2008 |  |   | 350   | 

The change in the carrying amount of goodwill
consists of the following (in thousands):

|                                  |  |   |         | 
|--------------------------------- |  | - | ------- | 
|Balance as of June 30, 2001       |  | $ | 89,499  | 
|Goodwill acquired during the year |  |   | 245,420 | 
|                                  |  |   |         | 
|Balance as of June 30, 2002       |  |   | 334,919 | 
|Goodwill acquired during the year |  |   | 17,590  | 
|                                  |  |   |         | 
|Balance as of June 30, 2003       |  | $ | 352,509 | 
|                                  |  |   |         | 

On July 1, 2001, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets.The
Company is providing transitional, pro-forma disclosure in the
table below for net income and earnings per share for the
comparative periods as if SFAS No. 142 had been adopted in
those periods (in thousands, except share data).

|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |     | 
|--------------------------------------------------------- | --------------------------------------------------------- | ---- | ------ | ---- |  | ---- | ------ | --- |  | - | ------ | --- | 
|                                                          |                                                           | 2001 |        | 2002 |  | 2003
|                                                          |                                                           |      |        |      |  |     
|Reported net income                                       |                                                           | $    | 17,255 |      |  | $    | 29,760 |     |  | $ | 29,535 |    
|Add goodwill amortization expense, net of
    tax benefit |                                                           |      | 1,500  |      |  |      |       |     |  |   |       |    
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    
|Adjusted net income                                       |                                                           | $    | 18,755 |      |  | $    | 29,760 |     |  | $ | 29,535 |    
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    
|Basic earnings per share:                                 |                                                           |      |        |      |  |      |        |     |  |   |        |    
|                                                          | Reported net income                                       |      | $      | .46  |  |      | $      | .75 |  |   | $      | .62 | 
|                                                          | Add goodwill amortization expense, net of
    tax benefit |      |        | .04  |  |      |        |    |  |   |        |    | 
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    
|                                                          | Adjusted net income                                       |      | $      | .50  |  |      | $      | .75 |  |   | $      | .62 | 
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    
|Diluted earnings per share:                               |                                                           |      |        |      |  |      |        |     |  |   |        |    
|                                                          | Reported net income                                       |      | $      | .44  |  |      | $      | .73 |  |   | $      | .61 | 
|                                                          | Add goodwill amortization expense, net of
    tax benefit |      |        | .04  |  |      |        |    |  |   |        |    | 
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    
|                                                          | Adjusted net income                                       |      | $      | .48  |  |      | $      | .73 |  |   | $      | .61 | 
|                                                          |                                                           |      |        |      |  |      |        |     |  |   |        |    

F-16



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7. Long-Term Debt

Long-term debt consists of the following at
June 30 (in thousands):

|                                 |  |      |         |      |  |   |         | 
|-------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                 |  | 2002 |         | 2003
|                                 |  |      |         |     
|Revolving credit facility        |  | $    | 30,000  |      |  | $ |        | 
|Tranche A Term Loan              |  |      | 75,000  |      |  |   | 71,250  | 
|Tranche B Term Loan              |  |      | 125,000 |      |  |   | 123,438 | 
|                                 |  |      |         |      |  |   |         | 
|                                 |  |      | 230,000 |      |  |   | 194,688 | 
|Less amounts due within one year |  |      | 5,312   |      |  |   | 16,250  | 
|                                 |  |      |         |      |  |   |         | 
|                                 |  | $    | 224,688 |      |  | $ | 178,438 | 
|                                 |  |      |         |      |  |   |         | 

On June 13, 2002, the Company amended and
restated its credit agreement 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 expiring 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.
Amounts outstanding under the credit agreement bear interest at
varying rates based upon a LIBOR or prime rate of interest at
the periodic election of the Company, plus a variable margin
rate based on the Companys leverage ratio as defined by
the credit agreement. The combination of a variable rate margin
and LIBOR base rate resulted in an effective borrowing rate of
4.36% and 3.67% at June 30, 2002 and 2003, respectively.
The credit facility is secured by substantially all assets of
the Company, 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 the Companys inventory is subordinate to the
liens on that inventory under the terms of a security agreement
between the Company and one of its vendors. The same vendor has
a security interest in certain accounts receivable of the
Company, which is subordinate to the rights of the Lenders. At
June 30, 2003 and 2002, the balances outstanding under the
credit facility were $194,687,500 and $230,000,000, respectively.

The credit agreement contains financial
covenants, which require the Company to maintain certain ratios
with respect to leverage, fixed charge coverage, net worth, and
asset coverage, as defined in the 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 relating to changes in
control of the Company.

The credit agreement required the Company 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, the Company 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, the Company 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, the Company 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

F-17



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. The Company
paid fees of $607,000 in connection with this amendment which
have been capitalized in deferred financing costs.

The Company entered into an interest rate swap
agreement with a bank in October 1997 in order to fix a portion
of its interest rate exposure on a line of credit. The terms of
the agreement were revised and extended on January 21,
1999, and required the Company to pay a fixed interest rate of
5.5% on a $25 million notional amount and receive the 30-day
LIBOR rate in exchange. On August 21, 2000, the Company
surrendered the swap agreement and received $350,000 in
consideration for the early termination of the agreement.

Principal maturities of long-term debt consist of
the following for the years ending June 30 (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 16,250  | 
|2005       |  |   | 18,125  | 
|2006       |  |   | 23,750  | 
|2007       |  |   | 32,656  | 
|2008       |  |   | 59,375  | 
|After 2008 |  |   | 44,532  | 
|           |  |   |         | 
|           |  | $ | 194,688 | 
|           |  |   |         | 

8. Income Taxes

The liability method is used in accounting for
income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Income tax expense (benefit) consists of the
following for the years ended June 30 (in thousands):

|          |         |      |        |        |   |      |        |        |  |   |        |        |  
|--------- | ------- | ---- | ------ | ------ | - | ---- | ------ | ------ |  | - | ------ | ------ | -
|          |         | 2001 |        | 2002   |   | 2003
|          |         |      |        |        |   |     
|Current:  |         |      |        |        |   |      |        |        |  |   |        |       
|          | Federal |      | $      | 10,574 |   |      | $      | 15,434 |  |   | $      | 22,115 |  
|          | State   |      |        | 1,631  |   |      |        | 2,642  |  |   |        | 4,335  |  
|          |         |      |        |        |   |      |        |        |  |   |        |       
|          |         |      | 12,205 |        |   |      | 18,076 |        |  |   | 26,450 |       
|Deferred: |         |      |        |        |   |      |        |        |  |   |        |       
|          | Federal |      |        | (769   | ) |      |        | 764    |  |   |        | (6,705 | )
|          | State   |      |        | (103   | ) |      |        | 185    |  |   |        | (1,493 | )
|          |         |      |        |        |   |      |        |        |  |   |        |       
|          |         |      | (872   | )      |   |      | 949    |        |  |   | (8,198 | )     
|          |         |      |        |        |   |      |        |        |  |   |        |       
|          |         | $    | 11,333 |        |   | $    | 19,025 |        |  | $ | 18,252 |       
|          |         |      |        |        |   |      |        |        |  |   |        |       

F-18



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes differed from the
amount computed by applying the statutory federal income tax
rates for the years ended June 30 due to the following (in
thousands):

|                                                                |  |      |        |      |  |      |        |  |  |   |        |  
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                                |  | 2001 |        | 2002 |  | 2003
|                                                                |  |      |        |      |  |     
|Income tax expense at statutory rate                            |  | $    | 10,006 |      |  | $    | 17,075 |  |  | $ | 16,725 |  
|State income tax expense, net of federal income
    tax benefit |  |      | 992    |      |  |      | 1,838  |  |  |   | 1,847  |  
|Goodwill amortization                                           |  |      | 276    |      |  |      | 19     |  |  |   | 18     |  
|Other                                                           |  |      | 59     |      |  |      | 93     |  |  |   | (338   | )
|                                                                |  |      |        |      |  |      |        |  |  |   |        |  
|Income tax expense                                              |  | $    | 11,333 |      |  | $    | 19,025 |  |  | $ | 18,252 |  
|                                                                |  |      |        |      |  |      |        |  |  |   |        |  

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities at
June 30 are as follows (in thousands):

|                          |                              |      |        |        |   |   |         |         |  
|------------------------- | ---------------------------- | ---- | ------ | ------ | - | - | ------- | ------- | -
|                          |                              | 2002 |        | 2003  
|                          |                              |      |        |       
|Deferred tax assets:      |                              |      |        |        |   |   |         |        
|                          | Accounts receivable reserves |      | $      | 4,878  |   |   | $       | 22,829  |  
|                          | Accrued expenses             |      |        | 752    |   |   |         | 1,375   |  
|                          | Joint venture investments    |      |        | 122    |   |   |         | 125     |  
|                          | Other                        |      |        | 202    |   |   |         | 250     |  
|                          |                              |      |        |        |   |   |         |        
|                          |                              |      | 5,954  |        |   |   | 24,579  |        
|Deferred tax liabilities: |                              |      |        |        |   |   |         |        
|                          | Property and equipment       |      |        | (318   | ) |   |         | (3,543  | )
|                          | Intangible assets            |      |        | (3,736 | ) |   |         | (11,027 | )
|                          | Joint venture investments    |      |        | (329   | ) |   |         | (240    | )
|                          |                              |      |        |        |   |   |         |        
|                          |                              |      | (4,383 | )      |   |   | (14,810 | )      
|                          |                              |      |        |        |   |   |         |        
|Net deferred tax assets   |                              | $    | 1,571  |        |   | $ | 9,769   |        
|                          |                              |      |        |        |   |   |         |        

Management has evaluated the need for a valuation
allowance for the deferred tax assets and believes that no
valuation allowance is necessary because it is more likely than
not that the assets will ultimately be realized through future
taxable income from operations.

9. Commitments

The Company leases office space and equipment
under various operating leases. Rent expense for all operating
leases was approximately $1,575,000, $2,838,000 and $7,774,000
for the years ended June 30, 2001, 2002 and 2003,
respectively.

F-19



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum payments, by year and in the
aggregate, under non-cancelable operating leases with initial
terms of one year or more consist of the following at
June 30, 2003 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2004       |  | $ | 7,145  | 
|2005       |  |   | 6,256  | 
|2006       |  |   | 3,625  | 
|2007       |  |   | 2,047  | 
|2008       |  |   | 654    | 
|Thereafter |  |   | 16     | 
|           |  |   |        | 
|           |  | $ | 19,743 | 
|           |  |   |        | 

10. Investment in Joint
Ventures

Texas Health Pharmaceutical Resources, Teddy Bear
Home Care/ Drug Therapies, Childrens Home Services, Childrens
Biotech Pharmacy Services and Childrens National Hemophilia Care
are partnerships in which the Company has a 50% ownership
interest. The Company uses the equity method of accounting for
these joint ventures. Amounts due to and from these joint
ventures are classified as due to and from affiliates in the
accompanying consolidated balance sheets. The portion of the
Companys retained earnings at June 30, 2002 and 2003
attributable to undistributed earnings of these joint ventures
is $3,916,000 and $5,187,000, respectively.

On August 15, 2000, the Company entered into
a joint venture agreement with Childrens Hospital in
Washington, DC, to market, sell, provide and distribute
hemophilia clotting factor and related services and supplies.
The term of the joint venture is for a period of five years
unless terminated at an earlier date pursuant to the terms of
the agreement. Both companies contributed $50,000 in capital to
the joint venture and will share equally in the assets,
liabilities, profits and losses. In conjunction with the
formation of this joint venture, the Company also entered into a
management, service and sales agreement with the joint venture,
whereby the Company will provide specialty pharmacy and
management services to the joint venture in exchange for a
management fee and the reimbursement of certain expenses.

The Company received fees for management services
from the joint ventures of $1,193,000, $1,184,000 and $1,289,000
for the years ended June 30, 2001, 2002 and 2003,
respectively, which are recorded as other revenues in the
accompanying consolidated statements of income.

Summary financial information for affiliated
joint ventures (20 percent to 50 percent owned) accounted
for by the equity method is as follows as of and for the years
ended June 30 (in thousands):

|                                             |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                             |  | 2001 |        | 2002 |  | 2003
|                                             |  |      |        |      |  |     
|Current assets                               |  | $    | 8,753  |      |  | $    | 12,394 |  |  | $ | 14,625 | 
|Property and equipment, net and other assets |  |      | 69     |      |  |      | 55     |  |  |   | 26     | 
|Current liabilities                          |  |      | 4,114  |      |  |      | 4,090  |  |  |   | 3,568  | 
|Total revenues                               |  |      | 23,359 |      |  |      | 26,963 |  |  |   | 33,173 | 
|Net income                                   |  |      | 2,315  |      |  |      | 4,131  |  |  |   | 3,893  | 

11. Defined Contribution Retirement
Plan

The Company sponsors a qualified, defined
contribution retirement plan under Section 401(k) of the
Internal Revenue Code in which substantially all employees
qualify for participation. The Company matches employee
contributions, as defined in the plan. The Company made annual
matching contributions of

F-20



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approximately $189,000, $234,000 and $708,000 for
the years ended June 30, 2001, 2002 and 2003, respectively.

12. Stockholders Equity

Common Stock

On August 17, 2000, the Company completed a
stock offering of 5,400,000 shares of its common stock. An
additional 810,000 shares of common stock were sold on
September 12, 2000 pursuant to the exercise of the
underwriters over-allotment option. All shares were issued
at a price of $15.11 per share. Net proceeds to the Company,
after deducting underwriting discounts and commissions and other
expenses of the offering, were $88.3 million.

In fiscal 2001 and 2003, the Company effected
stock splits in the form of a stock dividend. All share and per
share data in the consolidated financial statements and the
notes hereto have been retroactively adjusted for the splits.

On June 13, 2002, the Company issued
7,591,464 shares of its common stock to the shareholders of
Gentiva in connection with the acquisition of the SPS division.

Preferred Stock

In April 1999, the Companys Board of
Directors and Stockholders authorized the establishment of a new
class of undesignated preferred stock.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes the
change in fair value of the interest rate swap that qualifies
for hedge accounting. Comprehensive income is as follows for the
years ended June 30 (in thousands):

|                                                              |  |      |        |      |  |      |        |  |  |   |        |  
|------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                              |  | 2001 |        | 2002 |  | 2003
|                                                              |  |      |        |      |  |     
|Reported net income                                           |  | $    | 17,255 |      |  | $    | 29,760 |  |  | $ | 29,535 |  
|Unrealized loss on interest rate swap, net of
    tax benefit |  |      |       |      |  |      |       |  |  |   | (68    | )
|                                                              |  |      |        |      |  |      |        |  |  |   |        |  
|Comprehensive income                                          |  | $    | 17,255 |      |  | $    | 29,760 |  |  | $ | 29,467 |  
|                                                              |  |      |        |      |  |      |        |  |  |   |        |  

Stockholder Protection Rights
Agreement

In April 2003, the Company adopted a stockholder
protection rights agreement (Rights Plan) and issued
Rights in connection with the Rights Plan in the event of a
proposed takeover of the Company. The Rights Plan is not
intended to prevent transactions that provide full and fair
value to stockholders. It is intended to discourage abusive
takeover tactics and to provide time for the Companys
Board of Directors to review and evaluate what is in the best
interests of the stockholders.

The Rights Plan provided that a dividend of one
share purchase Right be issued for each outstanding share of
common stock to stockholders of record as of the close of
business on April 28, 2003. Generally, the Rights are
exercisable only if a group (other than certain existing
shareholders) acquires 15% or more of the Companys common
stock or announces a tender offer upon consummation of which,
such person or group would beneficially own 15% or more of the
Companys common stock. Each Right entitles stockholders to
buy one ten-thousandth of a share of a new share of junior
participating preferred stock at an exercise price of $100.

F-21



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If the Rights become exercisable, a Rights holder
(other than the person or group acquiring 15% or more) will be
entitled to purchase, at the Rights then-current price, a
number of shares of the Companys common stock having a
market value of twice such price. If after a person has acquired
15% or more of the Companys common stock, such person
acquires the Company, each Right will entitle its holder to
purchase, at the Rights then-current exercise price, a
number of shares of the acquiring companys common stock
having a market value of twice such price. Following the
acquisition of 15% or more of the Companys common stock,
but less than 50% by any person or group, the Board of Directors
may exchange the Rights (other than Rights owned by such person
or group) at an exchange ratio of one share of the
Companys common stock for each Right.

13. Employee Stock Purchase
Plan

In April 1999, the Companys Board of
Directors adopted and the stockholders approved the Accredo
Health, Incorporated 1999 Employee Stock Purchase Plan
(ESPP). Under the ESPP, employees may purchase
shares of common stock at 85% of market price on the first day
of an offering period (usually consisting of a six-month period
beginning January 1 or July 1) or the last day of an offering
period, whichever is lower. The shares are purchased at the end
of each period with funds withheld from employees pay
during the period. A total of 455,625 shares of the
Companys common stock have been reserved for issuance
under the ESPP. Participation in the ESPP commenced on the
effective date of the Companys initial public offering in
April 1999. There were 43,082, 43,328 and 82,746 shares of
common stock issued during the years ended June 30, 2001,
2002 and 2003, respectively, pursuant to the ESPP.

14. Stock Option Plans

The Companys Amended and Restated Stock
Option and Restricted Stock Purchase Plan authorizes the grant
of options to selected employees, officers and directors for up
to 3,256,875 shares of the Companys common stock. As of
June 30, 2003, options to purchase 3,251,687 shares of stock
have been granted under this plan. All options granted have
ten-year terms and generally vest and become fully exercisable
over a period of four years of continued employment.

The Companys 1999 Long-Term Incentive Plan
authorizes the grant of options to selected employees, officers
and directors for up to 1,687,500 shares of the Companys
common stock. As of June 30, 2003, options to purchase
1,574,069 shares of common stock have been granted under this
plan under terms similar to those discussed above. All options
granted have ten-year terms and generally vest and become fully
exercisable over a period of four years of continued employment.

The Companys 2002 Long-Term Incentive Plan
authorizes the grant of options to selected employees, officers
and directors for up to 3,900,000 shares of the Companys
common stock. As of June 30, 2003, options to purchase
2,280,157 shares of stock have been granted under this plan. All
options granted have ten-year terms and generally vest and
become fully exercisable over a period of four years of
continued employment.

Pro forma information regarding net income is
required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of SFAS No. 123. Significant assumptions
used by the Company in the Black-Scholes option pricing model
computations are as follows for the years ended June 30:

|                               |  |      |                |      |  |      |                |  |  |  |                | 
|------------------------------ |  | ---- | -------------- | ---- |  | ---- | -------------- |  |  |  | -------------- | 
|                               |  | 2001 |                | 2002 |  | 2003
|                               |  |      |                |      |  |     
|Risk-free interest rate        |  |      | 4.57% to 6.14% |      |  |      | 3.56% to 4.41% |  |  |  | 1.89% to 3.15% | 
|Dividend yield                 |  |      | 0%             |      |  |      | 0%             |  |  |  | 0%             | 
|Volatility factor              |  |      | .70            |      |  |      | .65            |  |  |  | .66            | 
|Weighted-average expected life |  |      | 4.0 years      |      |  |      | 4.0 years      |  |  |  | 4.0 years      | 
|Estimated turnover             |  |      | 0%             |      |  |      | 8%             |  |  |  | 8%             | 

F-22



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 years ended June 30 is as follows (in
thousands, except share data):

|                                                                                                                              |                       |      |        |      |  |      |        |      |  |   |         |      | 
|----------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------- | ---- | 
|                                                                                                                              |                       | 2001 |        | 2002 |  | 2003
|                                                                                                                              |                       |      |        |      |  |     
|Net income, as reported                                                                                                       |                       | $    | 17,255 |      |  | $    | 29,760 |      |  | $ | 29,535  |     
|Less stock-based employee compensation cost, net
    of related tax effects, applying the fair value method to all
    awards |                       |      | (2,381 | )    |  |      | (3,860 | )    |  |   | (10,949 | )   
|                                                                                                                              |                       |      |        |      |  |      |        |      |  |   |         |     
|Pro forma net income                                                                                                          |                       | $    | 14,874 |      |  | $    | 25,900 |      |  | $ | 18,586  |     
|                                                                                                                              |                       |      |        |      |  |      |        |      |  |   |         |     
|Earnings per share:                                                                                                           |                       |      |        |      |  |      |        |      |  |   |         |     
|                                                                                                                              | Basic  as reported   |      | $      | 0.46 |  |      | $      | 0.75 |  |   | $       | 0.62 | 
|                                                                                                                              | Basic  pro forma     |      | $      | 0.40 |  |      | $      | 0.65 |  |   | $       | 0.39 | 
|                                                                                                                              | Diluted  as reported |      | $      | 0.44 |  |      | $      | 0.73 |  |   | $       | 0.61 | 
|                                                                                                                              | Diluted  pro forma   |      | $      | 0.38 |  |      | $      | 0.64 |  |   | $       | 0.39 | 

A summary of the Companys stock option
activity and related information for the years ended
June 30 is as follows:

|                                                                   |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ------- | --------- | --------- |  | ------- | ----- | --------- |  | ------- | --------- | --------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                                   |  |         |           |           |  |        
|                                                                   |  | 2001    |           | 2002      |  | 2003   
|                                                                   |  |         |           |           |  |        
|                                                                   |  |         |           | Weighted- |  |         |       | Weighted- |  |         |           | Weighted-
|                                                                   |  |         |           | Average   |  |         |       | Average   |  |         |           | Average  
|                                                                   |  |         |           | Exercise  |  |         |       | Exercise  |  |         |           | Exercise 
|                                                                   |  | Options |           | Price     |  | Options |       | Price     |  | Options |           | Price    
|                                                                   |  |         |           |           |  |         |       |           |  |         |           |          
|Outstanding at beginning of year                                   |  |         | 2,672,030 |           |  | $       | 2.65  |           |  |         | 2,695,772 |           |  | $ | 9.02  |  |  |   | 4,486,022 |   |  | $ | 20.18 | 
|Granted                                                            |  |         | 1,119,590 |           |  |         | 18.73 |           |  |         | 2,281,614 |           |  |   | 30.54 |  |  |   | 677,150   |   |  |   | 30.81 | 
|Exercised                                                          |  |         | (937,601  | )         |  |         | 2.60  |           |  |         | (427,423  | )         |  |   | 5.15  |  |  |   | (762,616  | ) |  |   | 7.90  | 
|Forfeited                                                          |  |         | (158,247  | )         |  |         | 8.20  |           |  |         | (63,941   | )         |  |   | 19.97 |  |  |   | (376,824  | ) |  |   | 29.90 | 
|                                                                   |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Outstanding at end of year                                         |  |         | 2,695,772 |           |  | $       | 9.02  |           |  |         | 4,486,022 |           |  | $ | 20.18 |  |  |   | 4,023,732 |   |  | $ | 23.38 | 
|                                                                   |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Exercisable at end of year                                         |  |         | 1,459,544 |           |  | $       | 3.04  |           |  |         | 1,585,907 |           |  | $ | 6.95  |  |  |   | 1,707,472 |   |  | $ | 16.60 | 
|                                                                   |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Weighted-average fair value of options granted
    during the year |  | $       | 10.69     |           |  |         |       |           |  | $       | 15.96     |           |  |   |       |  |  | $ | 15.54     |   |  |   |       | 
|                                                                   |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 

F-23



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                 |               |                     |  |                     |           |           |  |               |           |           |  |   |       |  |  |  |           |  |  |   |       | 
|---------------- | ------------- | ------------------- |  | ------------------- | --------- | --------- |  | ------------- | --------- | --------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |               |                     |  |                    
|                 |               | Options Outstanding |  | Options Exercisable
|                 |               |                     |  |                    
|                 |               |                     |  | Weighted-           |           |           |  |              
|                 |               |                     |  | Average             |           | Weighted- |  |               |           | Weighted-
|Range of         |               | Number              |  | Remaining           |           | Average   |  | Number        |           | Average  
|Exercise prices  |               | Outstanding         |  | Contractual         |           | Exercise  |  | Exercisable   |           | Exercise 
|(150% increment) |               | June 30, 2003       |  | Life                |           | Price     |  | June 30, 2003 |           | Price    
|                 |               |                     |  |                     |           |           |  |               |           |          
|$                | 0.89   0.89  |                     |  |                     | 417,313   |           |  |               | 3.0 years |           |  | $ | 0.89  |  |  |  | 417,313   |  |  | $ | 0.89  | 
|                 | 1.78   1.78  |                     |  |                     | 171,051   |           |  |               | 4.6 years |           |  |   | 1.78  |  |  |  | 171,051   |  |  |   | 1.78  | 
|                 | 4.74   4.74  |                     |  |                     | 5,786     |           |  |               | 5.8 years |           |  |   | 4.74  |  |  |  | 5,786     |  |  |   | 4.74  | 
|                 | 8.59   8.70  |                     |  |                     | 117,135   |           |  |               | 6.4 years |           |  |   | 8.60  |  |  |  | 94,592    |  |  |   | 8.59  | 
|                 | 12.99  18.81 |                     |  |                     | 787,134   |           |  |               | 7.4 years |           |  |   | 18.39 |  |  |  | 365,567   |  |  |   | 18.50 | 
|                 | 20.03  29.25 |                     |  |                     | 321,555   |           |  |               | 8.7 years |           |  |   | 22.83 |  |  |  | 86,640    |  |  |   | 23.00 | 
|                 | 31.22  37.05 |                     |  |                     | 2,203,758 |           |  |               | 9.0 years |           |  |   | 32.02 |  |  |  | 566,523   |  |  |   | 31.89 | 
|                 |               |                     |  |                     |           |           |  |               |           |           |  |   |       |  |  |  |           |  |  |   |       | 
|$                | 0.89  37.05  |                     |  |                     | 4,023,732 |           |  |               | 7.8 years |           |  | $ | 23.38 |  |  |  | 1,707,472 |  |  | $ | 16.60 | 
|                 |               |                     |  |                     |           |           |  |               |           |           |  |   |       |  |  |  |           |  |  |   |       | 

15. 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 and in one case John
R. Grow, 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.

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.

F-24



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16. Quarterly Financial Information
(Unaudited)

Quarterly financial information for the years
ended June 30, 2002 and 2003, is summarized below (in
thousands, except share data):

|                                    |         |               |         |                |  |               |         |             |  |               |         |             |  |   |         |      |  |   |         |       |   |   |         |       |   |   |         |      | 
|----------------------------------- | ------- | ------------- | ------- | -------------- |  | ------------- | ------- | ----------- |  | ------------- | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ---- | 
|                                    |         |              
|                                    |         | 2003         
|                                    |         |              
|                                    |         |               |         |                |  |               |         | Fourth     
|                                    |         | First Quarter |         | Second Quarter |  | Third Quarter |         | Quarter    
|                                    |         |               |         |                |  |               |         |            
|                                    |         | As Previously |         |                |  | As Previously |         |             |  | As Previously |         |             |  |  
|                                    |         | Reported      |         | As Restated    |  | Reported      |         | As Restated |  | Reported      |         | As Restated |  |  
|                                    |         |               |         |                |  |               |         |             |  |               |         |             |  |  
|Total revenues                      |         | $             | 321,765 |                |  | $             | 316,661 |             |  | $             | 364,402 |             |  | $ | 369,506 |      |  | $ | 366,569 |       |   | $ | 358,113 |       |   | $ | 329,056 |     
|Operating income (loss)             |         |               | 25,877  |                |  |               | 25,427  |             |  |               | 30,391  |             |  |   | 31,582  |      |  |   | (26,787 | )     |   |   | (27,997 | )     |   |   | 30,383  |     
|Income (loss) before income taxes   |         |               | 23,318  |                |  |               | 22,497  |             |  |               | 27,877  |             |  |   | 28,698  |      |  |   | (29,308 | )     |   |   | (30,851 | )     |   |   | 27,443  |     
|Net income (loss)                   |         |               | 13,970  |                |  |               | 13,463  |             |  |               | 17,049  |             |  |   | 17,556  |      |  |   | (17,769 | )     |   |   | (18,723 | )     |   |   | 17,239  |     
|Net income (loss) per common share: |         |               |         |                |  |               |         |             |  |               |         |             |  |   |         |      |  |   |         |       |   |   |         |       |   |   |         |     
|                                    | Basic   |               |         | 0.30           |  |               |         | 0.29        |  |               |         | 0.36        |  |   |         | 0.37 |  |   |         | (0.37 | ) |   |         | (0.39 | ) |   |         | 0.36 | 
|                                    | Diluted |               |         | 0.29           |  |               |         | 0.28        |  |               |         | 0.35        |  |   |         | 0.36 |  |   |         | (0.37 | ) |   |         | (0.39 | ) |   |         | 0.36 | 

|                             |         |         |         |         |  |         |         |         |  |   |         |      |  |   |         |      | 
|---------------------------- | ------- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                             |         |        
|                             |         | 2002   
|                             |         |        
|                             |         | First   |         | Second  |  | Third   |         | Fourth 
|                             |         | Quarter |         | Quarter |  | Quarter |         | Quarter
|                             |         |         |         |         |  |         |         |        
|Total revenues               |         | $       | 126,648 |         |  | $       | 160,186 |         |  | $ | 178,497 |      |  | $ | 188,242 |     
|Operating income             |         |         | 9,409   |         |  |         | 11,833  |         |  |   | 14,974  |      |  |   | 13,483  |     
|Income before income taxes   |         |         | 9,604   |         |  |         | 11,805  |         |  |   | 14,679  |      |  |   | 12,697  |     
|Net income                   |         |         | 5,877   |         |  |         | 7,217   |         |  |   | 8,988   |      |  |   | 7,678   |     
|Net income per common share: |         |         |         |         |  |         |         |         |  |   |         |      |  |   |         |     
|                             | Basic   |         |         | 0.15    |  |         |         | 0.18    |  |   |         | 0.23 |  |   |         | 0.19 | 
|                             | Diluted |         |         | 0.15    |  |         |         | 0.18    |  |   |         | 0.22 |  |   |         | 0.18 | 

The financial data for the first, second and
third quarters of fiscal 2003 have been restated from those
reported in the Companys Quarterly Reports on Forms 10-Q
due to a change in the timing of the 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 change was not material to the
financial position or results of operations for the four
quarters included in and for the years ended June 30, 2001
and 2002 because those periods ended on a day in which shipments
were immaterial.

F-25



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(IN THOUSANDS)

|                          |                                 |                     |   |            |  |            |   |            |  |            |   |        |     |  |   |        |     |  |   |         | 
|------------------------- | ------------------------------- | ------------------- | - | ---------- |  | ---------- | - | ---------- |  | ---------- | - | ------ | --- |  | - | ------ | --- |  | - | ------- | 
|                          |                                 |                     |   |            |  |            |   |           
|Col. A                    |                                 | Col. B              |   | Col. C     |  | Col. D     |   | Col. E    
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   | Additions  |  |            |   |           
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   | Charged to |  |            |   |            |  |           
|                          |                                 |                     |   | Costs      |  | Charged to |   |            |  | Balance at
|                          |                                 | Balance at          |   | and        |  | Other      |   |            |  | End of    
|Description               |                                 | Beginning of Period |   | Expenses   |  | Accounts   |   | Deductions |  | Period    
|                          |                                 |                     |   |            |  |            |   |            |  |           
|Year ended June 30, 2001: |                                 |                     |   |            |  |            |   |            |  |            |   |        |     |  |   |        |     |  |   |        
|                          | Allowance for doubtful accounts |                     | $ | 8,395      |  |            | $ | 6,131      |  |            | $ |       |     |  | $ | 3,718  | (2) |  | $ | 10,808  | 
|Year ended June 30, 2002: |                                 |                     |   |            |  |            |   |            |  |            |   |        |     |  |   |        |     |  |   |        
|                          | Allowance for doubtful accounts |                     |   | 10,808     |  |            |   | 5,833      |  |            |   | 69,412 | (1) |  |   | 4,295  | (2) |  |   | 81,758  | 
|Year ended June 30, 2003: |                                 |                     |   |            |  |            |   |            |  |            |   |        |     |  |   |        |     |  |   |        
|                          | Allowance for doubtful accounts |                     |   | 81,758     |  |            |   | 87,418     |  |            |   |        |     |  |   | 42,635 | (2) |  |   | 126,541 | 



---



|    |                                                                  
|--- | -----------------------------------------------------------------
|(1) | Allowance as a result of the SPS and BioPartners
    acquisitions
|   
|(2) | Uncollectible accounts written off, net of
    recoveries        

F-26



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized in the
City of Memphis, State of Tennessee, on the 29th day of
September, 2003.



| |                             
| | ----------------------------
| | ACCREDO HEALTH, INCORPORATED



| |     |                     
| | --- | --------------------
| | By: | /s/ DAVID D. STEVENS

| |                          
| | -------------------------
| |                          
| | David D. Stevens         
| | Chairman of the Board and
| | Chief Executive Officer  





---



##### Table of Contents



KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints David D.
Stevens, John R. Grow and Joel R. Kimbrough and either of them
(with full power in each to act alone) as true and lawful
attorneys-in-fact with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has
been signed by the following persons in the capacities and on
the dates indicated.

|                                             |  |                                                                 |  |                   
|-------------------------------------------- |  | --------------------------------------------------------------- |  | ------------------
|                                            
|/s/ DAVID D. STEVENSDavid D. Stevens         |  | Chairman of the Board, Chief
    Executive Officer and Director |  | September 29, 2003
|                                             |  | (Principal Executive Officer)                                   |  |                   
|                                            
|/s/ JOEL R. KIMBROUGHJoel R. Kimbrough       |  | Senior Vice President, Chief
    Financial Officer Treasurer    |  | September 29, 2003
|                                             |  | (Principal Financial and                                        |  |                   
|                                             |  | Accounting Officer)                                             |  |                   
|                                            
|/s/ JOHN R. GROWJohn R. Grow                 |  | President and Director                                          |  | September 29, 2003
|                                            
|/s/ KYLE J. CALLAHANKyle J. Callahan         |  | Sr. Vice President and Director                                 |  | September 29, 2003
|                                            
|/s/ KENNETH R. MASTERSONKenneth R. Masterson |  | Director                                                        |  | September 29, 2003
|                                            
|/s/ KENNETH J. MELKUSKenneth J. Melkus       |  | Director                                                        |  | September 29, 2003
|                                            
|/s/ KEVIN L. ROBERGKevin L. Roberg           |  | Director                                                        |  | September 29, 2003
|                                            
|/s/ DICK R. GOURLEYDick R. Gourley           |  | Director                                                        |  | September 29, 2003
|                                            
|/s/ NANCY-ANN DEPARLENancy-Ann DeParle       |  | Director                                                        |  | September 29, 2003



---



##### Table of Contents



EXHIBIT INDEX

|        |      |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                               
|------- | ---- |  |  | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |                        
|Number  |      |  |  | Description of Exhibits
|        |      |  |  |                        
|        | 2.1  |  |  |                        |  | Asset Purchase Agreement, dated as of January 2,
    2002, by and between Accredo Health, Incorporated, Gentiva
    Health Services, Inc. and the Sellers named therein
    (incorporated by reference to Annex A of the joint proxy
    statement-prospectus included in our Registration Statement on
    Form S-4 (File Number 333-82396)).
|        | 3.1  |  |  |                        |  | Amended and Restated Certificate of Incorporation
    of Accredo Health, Incorporated (incorporated by reference to
    Exhibit 3.1 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                   
|        | 3.2  |  |  |                        |  | Certificate of Amendment of the Certificate of
    Incorporation of Accredo Health, Incorporated (incorporated by
    reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q
    for the fiscal quarter ended December 31, 2000).                                                                                                      
|        | 3.3  |  |  |                        |  | Certificate of Amendment of the Certificate of
    Incorporation of Accredo Health, Incorporated (incorporated by
    reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q
    for the fiscal quarter ended September 30, 2002).                                                                                                     
|        | 3.4  |  |  |                        |  | Amended and Restated Bylaws of Accredo Health,
    Incorporated (incorporated by reference to Exhibit 3.2 to our
    Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                             
|        | 3.5  |  |  |                        |  | Certificate of Designation, Preferences and
    Rights of Series A Junior Participating Preferred Stock of the
    Company (incorporated by reference to Exhibit 3.1 to our
    Quarterly Report on Form 10-Q for the fiscal quarter ended March
    31, 2003).                                                                               
|        | 4.1  |  |  |                        |  | Form of Common Stock Certificate (incorporated by
    reference to Exhibit 4.1 to our Registration Statement on Form
    S-1 (File Number 333-62679)).                                                                                                                                                                                        
|        | 4.2  |  |  |                        |  | Stockholder Protection Rights Agreement, dated
    April 17, 2003, between the Company and American Stock Transfer
    & Trust Company, As Rights Agent (incorporated by reference
    to Exhibit 4.1 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended March 31, 2003).                                                  
|        | 10.1 |  |  |                        |  | Accredo Health 1999 Long-Term Incentive Plan
    (incorporated by reference to Exhibit 10.6 to our Registration
    Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                           
|        | 10.2 |  |  |                        |  | Accredo Health, Incorporated 2002 Long-Term
    Incentive Plan (incorporated by reference to Annex E of the
    joint proxy statement-prospectus included in our Registration
    Statement on Form S-4 (File Number 333-82396)).                                                                                                             
|        | 10.3 |  |  |                        |  | Accredo Health 1999 Employee Stock Purchase
    Plan(incorporated by reference to Exhibit 10.7 to our
    Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                        
|        | 10.4 |  |  |                        |  | Nova Holdings, Inc. and its Subsidiaries Stock
    Option and Restricted Purchase Plan, as amended and restated
    (incorporated by reference to Exhibit 10.8 to our Registration
    Statement on Form S-1 (File Number 333-62679)).                                                                                                        
|        | 10.5 |  |  |                        |  | Registration Rights Agreement dated May 31, 1996
    among the Company, Welsh, Carson, Anderson & Stowe VII, L.P.
    and certain other investors (incorporated by reference to
    Exhibit 10.10 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                     
|        | 10.6 |  |  |                        |  | Amendment Number One to the Registration Rights
    Agreement dated October 27, 1997 among the Company, Welsh,
    Carson, Anderson & Stowe VII, L.P. and certain other
    investors (incorporated by reference to Exhibit 10.11 to our
    Registration Statement on Form S-1 (File Number 333-62679)).                                     
|        | 10.7 |  |  |                        |  | Amendment Number Two to the Registration Rights
    Agreement dated July 24, 1998 among the Company, Welsh, Carson,
    Anderson & Stowe VII, L.P. and certain other investors
    (incorporated by reference to Exhibit 10.12 to our Registration
    Statement on Form S-1 (File Number 333-62679)).                                        



---



##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ----- |  |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.8  |  |  |                        |  | Stock Purchase Agreement dated as of June 5, 1997
    among Dianne R. Martz, A.B. Charlton, III, the Company and
    Horizon Health Systems, Inc. (incorporated by reference to
    Exhibit 10.17 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                        
|        | 10.9  |  |  |                        |  | Non-Disclosure and Non-Compete Agreement dated as
    of June 5, 1997 by and among Horizon Health Systems, Inc., the
    Company and Dianne R. Martz (incorporated by reference to
    Exhibit 10.18 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                     
|        | 10.10 |  |  |                        |  | Grant Agreement dated as of June 5, 1997 by and
    between Kyle Callahan and the Company (incorporated by reference
    to Exhibit 10.19 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                                                                
|        | 10.11 |  |  |                        |  | Subscription and Restriction Agreement dated as
    of June 5, 1997 by and between the Company and Kyle Callahan
    (incorporated by reference to Exhibit 10.20 to our Registration
    Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                         
|        | 10.12 |  |  |                        |  | Refunds Payable Escrow Agreement dated June 5,
    1997 among First American National Bank, Nova Holdings, Inc. and
    Dianne Martz and A.B. Charlton, III (incorporated by reference
    to Exhibit 10.26 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                              
|        | 10.13 |  |  |                        |  | Amended and Restated Credit Agreement dated as of
    June 13, 2002 among Accredo Health, Incorporated as Borrower,
    Certain Subsidiaries of the Borrower as Guarantors and The
    Lenders Named Therein and Bank of America, N.A. as Agent
    (incorporated by reference to Exhibit 10.13 to our Annual Report
    on Form 10-K for the fiscal year ended June 30, 2002).                                                                                                  
|        | 10.14 |  |  |                        |  | Amended and Restated Pledge Agreement dated as of
    June 13, 2002 by and among the parties identified as
    Pledgors and Bank of America, N.A. as collateral
    agent (incorporated by reference to Exhibit 10.14 to our Annual
    Report on Form 10-K for the fiscal year ended June 30, 2002).                                                                                                                                                                          
|        | 10.15 |  |  |                        |  | Amended and Restated Security Agreement dated as
    of June 13, 2002 by and among the parties identified as
    Grantors and Bank of America, N.A. as collateral
    agent (incorporated by reference to Exhibit 10.15 to our Annual
    Report on Form 10-K for the fiscal year ended June 30, 2002).                                                                                                                                                                        
|        | 10.16 |  |  |                        |  | ISDA Master Agreement dated August 7, 1997
    between NationsBank of Tennessee, N.A. and Nova Holdings, Inc.
    (incorporated by reference to Exhibit 10.40 to our Registration
    Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                            
|        | 10.17 |  |  |                        |  | Amended and Restated General Partnership
    Agreement of Childrens Hemophilia Services (incorporated
    by reference to Exhibit 10.61 to our Registration Statement on
    Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                                                 
|        | 10.18 |  |  |                        |  | Amendment Number One to Amended and Restated
    General Partnership Agreement of Childrens Hemophilia
    Services and Restrictive Agreement dated January 5, 2000
    (incorporated by reference to Exhibit 10.28 to our Annual Report
    on Form 10-K for the fiscal year ended June 30, 2000).                                                                                                                                                                             
|        | 10.19 |  |  |                        |  | First Amendment to Amended and Restated General
    Partnership Agreement of Childrens Hemophilia Services
    dated June 30, 2000 (incorporated by reference to Exhibit 10.29
    to our Annual Report on Form 10-K for the fiscal year ended June
    30, 2000).                                                                                                                                                                                                              
|        | 10.20 |  |  |                        |  | Hemophilia Therapy Business Management, Services
    and Sales Agreement, dated November 10, 1998 between Horizon
    Health Systems, Inc., a Tennessee corporation, and
    Childrens Hemophilia Services, a California general
    partnership (The Company has obtained confidential treatment
    with respect to certain portions of this Exhibit.) (incorporated
    by reference to Exhibit 10.63 to our Registration Statement on
    Form S-1 (File Number 333-62679)).



---



##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----- |  |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.21 |  |  |                        |  | Amended and Restated Distribution and Services
    Agreement effective as of January 1, 2000 by and between Biogen,
    Inc. and Nova Factor, Inc. (The Company has obtained
    confidential treatment with respect to certain portions of this
    Exhibit.) (incorporated by reference to Exhibit 10.1 to our
    Quarterly Report on Form 10-Q for the fiscal quarter ended March
    31, 2000).                                   
|        | 10.22 |  |  |                        |  | Additional Services Agreement dated January 1,
    2000 by and between Biogen, Inc. and Nova Factor, Inc. (The
    Company has obtained confidential treatment with respect to
    certain portions of this Exhibit.) (incorporated by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended March 31, 2000).                                                                            
|        | 10.23 |  |  |                        |  | Amendment to Amended and Restated Distribution
    and Services Agreement and Additional Services Agreement dated
    as of May 1, 2001 between Biogen, Inc. and Nova Factor, Inc.
    (The Company has obtained confidential treatment with respect to
    certain portions of this Exhibit.) (incorporated by reference to
    Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2001).
|        | 10.24 |  |  |                        |  | Amended and Restated Distribution Agreement,
    dated January 1, 1998, by and between Nova Factor, Inc. and
    Genzyme Corporation (The Company has obtained confidential
    treatment with respect to certain portions of this Exhibit.)
    (incorporated by reference to Exhibit 10.65 to our Annual Report
    on Form 10-K for the fiscal year ended June 30, 1999).                                                           
|        | 10.25 |  |  |                        |  | Incentive Stock Option Agreement of David Stevens
    dated May 31, 1996 (incorporated by reference to Exhibit 10.46
    to our Registration Statement on Form S-1 (File Number
    333-62679)).                                                                                                                                                                                                                                       
|        | 10.26 |  |  |                        |  | Incentive Stock Option Agreement of Joel R.
    Kimbrough dated May 31, 1996 (incorporated by reference to
    Exhibit 10.47 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                                   
|        | 10.27 |  |  |                        |  | Incentive Stock Option Agreement of John R. Grow
    dated May 31, 1996 (incorporated by reference to Exhibit 10.48
    to our Registration Statement on Form S-1 (File Number
    333-62679)).                                                                                                                                                                                                                                        
|        | 10.28 |  |  |                        |  | Incentive Stock Option Agreement of Kyle Callahan
    dated September 3, 1997 (incorporated by reference to Exhibit
    10.49 to our Registration Statement on Form S-1 (File Number
    333-62679)).                                                                                                                                                                                                                                  
|        | 10.29 |  |  |                        |  | Non-Qualified Stock Option Agreement of Patrick
    J. Welsh dated February 9, 1998 (incorporated by reference to
    Exhibit 10.50 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                            
|        | 10.30 |  |  |                        |  | Non-Qualified Stock Option Agreement of Ken
    Melkus dated February 9, 1998 (incorporated by reference to
    Exhibit 10.51 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                                  
|        | 10.31 |  |  |                        |  | Incentive Stock Option Agreement of Kyle Callahan
    dated February 9, 1998 (incorporated by reference to Exhibit
    10.52 to our Registration Statement on Form S-1 (File Number
    333-62679)).                                                                                                                                                                                                                                   
|        | 10.32 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    R. Masterson dated April 30, 1998 (incorporated by reference to
    Exhibit 10.54 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                          
|        | 10.33 |  |  |                        |  | Incentive Stock Option Agreement of Thomas W.
    Bell, Jr. dated July 10, 1998 (incorporated by reference to
    Exhibit 10.55 to our Registration Statement on Form S-1 (File
    Number 333-62679)).                                                                                                                                                                                                                                
|        | 10.34 |  |  |                        |  | Non-Qualified Stock Option Agreement of Patrick
    J. Welsh dated November 10, 1999 (incorporated by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 1999).                                                                                                                                                                                                          



---



##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                  
|------- | ----- |  |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.35 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    J. Melkus dated November 10, 1999 (incorporated by reference to
    Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 1999).   
|        | 10.36 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    R. Masterson dated November 10, 1999 (incorporated by reference
    to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 1999).
|        | 10.37 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kevin L.
    Roberg dated November 10, 1999 (incorporated by reference to
    Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 1999).     
|        | 10.38 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kevin L.
    Roberg dated November 18, 1999 (incorporated by reference to
    Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 1999).     
|        | 10.39 |  |  |                        |  | Non-Qualified Stock Option Agreement of Patrick
    J. Welsh dated November 1, 2000 (incorporated by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2000).     
|        | 10.40 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kevin L.
    Roberg Dated November 1, 2000 (incorporated by reference to
    Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2000).      
|        | 10.41 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    J. Melkus dated November 1, 2000 (incorporated by reference to
    Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2000).    
|        | 10.42 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    R. Masterson dated November 1, 2000 (incorporated by reference
    to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2000). 
|        | 10.43 |  |  |                        |  | Non-Qualified Stock Option Agreement of Dick R.
    Gourley dated November 1, 2000 (incorporated by reference to
    Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2000).      
|        | 10.44 |  |  |                        |  | Non-Qualified Stock Option Agreement of Dick R.
    Gourley dated November 16, 2000 (incorporated by reference to
    Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2000).     
|        | 10.45 |  |  |                        |  | Non-Qualified Stock Option Agreement of Patrick
    J. Welsh dated November 1, 2001 (incorporated by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2001).     
|        | 10.46 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kevin L.
    Roberg dated November 1, 2001 (incorporated by reference to
    Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2001).      
|        | 10.47 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    J. Melkus Dated November 1, 2001 (incorporated by reference to
    Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2001).    
|        | 10.48 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    R. Masterson dated November 1, 2001 (incorporated by reference
    to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2001). 
|        | 10.49 |  |  |                        |  | Non-Qualified Stock Option Agreement of Dick R.
    Gourley dated November 1, 2001 (incorporated by reference to
    Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2001).      



---



##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                    
|------- | ----- |  |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.50 |  |  |                        |  | Incentive Stock Option Agreement of David Stevens
    dated November 1, 2000 (incorporated by reference to Exhibit
    10.8 to our Quarterly Report on Form 10-Q for the fiscal quarter
    ended December 31, 2000).                                              
|        | 10.51 |  |  |                        |  | Incentive Stock Option Agreement of John R. Grow
    dated November 1, 2000 (incorporated by reference to Exhibit
    10.9 to our Quarterly Report on Form 10-Q for the fiscal quarter
    ended December 31, 2000).                                               
|        | 10.52 |  |  |                        |  | Incentive Stock Option Agreement of Joel R.
    Kimbrough dated November 1, 2000 (incorporated by reference to
    Exhibit 10.10 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2000).                                         
|        | 10.53 |  |  |                        |  | Incentive Stock Option Agreement of Thomas W.
    Bell, Jr. dated November 1, 2000 (incorporated by reference to
    Exhibit 10.11 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2000).                                       
|        | 10.54 |  |  |                        |  | Incentive Stock Option Agreement of Kyle J.
    Callahan dated November 1, 2000 (incorporated by reference to
    Exhibit 10.12 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2000).                                          
|        | 10.55 |  |  |                        |  | Stock Option Agreement of David Stevens dated
    September 3, 2002 (incorporated by reference to Exhibit 10.1 to
    our Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 2002).                                                      
|        | 10.56 |  |  |                        |  | Stock Option Agreement of John R. Grow dated
    September 3, 2002 (incorporated by reference to Exhibit 10.2 to
    our Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 2002).                                                       
|        | 10.57 |  |  |                        |  | Stock Option Agreement of Joel R. Kimbrough dated
    September 3, 2002 (incorporated by reference to Exhibit 10.3 to
    our Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 2002).                                                  
|        | 10.58 |  |  |                        |  | Stock Option Agreement of Kyle J. Callahan dated
    September 3, 2002 (incorporated by reference to Exhibit 10.4 to
    our Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 2002).                                                   
|        | 10.59 |  |  |                        |  | Stock Option Agreement of Barbara H. Biehner
    dated June 24, 2002 (incorporated by reference to Exhibit 10.5
    to our Quarterly Report on Form 10-Q for the fiscal quarter
    ended September 30, 2002).                                                     
|        | 10.60 |  |  |                        |  | Stock Option Agreement of Barbara H. Biehner
    dated September 3, 2002 (incorporated by reference to Exhibit
    10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter
    ended September 30, 2002).                                                 
|        | 10.61 |  |  |                        |  | Employment Agreement effective as of September 1,
    2001 between Accredo Health, Incorporated and David D. Stevens
    (incorporated by reference to Exhibit 10.7 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended September 30,
    2002). 
|        | 10.62 |  |  |                        |  | Employment Agreement effective as of September 1,
    2002 between Accredo Health, Incorporated and John R. Grow
    (incorporated by reference to Exhibit 10.8 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended September 30,
    2002).     
|        | 10.63 |  |  |                        |  | Employment Agreement effective as of September 1,
    2001 between Accredo Health, Incorporated and Joel R. Kimbrough
    (incorporated by reference to Exhibit 10.9 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended September 30,
    2002).
|        | 10.64 |  |  |                        |  | Employment Agreement effective as of September 1,
    2002 between Accredo Health, Incorporated and Kyle J. Callahan
    (incorporated by reference to Exhibit 10.10 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended September 30,
    2002).



---



##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                        
|------- | ----- |  |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.65 |  |  |                        |  | Non-Qualified Stock Option Agreement of Nancy-Ann
    DeParle dated November 1, 2002 (incorporated by reference to
    Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2002).                          
|        | 10.66 |  |  |                        |  | Non-Qualified Stock Option Agreement of Nancy-Ann
    DeParle dated November 19, 2002 (incorporated by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2002).                         
|        | 10.67 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kevin L.
    Roberg dated November 1, 2002 (incorporated by reference to
    Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2002).                            
|        | 10.68 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    J. Melkus dated November 1, 2002 (incorporated by reference to
    Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2002).                          
|        | 10.69 |  |  |                        |  | Non-Qualified Stock Option Agreement of Kenneth
    R. Masterson dated November 1, 2002 (incorporated by reference
    to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 31, 2002).                       
|        | 10.70 |  |  |                        |  | Non-Qualified Stock Option Agreement of Dick R.
    Gourley dated November 1, 2002 (incorporated by reference to
    Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 31, 2002).                            
|        | 10.71 |  |  |                        |  | Employment Agreement dated as of January 7, 2002
    between Accredo Health, Incorporated and Steve Fitzpatrick
    (incorporated by reference to Exhibit 10.1 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended March 31, 2002).  
|        | 10.72 |  |  |                        |  | Employment Agreement dated as of January 21, 2002
    between Accredo Health, Incorporated and Barbara H. Biehner
    (incorporated by reference to Exhibit 10.2 to our Quarterly
    Report on Form 10-Q for the fiscal quarter ended March 31, 2002).
|        | 10.73 |  |  |                        |  | Stock Option Agreement of Thomas W. Bell, Jr.
    dated September 3, 2002                                                                                                                                                                              
|        | 10.74 |  |  |                        |  | Employment Agreement effective as of September 1,
    2001 between Accredo Health, Incorporated and Thomas W. Bell, Jr.                                                                                                                                
|        | 10.75 |  |  |                        |  | Stock Option Agreement of Steve Fitzpatrick dated
    August 1, 2001.                                                                                                                                                                                  
|        | 10.76 |  |  |                        |  | Stock Option Agreement of Steve Fitzpatrick dated
    January 7, 2002.                                                                                                                                                                                 
|        | 10.77 |  |  |                        |  | Stock Option Agreement of Steve Fitzpatrick dated
    September 3, 2002.                                                                                                                                                                               
|        | 16.1  |  |  |                        |  | Letter from Ernst & Young LLP regarding
    change in certifying accountant (incorporated by reference to
    Exhibit 16.1 to our Current Report on Form 8-K/A dated May 19,
    2003).                                                                
|        | 21.1  |  |  |                        |  | Subsidiaries                                                                                                                                                                                                                                           
|        | 23.1  |  |  |                        |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                       
|        | 23.2  |  |  |                        |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                           
|        | 24.1  |  |  |                        |  | Power of Attorney (contained on the signature
    pages of this report)                                                                                                                                                                                
|        | 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