UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended September 30, 2003

OR

For the transition period from                          to                         

AMERISOURCEBERGEN CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

The aggregate market value of voting stock held by non-affiliates of the registrant on March 31, 2003, based upon the closing price of such stock on the New York Stock Exchange on March 31, 2003, was $5,674,495,418.

The number of shares of common stock of AmerisourceBergen Corporation outstanding as of December 1, 2003 was 112,137,461.

Documents Incorporated by Reference

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

Part III - Registrant’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

TABLE OF CONTENTS

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PART I

AmerisourceBergen Corporation (“AmerisourceBergen” or the “Company”) is a leading wholesale distributor of pharmaceutical products and furnishes related services to healthcare providers and pharmaceutical manufacturers. We also provide pharmaceuticals to long-term care, workers’ compensation and specialty drug patients. We distribute a full line of brand name and generic pharmaceuticals, over-the-counter healthcare products, and home healthcare supplies and equipment to a wide variety of healthcare providers located throughout the Untied States, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order facilities, physicians, clinics and other alternate site facilities, and skilled nursing and assisted living centers. We furnish healthcare providers and pharmaceutical manufacturers with an assortment of services, including pharmacy automation, bedside medication safety software, pharmaceutical packaging solutions, reimbursement and pharmaceutical consulting services, logistics services, and physician education, all of which are designed to reduce costs and improve patient outcomes.

Industry Overview

We have benefited from the significant growth of the pharmaceutical industry in the United States. According to IMS Healthcare, Inc., an independent third party provider of information to the pharmaceutical and healthcare industry, industry sales grew from approximately $73 billion in 1995 to an estimated $203 billion in 2003 and are expected to grow to at least $250 billion in 2005.

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

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

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

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

Rising Pharmaceutical Prices. Consistent with historical trends, we believe pharmaceutical price increases will continue to equal or exceed the overall Consumer Price Index. We believe these increases will be due in large part to the relatively inelastic demand in the face of higher prices charged for patented drugs as pharmaceutical manufacturers have attempted to recoup costs associated with the development, clinical testing and U.S. Food and Drug Administration (“FDA”) approval of new products.

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

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The Company

AmerisourceBergen was formed in connection with the merger of AmeriSource Health Corporation (“AmeriSource”) and Bergen Brunswig Corporation (“Bergen”), which was consummated in August 2001 (the “Merger”). As a result of the Merger, we are the largest pharmaceutical services company in the United States that is dedicated solely to the pharmaceutical supply channel.

We currently serve our customers, primarily healthcare providers and pharmaceutical manufacturers as well as patients, throughout the United States and Puerto Rico through a geographically diverse network of distribution and service centers. We typically are the primary source of supply for pharmaceutical and related products to our healthcare providers and certain patients. We offer a broad range of solutions to our customers designed to enhance the efficiency and effectiveness of their operations, allowing them to improve the delivery of healthcare to patients and consumers and to lower overall costs in the pharmaceutical supply channel.

Strategy

Our business strategy is anchored in national pharmaceutical distribution and services, reinforced by the value-added healthcare solutions we provide healthcare providers and pharmaceutical manufacturers. This focused strategy has significantly expanded our businesses and we believe we are well-positioned to continue to grow revenue and increase operating income through the execution of the following key elements of our business strategy:

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Operations

Operating Structure. We operate in two segments, Pharmaceutical Distribution and PharMerica.

Pharmaceutical Distribution. The Pharmaceutical Distribution segment includes AmerisourceBergen Drug Corporation (“ABDC”) and AmerisourceBergen Specialty Group (“ABSG”). ABDC includes our full-service wholesale pharmaceutical distribution and other healthcare related businesses throughout the United States and Puerto Rico. ABDC sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products to hospitals, alternate care and mail order facilities, and independent and chain retail pharmacies. ABDC also provides a variety of products and services to its customers and pharmaceutical and other healthcare product manufacturers, including promotional, packaging, inventory management, pharmacy automation, bedside medication safety software and information services. These products and services are provided by ABDC directly and through its subsidiaries and affiliates, including American Health Packaging, Anderson Packaging, AutoMed Technologies, Bridge Medical and Pharmacy Healthcare Solutions. ABSG sells specialty pharmaceutical products and services to physicians, clinics, patients and other providers primarily in the oncology, nephrology, plasma and vaccines sectors. ABSG also provides third party logistics, reimbursement consulting services, physician education consulting and other services to pharmaceutical manufacturers.

Our wholesale drug distribution business is currently organized into five regions across the United States. Unlike our more centralized competitors, we are structured as an organization of locally managed profit centers. We believe that the delivery of healthcare is local and, therefore, the management of each distribution facility has responsibility for its own customer service and financial performance. These facilities utilize the Company’s corporate staff for national/regional account management, marketing, data processing, financial, procurement, human resources, legal and executive management resources, and corporate coordination of asset and working capital management.

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PharMerica. PharMerica is a leading national provider of institutional pharmacy products and services to patients in long-term care and alternate care settings, including skilled nursing facilities, assisted living facilities and residential living communities. PharMerica also provides mail order and on-line pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors.

PharMerica’s institutional pharmacy business involves the purchase of bulk quantities of prescription and nonprescription pharmaceuticals, principally from our Pharmaceutical Distribution segment, and the distribution of those products to residents in long-term care and alternate care facilities. Unlike hospitals, most long-term and alternate care facilities do not have onsite pharmacies to dispense prescription drugs, but depend instead on institutional pharmacies, such as PharMerica, to provide the necessary pharmacy products and services and to play an integral role in monitoring patient medication. PharMerica’s pharmacies dispense pharmaceuticals in patient-specific packaging in accordance with physician orders. In addition, PharMerica provides infusion therapy services and Medicare Part B products, as well as formulary management and other pharmacy consulting services.

PharMerica’s network of 125 pharmacies, which includes pharmacies at customer sites, covers a geographic area that includes over 90% of the nation’s institutional/long-term care beds. Each PharMerica pharmacy typically serves customers within a 100-mile radius. PharMerica’s workers’ compensation business provides pharmaceutical claims administration and mail order distribution. PharMerica’s services include home delivery of prescription drugs, medical supplies and equipment and an array of computer software solutions to reduce the payor’s administrative costs.

Sales and Marketing. Our wholesale drug distribution business has approximately 360 sales professionals organized regionally and specialized by customer type. Customer service representatives are located in distribution facilities in order to respond to customer needs in a timely and effective manner. Our corporate marketing department designs and develops an array of AmerisourceBergen value-added healthcare provider solutions. Tailored to specific groups, these programs can be further customized at the distribution facility level to adapt to local market conditions. Corporate sales and marketing also serves national account customers through close coordination with local distribution centers. Additionally, ABSG, PharMerica and substantially all of the other AmerisourceBergen companies each has an independent sales force that specializes in its respective product and service offerings.

Facilities. Each of our distribution facilities carries an inventory suited to the needs of the local market. The efficient distribution of small orders is possible through the extensive use of automation and modern warehouse techniques. These include computerized warehouse product location, routing and inventory replenishment systems, gravity-flow racking, mechanized order selection and efficient truck loading and routing. We typically deliver our products on a daily basis mainly by using contract carriers. Night product picking operations in our distribution facilities have further reduced delivery time. Orders are generally delivered in less than 24 hours.

The following table presents certain information regarding our full-service wholesale pharmaceutical distribution centers for fiscal years 2003 and 2002 and AmeriSource and Bergen pharmaceutical distribution centers on a pro forma combined basis for fiscal years 1999 through 2001:

Customers and Markets. We have a diverse customer base that includes institutional and retail healthcare providers and pharmaceutical manufacturers. Institutional healthcare providers include acute care hospitals, health systems, mail order pharmacies, long-term and alternate care facilities and physician offices. Retail healthcare providers include national and regional retail drugstore chains, independent community pharmacies and pharmacy departments of supermarkets and mass merchandisers. We are typically the primary source of supply for our customers. In addition, we offer a broad range of value-added solutions designed to enhance the operating efficiencies and competitive positions of our customers, allowing them to

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improve the delivery of healthcare to patients and consumers. During fiscal 2003, operating revenue for our Pharmaceutical Distribution segment was comprised of a sales mix of 56% institutional and 44% retail.

Sales to the federal government (including sales under separate contracts with different departments and agencies of the federal government) represented 9% of our operating revenue in fiscal 2003. In addition, we have contracts with group purchasing organizations (“GPOs”), each of which represents multiple healthcare providers. Loss of a major federal government customer or a GPO relationship could lead to a significant reduction in revenue, as could the loss of one or more of our significant individual customers. However, other than the federal government, we have no individual customer that accounted for more than 5% of our fiscal 2003 operating revenue. Including the federal government, our top ten customers represented approximately 36% of operating revenue during fiscal 2003. Revenues generated from sales to Medco Health Solutions, Inc. accounted for 98% of bulk deliveries to customer warehouses and 12% of total revenues during fiscal 2003.

Suppliers. We obtain pharmaceutical and other products primarily from manufacturers, none of which accounted for more than approximately 9% of our purchases in fiscal 2003. The loss of certain suppliers could adversely affect our business if alternate sources of supply are unavailable. We believe that our relationships with our suppliers are generally good. The five largest suppliers in fiscal 2003 accounted for approximately 36% of purchases. We seek to maintain our product inventories at levels that are sufficient to fulfill our service level commitments under our distribution contracts with customers. Product allocations by manufacturers or other efforts by manufacturers, including the imposition of inventory management agreements, may affect our ability to fulfill our customer commitments. We generally have not experienced difficulty in purchasing desired products from our suppliers in the past. However, we expect to face increasing efforts by pharmaceutical manufacturers to control the pharmaceutical supply channel (see Certain Risk Factors below). Our business could be adversely affected by such efforts. Supplier relationships help us to generate gross profit in several ways, including cash discounts for prompt payments, inventory buying opportunities, rebates, vendor program arrangements, negotiated deals and other promotional opportunities. In the future, suppliers may not continue to offer such programs or opportunities in the same form or at the current levels.

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

We operate our full-service wholesale pharmaceutical distribution facilities on two different centralized management information systems. One is the former AmeriSource system and the other is the former Bergen system. We continue to integrate the systems, while maintaining our customers’ access through either order-entry system.

We plan to continue to make system investments to further improve our information capabilities and meet our customer and operational needs. We continue to expand our electronic interface with our suppliers and currently process a substantial portion of our purchase orders, invoices and payments electronically. We are implementing a new warehouse operating system which is expected to improve our productivity and operating leverage. During fiscal 2003, three of our distribution facilities have successfully implemented the new warehouse operating system.

Competition

We face a highly competitive environment in the wholesale distribution of pharmaceuticals and related healthcare solutions. We compete with both national and regional distributors. Our national competitors include Cardinal Health, Inc. and McKesson Corporation. In addition, we compete with local distributors, direct-selling manufacturers, warehousing chain drugstores and other specialty distributors. Competitive factors include price, value-added service programs, product offerings, service and delivery, credit terms, and customer support.

PharMerica’s competitors principally include national institutional pharmacies such as Omnicare, NeighborCare and Kindred Healthcare, as well as smaller regional pharmacies that specialize in long-term care. We believe that the competitive factors most important in PharMerica’s lines of business are quality and range of service offered, pricing, reputation with referral sources, ease of doing business with the provider, and the ability to develop and maintain relationships with referral sources. One of PharMerica’s national competitors is significantly larger than PharMerica. In addition, there are relatively few barriers to entry in the local markets served by PharMerica and it may encounter substantial competition from local market entrants. PharMerica

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competes with numerous billing companies in connection with the portion of its business that electronically adjudicates workers’ compensation claims for payors.

Intellectual Property

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

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

We hold patents and have patent applications pending that relate to certain of our products and services, particularly in the area of automated dispensing of pharmaceuticals. We pursue patents for our proprietary intellectual property from time to time as appropriate. Although we believe that our patents do not infringe upon the intellectual property rights of any third parties, third parties may assert infringement claims against us from time to time.

Employees

As of September 30, 2003, we employed approximately 14,800 persons, of which approximately 13,600 were full-time employees. Approximately 6% of full and part-time employees are covered by collective bargaining agreements. The Company believes that its relationship with its employees is good.

Government Regulation

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

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

Under the Prospective Payment System (“PPS”) for Medicare patients in skilled nursing facilities, PPS pays a federal daily rate for virtually all covered skilled nursing facility services. Under PPS, PharMerica’s skilled nursing facility customers are not able to pass through to Medicare their costs for certain products and services provided by PharMerica. Instead, PPS provides PharMerica’s customers a federal daily rate to cover the costs of all eligible goods and services provided to Medicare patients, which may include certain pharmaceutical and other goods and services provided by PharMerica. Since the amount of skilled nursing facility Medicare reimbursement is limited by PPS, facility customers have an increased incentive to negotiate with PharMerica to minimize the costs of providing goods and services to patients covered under Medicare. PharMerica continues to bill skilled nursing facilities on a negotiated fee schedule.

PharMerica’s reimbursements for pharmaceuticals provided under state Medicaid programs are also subject to government regulations. Over the last three years, state Medicaid programs have lowered reimbursement through a variety of mechanisms, principally reductions in Average Wholesale Price (AWP) levels, expansion of Federal Upper Limit (FUL) pricing,

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and general reductions in contract payment methodology to pharmacies. It is expected that such lower reimbursement will continue into future years.

Recently publicized incidents in which counterfeit, adulterated and/or mislabeled pharmaceutical drugs have passed through the pharmaceutical supply channel have given rise to the proposal in a number of states and the adoption in some states, including Florida, of laws and regulations that are intended to protect the integrity of the supply channel. These laws and regulations will likely increase the overall regulatory burden and costs associated with our pharmaceutical distribution business.

In November 2003, Federal legislation was enacted that is intended to give Medicare beneficiaries a prescription drug benefit in 2006 and some form of drug discounts prior to 2006. We cannot predict at this time how the eventual implementation of this legislation will affect the pharmaceutical and healthcare industry or our pharmaceutical distribution business.

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

Health Information Practices

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

Certain Risk Factors

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

Intense competition may erode our profit margins.

The wholesale distribution of pharmaceuticals and related healthcare services is highly competitive. We compete primarily with the following: national wholesale distributors of pharmaceuticals such as Cardinal Health, Inc. and McKesson Corporation; regional and local distributors of pharmaceuticals; chain drugstores that warehouse their own pharmaceuticals; manufacturers who distribute their products directly to customers; and other specialty distributors.

Competitive pressures have contributed to a decline in our pharmaceutical distribution segment gross profit margins on operating revenue from 4.7% on a combined basis in fiscal 1997 to 3.9% in fiscal 2003. This trend may continue and our business could be adversely affected as a result.

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

Our products and services are intended to function within the structure of the healthcare financing and reimbursement system currently existing in the United States. In recent years, the healthcare industry has undergone significant changes in an effort to reduce costs and government spending. These changes include an increased reliance on managed care, cuts in Medicare funding affecting our healthcare provider customer base, consolidation of competitors, suppliers and customers, and the development of large, sophisticated purchasing groups. We expect the healthcare industry to continue to change significantly in the future. Some of these potential changes, such as a reduction in governmental support of healthcare services or adverse changes in legislation or regulations governing prescription drug pricing, healthcare services or mandated benefits, may cause healthcare industry participants to greatly reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services. Changes in pharmaceutical manufacturers’ pricing or distribution policies could also significantly reduce our income. Federal legislation was recently enacted giving Medicare beneficiaries a prescription drug benefit in 2006 and drug discounts prior to 2006. Although the implementation details of this legislation are not known at this time, this legislation eventually could have an adverse effect on our revenue and income.

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We may not realize all of the anticipated benefits of enhancing our distribution network.

As a result of the Merger, we implemented our Optimiz program, through which we will consolidate our distribution facilities from 51 to 30 and implement new warehouse information technology systems. The program is designed to focus capacity on growing markets, significantly increase warehouse efficiencies and streamline our transportation activities. Our plan is to have a distribution facility network consisting of 30 facilities within the next three to four years. This will be accomplished by building six new facilities, expanding seven facilities, and closing 27 facilities. During fiscal 2003, the Company began construction activities on three of its new facilities. In addition, two of the seven facility expansions were completed in fiscal 2003. During fiscal 2003 and 2002, the Company closed six and seven distribution facilities, respectively. The Company anticipates closing three additional facilities in fiscal 2004. We believe our enhanced distribution network will result in the lowest costs in pharmaceutical distribution and the highest accuracy and speed of customer order fulfillment. We may not realize all of the anticipated benefits of enhancing our distribution network if we experience delays in building the new facilities, experience delays in expanding facilities, experience delays in facility closings or incur significant cost overruns associated with the program, or if the new warehouse information technology systems do not function as planned.

Increasing efforts by pharmaceutical manufacturers to control the pharmaceutical supply channel may reduce our profitability.

We generally seek to maintain product inventories at levels that are sufficient to fulfill our service level commitments under distribution contracts with customers. However, we have been able to lower our overall cost of goods and increase our profit margins by purchasing surplus inventory from pharmaceutical manufacturers in advance of anticipated price increases and by purchasing surplus inventory from secondary source suppliers (which are licensed suppliers of pharmaceuticals other than the manufacturers) at prices lower than those available to us directly from the manufacturers. Pharmaceutical manufacturers have become aggressive in undertaking efforts to reduce our ability to lower our overall costs of goods below the pricing levels established for us by the manufacturers. We have encountered increasing efforts by pharmaceutical manufacturers to control the supply channel. Such efforts, if accepted by us or if otherwise successful, may have the effect of reducing our profitability.

Increasing governmental efforts to regulate the pharmaceutical supply channel may reduce our profitability.

The healthcare industry is highly regulated at the local, state and federal level. Consequently, we are subject to the risk of changes in various local, state and federal laws, which include operating and security standards of the DEA, the FDA, various state boards of pharmacy and comparable agencies. Recently publicized incidents in which counterfeit, adulterated and/or mislabeled drugs have passed through the pharmaceutical supply channel have given rise to the proposal in a number of states and the adoption in some states, including Florida, of laws and regulations that are intended to protect the integrity of the supply channel but that also may restrict our ability to purchase drugs from sources other than pharmaceutical manufacturers and a very limited group of authorized distributors.

We have been able to lower our overall cost of goods and increase our profit margins by purchasing surplus inventory from secondary source suppliers (which are licensed suppliers of pharmaceuticals other than the manufacturers) at prices lower than those available to us directly from the manufacturers. Laws and regulations that have the effect of restricting our ability to engage in secondary source purchasing also may have the effect of reducing our profitability. We have announced our support of possible FDA regulations that effectively would limit the pharmaceutical supply channel to manufacturers and a limited group of distributors (which would include us and our national competitors, among others) and would diminish greatly, if not eliminate, any opportunities for us to increase our income through secondary source purchasing.

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

Sales to the federal government (including sales under separate contracts with different departments and agencies of the federal government) represented 9% of our operating revenue in fiscal 2003. Sales under our distribution agreement with the United States Department of Veterans Affairs (the “VA”) represented approximately 80% of federal government sales during fiscal 2003. In addition, we have contracts with group purchasing organizations (“GPOs”), each of which represents multiple healthcare providers. Other than the federal government, we have no individual customer that accounted for more than 5% of our fiscal 2003 operating revenue. Including the federal government, our top ten customers represented approximately 36% of operating revenue during fiscal 2003.

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Loss of a major federal government customer (such as the VA) or a GPO relationship could lead to a significant reduction in revenue, as could the loss of one or more of our significant individual customers. Our existing agreement with the VA terminates in early calendar 2004. We currently are awaiting the VA’s decision as to whether we will be selected to continue as its primary drug distributor or whether one of our competitors will be selected to replace us, in whole or in part.

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

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

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

We expect to continue to acquire companies as an element of our growth strategy. Acquisitions are among the ways we seek to expand our presence in strategically important markets and to expand the breadth and scope of our ancillary business and service offerings. At any particular time, we may be in various stages of assessment, discussion and negotiation with regard to one or more potential acquisitions, many of which will not be consummated. We make public disclosure of pending and completed acquisitions when appropriate and required by applicable securities laws and regulations.

Acquisitions involve numerous risks and uncertainties. If we complete one or more acquisitions, our business, results of operations and financial condition may be adversely affected by a number of factors, including: the failure of the acquired businesses to achieve the results we have projected in either the near term or the longer term; the assumption of unknown liabilities; the difficulties in the integration of the operations, technologies, services and products of the acquired companies; the failure to achieve the strategic objectives of these acquisitions; and other unforeseen difficulties.

We anticipate that we will finance acquisitions in the foreseeable future at least partly by the issuance of additional common stock. The use of equity financing for acquisitions will dilute the ownership percentage of our then current stockholders.

Available Information

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

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As of September 30, 2003, we conducted our business from office and operating facilities at owned and leased locations throughout the United States and Puerto Rico. In the aggregate, our facilities occupy approximately 7.3 million square feet of office and warehouse space which is either owned or leased under agreements which expire through 2013.

Our 38 full-service wholesale pharmaceutical distribution facilities range in size from approximately 39,000 square feet to 231,500 square feet, with an aggregate of approximately 4.9 million square feet. When complete, our six new distribution facilities, including office space, will each have approximately 300,000 square feet. Leased facilities are located in Puerto Rico plus the following states: Arizona, California, Colorado, Florida, Hawaii, Illinois, Kentucky, Minnesota, Missouri, New Jersey, North Carolina, Texas, Utah and Washington. Owned facilities are located in the following states: Alabama, California, Georgia, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, Ohio, Oklahoma, Tennessee, Texas and Virginia. We consider our operating properties to be in satisfactory condition. The current leases expire through 2013. See Improve Operating and Capital Efficiencies on Page 5 for a discussion of our facility consolidation and expansion plan.

As of September 30, 2003, the other business units within the Pharmaceutical Distribution segment (including ABSG, American Health Packaging, Anderson Packaging, AutoMed Technologies, Bridge Medical, US Bioservices and our other operations) were located in fifty-two leased locations and one owned location. The locations range in size from approximately 1,000 square feet to 248,000 square feet and have a combined area of approximately 1.6 million square feet. The leases expire through 2013.

As of September 30, 2003, our PharMerica operations were located in 99 leased locations ranging in size from approximately 350 square feet to 83,000 square feet and have a combined area of approximately 1.1 million square feet. The leases expire through 2010.

We own and lease an aggregate of approximately 292,000 square feet of general and executive offices in Chesterbrook, Pennsylvania and Orange, California, and lease approximately 28,000 square feet of data processing offices in Montgomery, Alabama. The leases expire through 2010.

In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust, environmental, product liability, regulatory and other matters. Large and sometimes unspecified damages or penalties may be sought from the Company in some matters, and some matters may require years for the Company to resolve. The Company establishes reserves from time to time based on its periodic assessment of the potential outcomes of pending matters. There can be no assurance that an adverse resolution of one or more matters during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations for that period. However, on the basis of information furnished by counsel and others and taking into consideration the reserves established for pending matters, the Company does not believe that the resolution of currently pending matters (including those matters specifically described below), individually or in the aggregate, will have a material adverse effect on the Company’s financial condition. (See Note 11 to the Consolidated Financial Statements.)

Environmental Remediation

The Company is subject to contingencies pursuant to environmental laws and regulations at a former distribution center. As of September 30, 2003, the Company has an accrued liability of $0.9 million that represents the current estimate of costs to remediate the site. However, changes in regulation or technology or new information concerning the site could affect the actual liability.

Government Investigation

In June 2000, the Company learned that the U.S. Department of Justice had commenced an investigation focusing on the activities of a customer that illegally resold merchandise purchased from the Company and on the Company’s business

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relationship with that customer. The Company was contacted initially by the government at that time and cooperated fully. The Company had discontinued doing business with the customer in question in February 2000, after concluding this customer had demonstrated suspicious purchasing behavior. From 2001 until recently, the Company had no further contact with the government on this investigation. In September 2003, the Company learned that a former employee of the Company pled guilty to charges arising from his involvement with this customer. In November 2003, the Company was contacted by the U.S. Attorney’s Office in Sacramento, California, for some additional information relating to the investigation. The Company believes that it has not engaged in any wrongdoing, but cannot predict the outcome of this investigation at this time.

ABDC Matter

In January 2002, Bergen Brunswig Drug Company (now known as AmerisourceBergen Drug Corporation) was served with a complaint filed in the United States District Court for the District of New Jersey by one of its manufacturer vendors, Bracco Diagnostics Inc. (“Bracco”). The complaint, which included claims for fraud, breach of New Jersey’s Consumer Fraud Act, breach of contract and unjust enrichment, involves disputes relating to chargebacks and credits. The Court granted the Company’s motion to dismiss the fraud and New Jersey Consumer Fraud Act counts. Bracco also tried to amend the complaint to include a federal racketeering claim. Bracco’s motion to amend the complaint was denied by the Court. The Company has answered the remaining counts of the complaint. Fact discovery has been completed but expert discovery still is ongoing.

PharMerica Matter

In November 2002, a class action was filed in Hawaii state court on behalf of consumers who allegedly received “recycled” medications from a PharMerica institutional pharmacy in Honolulu, Hawaii. The plaintiffs allege that it was a deceptive trade practice under Hawaii law to sell “recycled” medications (i.e., medications that had previously been dispensed and then returned to the pharmacy) without disclosing that the medications were “recycled. “ In September, 2003, the Hawaii Circuit Court heard and granted the plaintiffs’ motion to certify the case as a class action. The class consists of consumers who purchased drugs in product lines in which recycling occurred, but those product lines have not yet been identified. PharMerica intends to vigorously defend itself against the claims raised in this class action. It is PharMerica’s position that the class members suffered no harm and are not entitled to recover any damages. PharMerica is not aware of any evidence, or any specific claim, that any particular class member received medications that were ineffective because they had been “recycled.” Discovery in this case is ongoing.

There were no matters submitted to a vote of security holders for the quarter ended September 30, 2003.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the Company’s principal executive officers, their ages and their positions, as of December 19, 2003. Each executive officer serves at the pleasure of the Company’s board of directors.

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

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

Mr. Hilzinger was named President and Chief Operating Officer of the Company in October 2002. Prior to that date, he was the Company’s Executive Vice President and Chief Operating Officer since the Merger; the President and Chief Operating Officer of AmeriSource from December 2000 until the Merger; the Senior Vice President and Chief Operating Officer of AmeriSource from January 1999 to December 2000; and the Senior Vice President, Chief Financial Officer of AmeriSource from 1997 to 1999.

Mr. DiCandilo was named Senior Vice President and Chief Financial Officer of the Company in March 2002. Previously, he was the Company’s Vice President and Controller since the Merger date and AmeriSource’s Vice President and Controller from 1995 to the Merger date.

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

Mr. Haas was named Senior Vice President, Operations of the Company in February 2003. Previously, he was Senior Vice President, Integration since October 2001 and Senior Vice President, Supply Chain Management from the Merger date to October 2001. Prior to the Merger, Mr. Haas served as AmeriSource’s Senior Vice President, Supply Chain Management since November 2000 and Senior Vice President, Operations of AmeriSource from 1999 to 2000.

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PART II

Since August 29, 2001, the Company’s Common Stock has been traded on the New York Stock Exchange under the trading symbol “ABC.” Prior to August 29, 2001, AmeriSource Health Corporation Class A Common Stock was traded on the New York Stock Exchange under the trading symbol “AAS.” As of December 1, 2003, there were 3,208 record holders of the Company’s Common Stock. The following table sets forth the high and low closing sale prices of the Company’s Common Stock for the periods indicated.

PRICE RANGE OF COMMON STOCK

The Company has paid quarterly cash dividends of $0.025 per share on Common Stock since the first quarter of fiscal 2002. The Company anticipates that it will continue to pay quarterly cash dividends in the future. Most recently, a dividend of $0.025 per share was declared by the board of directors on October 29, 2003, and was paid on December 1, 2003 to stockholders of record at the close of business on November 17, 2003. However, the payment and amount of future dividends remain within the discretion of the Company’s board of directors and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.

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On August 29, 2001, AmeriSource and Bergen merged to form the Company. The Merger was accounted for as an acquisition of Bergen under the purchase method of accounting. Accordingly, the results of operations and the balance sheet information in the table below reflect only the operating results and financial position of AmeriSource for fiscal years ended September 30, 2000 and prior. The financial data for the fiscal year ended September 30, 2001 reflects the operating results for the full year of AmeriSource and approximately one month of Bergen, and the financial position of the combined company. The following table should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.

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

The Company

AmerisourceBergen Corporation (the “Company”) is a leading national wholesale distributor of pharmaceutical products and related healthcare services and solutions with $45.5 billion in annual operating revenue. The Company was formed in connection with the merger of AmeriSource Health Corporation (“AmeriSource”) and Bergen Brunswig Corporation (“Bergen”) on August 29, 2001 (the “Merger”).

The Company is organized based upon the products and services it provides to its customers. The Company’s operating segments have been aggregated into two reportable segments: Pharmaceutical Distribution and PharMerica.

The Pharmaceutical Distribution segment includes AmerisourceBergen Drug Corporation (“ABDC”) and AmerisourceBergen Specialty Group (“ABSG”). ABDC includes the full-service wholesale pharmaceutical distribution facilities and other healthcare related businesses. ABDC sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products to hospitals, alternate care and mail order facilities and independent and chain retail pharmacies. ABDC, directly and through subsidiaries and affiliates, including American Health Packaging, Anderson Packaging, AutoMed Technologies, Bridge Medical and Pharmacy Healthcare Solutions, also provides promotional, packaging, inventory management, pharmacy automation, bedside medication safety software and information services to its customers and healthcare product manufacturers. ABSG sells specialty pharmaceutical products and services to physicians, clinics, patients and other providers in the oncology, nephrology, plasma and vaccines sectors. ABSG also provides third party logistics, reimbursement consulting services, physician education consulting and other services to healthcare product manufacturers.

The PharMerica segment consists solely of the Company’s PharMerica operations. PharMerica provides institutional pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities, and residential living communities. PharMerica also provides mail order and on-line pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors.

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Summary Segment Information – Comparative Information for Fiscal 2003 and 2002

AmerisourceBergen Corporation

Summary Segment Information

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Summary Segment Information – Comparative Information for Fiscal 2002 and 2001 (Including Pro Forma Information for Fiscal 2001)

The Company’s fiscal 2001 results include a full year of AmeriSource’s results and approximately one month of Bergen’s results. In order to enhance comparability to the fiscal 2002 results, we have included pro forma information for fiscal 2001 results of operations. For purposes of this discussion, pro forma refers to the combined results of AmeriSource and Bergen for fiscal 2001. They are not necessarily indicative of the actual results which might have occurred had the operations and management of AmeriSource and Bergen been combined at the beginning of fiscal 2001. The following information also includes the results of operations for the year ended September 30, 2001 on a pro forma basis by reportable segment.

To further improve the comparability between fiscal years, the pro forma combined information for the year ended September 30, 2001 excludes amortization of goodwill (see Note 1 to the Consolidated Financial Statements) and reflects the full allocation of Bergen’s former Corporate segment to the Company’s Pharmaceutical Distribution and PharMerica segments.

Such pro forma information and the related discussion is limited to the line items comprising operating income. Due to the changes in the Company’s debt structure which occurred in connection with the Merger, pro forma combined interest expense for fiscal 2001 would not be directly comparable to the Company’s fiscal 2002 interest expense.

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AmerisourceBergen Corporation

Summary Segment Information

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Year ended September 30, 2003 compared with Year ended September 30, 2002

Consolidated Results

Operating revenue, which excludes bulk deliveries, for the fiscal year ended September 30, 2003 increased 13% to $45.5 billion from $40.2 billion in the prior fiscal year. This increase is primarily due to increased operating revenue in the Pharmaceutical Distribution segment.

The Company reports as revenue bulk deliveries to customer warehouses, whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products. Bulk deliveries for the fiscal year ended September 30, 2003 decreased 17% to $4.1 billion from $5.0 billion in the prior fiscal year. This decrease was primarily due to the Company’s conversion of a portion of its bulk and other direct business with its primary bulk delivery customer to business serviced through the Company’s various warehouses. Due to the insignificant service fees generated from bulk deliveries, fluctuations in volume of bulk deliveries have no significant impact on operating margins. However, revenue from bulk deliveries has had a positive impact to the Company’s cash flows due to favorable timing between the customer payments to the Company and the payments by the Company to its suppliers.

Gross profit of $2,247.2 million in the fiscal year ended September 30, 2003 reflects an increase of 11% from $2,024.5 million in the prior fiscal year. As a percentage of operating revenue, gross profit in the fiscal year ended September 30, 2003 was 4.93%, as compared to the prior-year percentage of 5.03%. The decrease in gross profit percentage in comparison with the prior fiscal year reflects declines in both the Pharmaceutical Distribution and PharMerica segments primarily due to changes in customer mix and competitive selling price pressures, offset in part by the positive aggregate margin impact resulting from the Company’s recent acquisitions.

Distribution, selling and administrative expenses, depreciation and amortization (“DSAD&A”) of $1,355.1 million in the fiscal year ended September 30, 2003 reflects an increase of 6% compared to $1,281.8 million in the prior fiscal year. As a percentage of operating revenue, DSAD&A in the fiscal year ended September 30, 2003 was 2.98% compared to 3.19% in the prior fiscal year. The decline in the DSAD&A percentage from the prior fiscal year ratio reflects improvements in both the Pharmaceutical Distribution and PharMerica segments due to customer mix changes, operational efficiencies and continued benefits from the merger integration effort.

In connection with the Merger, the Company developed integration plans to consolidate its distribution network and eliminate duplicate administrative functions, which are expected to result in synergies of approximately $150 million annually by the end of fiscal 2004. The Company’s plan is to have a distribution facility network consisting of 30 facilities in the next three to four years. This will be accomplished by building six new facilities, expanding seven facilities, and closing 27 facilities. During fiscal 2003, the Company began construction activities on three of its new facilities and completed two of the seven facility expansions. During fiscal 2003 and 2002, the Company closed six and seven distribution facilities, respectively. The Company anticipates closing three additional facilities in fiscal 2004.

In September 2001, the Company announced plans to close seven distribution facilities in fiscal 2002, consisting of six former AmeriSource facilities and one former Bergen facility. A charge of $10.9 million was recognized in the fourth quarter of fiscal 2001 related to the AmeriSource facilities, and included $6.2 million of severance for approximately 260 warehouse and administrative personnel to be terminated, $2.3 million in lease and contract cancellations, and $2.4 million for the write-down of assets related to the facilities to be closed. Approximately $0.2 million of costs related to the Bergen facility were included in the Merger purchase price allocation. During the fiscal year ended September 30, 2003, severance accruals of $1.8 million recorded in September 2001 were reversed into income because certain employees who were expected to be severed either voluntarily left the Company or were retained in other positions within the Company.

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

Since September 2002, the Company has announced plans to close six distribution facilities in fiscal 2003 and eliminate certain administrative and operational functions (“the fiscal 2003 initiatives”). As of September 30, 2003, the six facilities were

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closed. During the fiscal year ended September 30, 2003, the Company recorded severance costs of $10.3 million and lease cancellation costs of $1.1 million relating to the fiscal 2003 initiatives. Employee severance and lease cancellation costs related to the fiscal 2003 initiatives have been recognized in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Employee severance costs are generally expensed during the employee service period and lease cancellation and other costs are generally expensed when the Company becomes contractually bound to pay such costs. In the future, the Company expects to incur an additional $1.0 million of employee severance costs relating to the fiscal 2003 initiatives. As of September 30, 2003, approximately 520 employees had been provided termination notices as a result of the fiscal 2003 initiatives, of which 490 were terminated. Additional amounts for integration initiatives will be recognized in subsequent periods as facilities to be consolidated are identified and specific plans are approved and announced.

The Company paid a total of $13.8 million and $15.6 million for employee severance and lease and contract cancellation costs in the fiscal years ended September 30, 2003 and 2002, respectively, related to the aforementioned integration plans. Remaining unpaid amounts of $5.0 million for employee severance and lease cancellation costs are included in accrued expenses and other in the accompanying consolidated balance sheet at September 30, 2003. Most employees receive their severance benefits over a period of time, generally not to exceed 12 months, while others may receive a lump-sum payment.

During the fiscal year ended September 30, 2002, the Company expensed approximately $24.2 million of merger costs, primarily related to integrating the operations of AmeriSource and Bergen. Such costs were comprised primarily of consulting fees, which amounted to $16.6 million. The merger costs also included a $2.1 million adjustment to the Company’s fourth quarter 2001 charge of $6.5 million relating to the accelerated vesting of AmeriSource stock options. Effective October 1, 2002, the Company converted its merger integration office to an operations management office. Accordingly, the costs of the operations management office are included within distribution, selling and administrative expenses in the Company’s consolidated statements of operations.

Operating income of $883.1 million for the fiscal year ended September 30, 2003 reflects an increase of 23% from $718.4 million in the prior fiscal year. Special items reduced the Company’s operating income by $8.9 million in the fiscal year ended September 30, 2003 and by $24.2 million in the prior fiscal year. The Company’s operating income as a percentage of operating revenue was 1.94% in the fiscal year ended September 30, 2003 compared to 1.79% in the prior fiscal year. The improvement was primarily due to the lower amount of special items and the aforementioned DSAD&A expense percentage reduction.

The Company recorded equity in losses of affiliates and other of $8.0 million and $5.6 million during the fiscal years ended September 30, 2003 and 2002, respectively. These amounts primarily consisted of impairment charges relating to investments in technology companies.

During the fiscal year ended September 30, 2003, the Company recorded a $4.2 million loss resulting from the early retirement of debt (see Note 5 of “Notes to Consolidated Financial Statements”).

Interest expense increased 3% in the fiscal year ended September 30, 2003 to $144.7 million from $140.7 million in the prior fiscal year. Average borrowings, net of invested cash, under the Company’s debt facilities during the fiscal year ended September 30, 2003 were $2.3 billion as compared to average borrowings, net of invested cash, of $2.0 billion in the prior fiscal year. Average borrowing rates under the Company’s debt facilities decreased to 5.6% in the current fiscal year from 6.1% in the prior fiscal year. The increase in average borrowings, net of invested cash, was primarily a result of additional merchandise inventories on hand during the current fiscal year compared to the prior fiscal year. The decrease in average borrowing rates resulted from lower percentages of fixed-rate debt outstanding to total debt outstanding in the current fiscal year compared to the prior fiscal year, as well as lower market interest rates on variable-rate debt.

Income tax expense of $284.9 million in the fiscal year ended September 30, 2003 reflects an effective tax rate of 39.2%, versus 39.7% in the prior fiscal year. The Company has been able to lower its effective tax rate during the current fiscal year by implementing tax planning strategies.

Net income of $441.2 million for the fiscal year ended September 30, 2003 reflects an increase of 28% from $344.9 million in the prior fiscal year. Diluted earnings per share of $3.89 in the fiscal year ended September 30, 2003 reflects a 23% increase as compared to $3.16 per share in the prior fiscal year. Special items and the loss on early retirement of debt had the effect of decreasing net income by $8.0 million and reducing diluted earnings per share by $0.07 for the fiscal year ended September 30, 2003. Special items had the effect of decreasing net income by $14.6 million and reducing diluted earnings per share by $0.13 for the fiscal year ended September 30, 2002. The growth in earnings per share was smaller than the growth in

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net income for the fiscal year ended September 30, 2003 due to the issuance of Company common stock in connection with the acquisitions described in Note 2 to the Company’s consolidated financial statements and in connection with the exercise of stock options.

Segment Information

Pharmaceutical Distribution Segment

Pharmaceutical Distribution operating revenue of $44.7 billion for the fiscal year ended September 30, 2003 reflects an increase of 13% from $39.5 billion in the prior fiscal year. The Company’s recent acquisitions contributed less than 0.5% of the segment’s operating revenue growth for the fiscal year ended September 30, 2003. During the fiscal year ended September 30, 2003, 56% of operating revenue was from sales to institutional customers and 44% was from retail customers; this compares to a customer mix in the prior fiscal year of 53% institutional and 47% retail. In comparison with the prior-year results, sales to institutional customers increased 20% primarily due to (i) the previously mentioned conversion of bulk delivery and other direct business with the Company’s primary bulk delivery customer to business serviced through the Company’s various warehouses, which contributed 4% of the total operating revenue growth; (ii) above market rate growth of the ABSG specialty pharmaceutical business; and (iii) higher revenues from customers engaged in the mail order sale of pharmaceuticals. Sales to retail customers increased by 5% in comparison to the prior fiscal year. The growth rate of sales to retail customers has declined during fiscal 2003 compared to the fiscal 2002 growth primarily due to lower growth trends in the retail market and the below market growth of certain of the Company’s large regional chain customers. Additionally, retail sales in the second-half of fiscal 2003 were adversely impacted by the loss of a large customer. This segment’s growth largely reflects U.S. pharmaceutical industry conditions, including increases in prescription drug utilization and higher pharmaceutical prices offset, in part, by the increased use of lower priced generics. The segment’s growth has also been impacted by industry competition and changes in customer mix. Industry growth rates, as estimated by industry data firm IMS Healthcare, Inc., are expected to be between 10% and 13% over the next four years. Future operating revenue growth will continue to be driven by industry growth trends, competition within the industry and customer consolidation.

Pharmaceutical Distribution gross profit of $1,721.5 million in the fiscal year ended September 30, 2003 reflects an increase of 12% from $1,530.5 million in the prior fiscal year. As a percentage of operating revenue, gross profit in the fiscal year ended September 30, 2003 was 3.85%, as compared to 3.87% in the prior fiscal year. The slight decline in gross profit as a percentage of operating revenue was the net result of the negative impact of a change in customer mix to a higher percentage of large institutional, mail order and chain accounts, and the continuing competitive pricing environment, offset primarily by the positive aggregate impact of recently-acquired companies, which amounted to 15 basis points in the fiscal year ended September 30, 2003. Downward pressures on sell-side gross profit margin are expected to continue and there can be no assurance that the inclusion of additional businesses that generate higher margins or that increases in the buy-side component of the gross margin, including increases derived from manufacturer price increases, negotiated deals and secondary market opportunities, will be available in the future to fully or partially offset the anticipated decline of the sell-side margin. The Company expects that buy-side opportunities may decrease in the future as pharmaceutical manufacturers increasingly seek to control the supply channel through product allocations that limit the inventory the Company can purchase and through the imposition of inventory management and other agreements that prohibit or severely restrict the Company’s right to purchase inventory from secondary source suppliers. Although the Company seeks in any such agreements to obtain appropriate compensation from pharmaceutical manufacturers for foregoing buy-side opportunities, there can be no assurance that the agreements will function as intended and replace any or all lost profit opportunities. The Company’s cost of goods sold includes a last-in, first-out (“LIFO”) provision that is affected by changes in inventory quantities, product mix, and manufacturer pricing practices, which may be impacted by market and other external influences.

Pharmaceutical Distribution operating expenses of $933.3 million in the fiscal year ended September 30, 2003 reflects an increase of 7% from $871.3 million in the prior fiscal year. As a percentage of operating revenue, operating expenses in the fiscal year ended September 30, 2003 were 2.09%, as compared to 2.20% in the prior fiscal year. The decrease in the expense percentage reflects the changing customer mix described above, efficiencies of scale, the elimination of redundant costs through the merger integration process, the continued emphasis on productivity throughout the Company’s distribution network and a reduction of bad debt expense, offset, in part, by higher expense ratios associated with the Company’s recent acquisitions.

Pharmaceutical Distribution operating income of $788.2 million in the fiscal year ended September 30, 2003 reflects an increase of 20% from $659.2 million in the prior fiscal year. As a percentage of operating revenue, operating income in the fiscal year ended September 30, 2003 was 1.76%, as compared to 1.67% in the prior fiscal year. The improvement over the prior-year percentage was due to a reduction in the operating expense ratio in excess of the decline in gross margin, which was partially the result of the Company’s ability to capture synergy cost savings from the Merger. While management historically has been able to

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lower expense ratios and expects to continue to do so, there can be no assurance that reductions will occur in the future, or that expense ratio reductions will exceed possible declines in gross margins. Additionally, there can be no assurance that merger integration efforts will proceed as planned or result in the desired cost savings.

PharMerica Segment

PharMerica’s operating revenue increased 9% for the fiscal year ended September 30, 2003 to $1,608.2 million compared to $1,475.0 million in the prior fiscal year. This increase is principally attributable to the growth in PharMerica’s workers’ compensation business, which has grown at a faster rate than its long-term care business. During the second-half of fiscal 2003, the growth rate of the workers’ compensation business began to slow down, partially due to the loss of a significant customer. The slow down in the workers’ compensation business is expected to continue in fiscal 2004 and as a result, the operating revenue growth rate in fiscal 2004 for the PharMerica segment is expected to be in the mid-single digits. The future operating revenue growth rate will be impacted by competitive pressures, changes in the regulatory environment and the pharmaceutical inflation rate.

PharMerica’s gross profit of $525.6 million for the fiscal year ended September 30, 2003 increased 6% from gross profit of $494.0 million in the prior fiscal year. PharMerica’s gross profit margin declined slightly to 32.69% for the fiscal year ended September 30, 2003 from 33.49% in the prior fiscal year. This decrease is primarily the result of a change in the sales mix, with a greater proportion of PharMerica’s current year revenues coming from its workers’ compensation business, which has lower gross profit margins and lower operating expenses than its long-term care business. In addition, industry competitive pressures continue to adversely affect gross profit margins.

PharMerica’s operating expenses of $421.8 million for the fiscal year ended September 30, 2003 increased from $410.5 million in the prior fiscal year. As a percentage of operating revenue, operating expenses were reduced to 26.23% in the fiscal year ended September 30, 2003 from 27.83% in the prior fiscal year. The percentage reduction was primarily due to the continued improvements in operating practices, the aforementioned shift in customer mix towards the workers’ compensation business and a reduction in bad debt expense.

PharMerica’s operating income of $103.8 million for the fiscal year ended September 30, 2003 increased by 24% from $83.5 million in the prior fiscal year. As a percentage of operating revenue, operating income in the fiscal year ended September 30, 2003 was 6.46%, as compared to 5.66% in the prior fiscal year. The improvement was due to the aforementioned reduction in the operating expense ratio, which was greater than the reduction in gross profit margin. While management historically has been able to lower expense ratios and expects to continue to do so, there can be no assurance that reductions will occur in the future, or that expense ratio reductions will exceed possible further declines in gross margins.

Intersegment Eliminations

These amounts represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. AmerisourceBergen Drug Company is the principal supplier of pharmaceuticals to PharMerica.

Year ended September 30, 2002 compared with Year ended September 30, 2001

Consolidated Results

Operating revenue, which excludes bulk deliveries, for the fiscal year ended September 30, 2002 increased 154% to $40.2 billion from $15.8 billion in the prior fiscal year. This increase is primarily due to increased operating revenue in the Pharmaceutical Distribution segment as a result of the Merger. Operating revenue increased 16% from $34.6 billion in the prior fiscal year on a pro forma combined basis. This increase is primarily due to the 16% increase in the Pharmaceutical Distribution segment.

The Company reports as revenue bulk deliveries to customer warehouses, whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products. As a result of the Merger, bulk deliveries increased to $5.0 billion in the fiscal year ended September 30, 2002 compared to $368.7 million in the prior fiscal year. Revenue from bulk deliveries increased 10% from $4.5 billion in the prior fiscal year on a pro forma combined basis. Due to the insignificant service fees generated from these bulk deliveries, fluctuations in volume have no significant impact on operating margins. However, revenue from bulk

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deliveries has a positive impact to the Company’s cash flows due to favorable timing between the customer payments to us and the payments by us to our suppliers.

Gross profit of $2,024.5 million in the fiscal year ended September 30, 2002 reflects an increase of 189% from $700.1 million in the prior fiscal year on a historical basis and an increase of 8% from $1,880.7 million in the prior fiscal year on a pro forma combined basis. As a percentage of operating revenue, gross profit in the fiscal year ended September 30, 2002 was 5.03%, as compared to prior-year percentages of 4.42% on a historical basis and 5.44% on a pro forma combined basis. The increase in the gross profit percentage from prior fiscal year historical results was primarily due to the inclusion of PharMerica in the current year. PharMerica, due to the nature of its prescription fulfillment business, has significantly higher gross margins and operating expense ratios than the Company’s Pharmaceutical Distribution segment. The decrease in gross profit percentage in comparison with the prior fiscal year pro forma combined percentage reflects declines in both the Pharmaceutical Distribution and PharMerica segments due to changes in customer mix and competitive selling price pressures.

Distribution, selling and administrative expenses, depreciation and amortization (“DSAD&A”) of $1,281.8 million in the fiscal year ended September 30, 2002 reflects an increase of 206% compared to $419.4 million in the prior fiscal year on a historical basis and an increase of less than 1% compared to $1,276.4 million in the prior fiscal year on a pro forma combined basis. As a percentage of operating revenue, DSAD&A in the fiscal year ended September 30, 2002 was 3.19%, as compared to prior fiscal year percentages of 2.65% on a historical basis and 3.69% on a pro forma combined basis. The increases in the DSAD&A percentage from the prior fiscal year historical results were primarily due to the inclusion of PharMerica in the current year, as explained above. The decrease in the DSAD&A percentage from the prior fiscal year pro forma combined ratio reflects improvements in both the Pharmaceutical Distribution and PharMerica segments due to customer mix changes, operational efficiencies and benefits from the merger integration effort.

In connection with the Merger, the Company developed integration plans to consolidate its distribution network and eliminate duplicate administrative functions, which are expected to result in synergies of approximately $150 million annually by the end of fiscal 2004. The Company’s plan is to have a distribution facility network consisting of 30 facilities in the next three to four years. This will be accomplished by building six new facilities, expanding seven facilities, and closing 27 facilities. During 2002, the Company closed seven distribution facilities.

In September 2001, the Company announced plans to close seven distribution facilities in fiscal 2002, consisting of six former AmeriSource facilities and one former Bergen facility. A charge of $10.9 million was recognized in the fourth quarter of fiscal 2001 related to the AmeriSource facilities, and included $6.2 million of severance for approximately 260 warehouse and administrative personnel to be terminated, $2.3 million in lease and contract cancellations, and $2.4 million for the write-down of assets related to the facilities to be closed. Approximately $0.2 million of costs related to the Bergen facility were included in the Merger purchase price allocation.

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

In connection with the Merger, the Company expensed merger costs in the fiscal year ended September 30, 2002 of $24.2 million, consisting primarily of integration consulting fees of $16.6 million. The merger costs also included a $2.1 million increase to the Company’s fourth quarter fiscal 2001 charge of $6.5 million relating to the accelerated vesting of AmeriSource stock options. Total merger costs in fiscal 2001 amounted to $13.1 million, primarily consisting of consulting fees and the accelerated stock option vesting charge.

Operating income of $718.4 million for the fiscal year ended September 30, 2002 reflects an increase of 177% from $259.4 million in the prior fiscal year. Special items had the effect of reducing the Company’s operating income in the fiscal year ended September 30, 2002 and 2001 by $24.2 million and $21.3 million, respectively. The Company’s operating income as a percentage of operating revenue was 1.79% in the fiscal year ended September 30, 2002, as compared to prior-year percentages of 1.64% on a historical basis and 1.75% on a pro forma combined basis. The improvements are due to the aforementioned DSAD&A expense percentage reductions more than offsetting the reductions in gross margin.

Equity in losses of affiliates and other was $5.6 million and $10.9 million in fiscal 2002 and fiscal 2001, respectively. The fiscal 2002 amount principally reflects an impairment of the Company’s investment in a healthcare technology company. The majority of the fiscal 2001 amount represents the impact of the Company’s investment in Health Nexus, LLC, which was

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accounted for on the equity method. The Company’s percentage ownership in the successor to Health Nexus, LLC fell below 20% in November 2001, and this investment is now accounted for using the cost method.

Interest expense, which includes the distributions on preferred securities of a subsidiary trust, increased 194% in the fiscal year ended September 30, 2002 to $140.7 million compared to $47.9 million in the prior fiscal year, primarily as a result of the Merger. Average borrowings, net of invested cash, under the Company’s debt facilities during the fiscal year ended September 30, 2002 were $2.0 billion as compared to average borrowings, net of invested cash, of $696 million in the prior fiscal year. Average borrowing rates under the Company’s variable-rate debt facilities decreased to 3.5% in the current fiscal year from 6.2% in the prior fiscal year, due to lower market interest rates.

Income tax expense of $227.1 million in the fiscal year ended September 30, 2002 reflects an effective tax rate of 39.7% versus 38.3% in the prior fiscal year. The tax rate for fiscal 2002 was higher than the prior fiscal year’s tax rate as a result of the Merger.

Net income of $344.9 million for the fiscal year ended September 30, 2002 reflects an increase of 179% from $123.8 million in the prior fiscal year. Diluted earnings per share of $3.16 in the fiscal year ended September 30, 2002 reflects a 50% increase as compared to $2.10 per share in the prior fiscal year. Special items had the effect of reducing net income and diluted earnings per share for the fiscal year ended September 30, 2002 by $14.6 million and $0.13, respectively, and for the fiscal year ended September 30, 2001 by $13.1 million and $0.21, respectively. Diluted earnings per share for the fiscal year ended September 30, 2002 reflects the full-year impact of the shares issued to effect the Merger.

Segment Information

Pharmaceutical Distribution Segment

Pharmaceutical Distribution operating revenue of $39.5 billion for the fiscal year ended September 30, 2002 increased 151% from $15.8 billion in the prior fiscal year on a historical basis and increased 16% from $34.0 billion in the prior fiscal year on a pro forma combined basis. During the fiscal year ended September 30, 2002, 53% of operating revenue was from sales to institutional customers and 47% was from retail customers; this compares to a customer mix in the prior fiscal year of 53% institutional and 47% retail on a historical basis and 52% institutional and 48% retail on a pro forma combined basis. In comparison with prior fiscal year pro forma combined results, sales to institutional customers increased by 19% primarily due to higher revenues from mail order facilities, ABSG’s specialty pharmaceutical business and alternate site facilities. Sales to retail customers increased 14% over the prior fiscal year on a pro forma combined basis, principally due to higher revenues from regional drug store chains, including the pharmacy departments of supermarkets. This segment’s growth largely reflects national industry economic conditions, including increases in prescription drug usage and higher pharmaceutical prices. Operating revenue increased 18% in the first half of the year and 14% in the second half of the year when compared to the same periods in the prior year on a pro forma combined basis as the Company reached the April 2002 anniversary date of the addition of a large mail order customer.

Pharmaceutical Distribution gross profit of $1,530.5 million in the fiscal year ended September 30, 2002 increased 132% from $660.4 million in the prior fiscal year on a historical basis and increased 9% from $1,405.0 million in the prior fiscal year on a pro forma combined basis. As a percentage of operating revenue, gross profit in the fiscal year ended September 30, 2002 was 3.87%, as compared to prior fiscal year percentages of 4.19% on a historical basis and 4.13% on a pro forma combined basis. The year-to-year declines reflect the net impact of a number of factors, including the change in customer mix to a higher percentage of large institutional, mail order and chain accounts, and the continuing competitive pricing environment, offset, in part, by higher buy-side margins than in the prior year.

Pharmaceutical Distribution operating expenses of $871.3 million in the fiscal year ended September 30, 2002 increased 126% from $386.2 million in the prior fiscal year on a historical basis and increased 2% from $853.1 million in the prior fiscal year on a pro forma combined basis. As a percentage of operating revenue, operating expenses in the fiscal year ended September 30, 2002 were 2.20%, as compared to prior-year percentages of 2.45% on a historical basis and 2.51% on a pro forma combined basis. These decreases in expense percentages reflect the changing customer mix described above, efficiencies of scale, the elimination of redundant costs through the merger integration process and the continued emphasis on productivity throughout the Company’s distribution network.

Pharmaceutical Distribution operating income of $659.2 million in the fiscal year ended September 30, 2002 increased 140% from $274.2 million in the prior fiscal year on a historical basis and increased 19% from $551.8 million in the prior fiscal

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year on a pro forma combined basis. As a percentage of operating revenue, operating income was 1.67% in the fiscal year ended September 30, 2002, as compared to prior-year percentages of 1.74% on a historical basis and 1.62% on a pro forma combined basis. The improvement over the prior-year pro forma combined percentage was due to a reduction in the operating expense ratio, which was greater than the reduction in gross profit margin. The reduction of the operating expense ratio was partially due to the Company’s ability to capture synergy cost savings from the Merger.

PharMerica Segment

The PharMerica segment was acquired in connection with the Merger and the historical amounts for the fiscal year ended September 30, 2001 are comprised of only one month of PharMerica’s operating results. Accordingly, the discussion below focuses all comparisons with the prior-year on a pro forma combined basis.

PharMerica’s operating revenue increased 9% for the fiscal year ended September 30, 2002 to $1.48 billion compared to $1.35 billion in the prior fiscal year. This increase is principally attributable to growth in PharMerica’s workers’ compensation business, which has grown at a faster rate than its long-term care business.

PharMerica’s gross profit of $494.0 million for the fiscal year ended September 30, 2002 increased 4% from gross profit of $475.8 million in the prior fiscal year. PharMerica’s gross profit margin declined to 33.49% for the fiscal year ended September 30, 2002 from 35.24% in the prior fiscal year. This decrease is primarily the result of a change in the sales mix, with a greater proportion of PharMerica’s current year revenues coming from its workers’ compensation business, which has lower gross profit margins and lower operating expenses than its long-term care business.

PharMerica’s operating expenses of $410.5 million for the fiscal year ended September 30, 2002 increased 1% from operating expenses of $406.9 million in the prior fiscal year. As a percentage of operating revenue, operating expenses were reduced to 27.83% in the fiscal year ended September 30, 2002 from 30.14% in the prior fiscal year. The percentage reduction is due to several factors, including the aforementioned shift in customer mix towards the workers’ compensation business, consolidation of technology platforms, the consolidation or sale of several pharmacies, and a reduction in bad debt expense.

PharMerica’s operating income of $83.5 million for the fiscal year ended September 30, 2002 increased 21% compared to operating income of $68.9 million in the prior fiscal year. As a percentage of operating revenue, operating income was 5.66% in the fiscal year ended September 30, 2002, an increase of 56 basis points from 5.10% in the prior fiscal year. The year-to-year improvement in the operating income percentage was due to the aforementioned reductions in the operating expense ratio, which were greater than the reductions in gross profit margin.

Intersegment Eliminations

These amounts represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. AmerisourceBergen Drug Company is the principal supplier of pharmaceuticals to PharMerica.

Critical Accounting Policies

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

Allowance for Doubtful Accounts

Trade receivables are primarily comprised of amounts owed to the Company through its pharmaceutical service activities and are presented net of an allowance for doubtful accounts. In determining the appropriate allowance, the Company considers a combination of factors, such as industry trends, its customers’ financial strength and credit standing, and payment and default history. The calculation of the required allowance requires a substantial amount of judgment as to the impact of these and other factors on the ultimate realization of its trade receivables.

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Merchandise Inventories

Inventories are stated at the lower of cost or market. Cost for approximately 94% and 96% of the Company’s inventories at September 30, 2003 and 2002, respectively, is determined using the last-in, first-out (LIFO) method. If the Company had used the first-in, first-out (FIFO) method of inventory valuation, which approximates current replacement cost, inventories would have been approximately $185.6 million and $152.3 million higher than the amounts reported at September 30, 2003 and 2002, respectively.

Goodwill and Intangible Assets

The Company adopted Financial Accounting Standards Board (“FASB”) SFAS No. 142 “Goodwill and Other Intangible Assets” as of October 1, 2001. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Accordingly, the Company ceased amortization of all goodwill and intangible assets with indefinite lives as of October 1, 2001. Intangible assets with finite lives, primarily customer lists, non-compete agreements and software technology, will continue to be amortized over their useful lives.

SFAS No. 142 requires a two-step impairment test for goodwill. The first step is to compare the carrying amount of the reporting unit’s assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying amount exceeds the fair value then the second step is required to be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of the Company’s reporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued. The Company is required to complete an impairment test for goodwill and record any resulting impairment losses annually. Changes in market conditions, among other factors, may have an impact on these estimates. The Company completed its required annual impairment tests in the fourth quarters of fiscal 2003 and 2002 and determined that there was no impairment.

Stock Options

The Company has the choice to account for stock options using either Accounting Principles Board Opinion No. 25 (“APB 25”) or SFAS No. 123, “Accounting for Stock-Based Compensation.” The Company has elected to use the accounting method under APB 25 and the related interpretations to account for its stock options. Under APB 25, generally, when the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Had the Company elected to use SFAS No. 123 to account for its stock options under the fair value method, it would have been required to record compensation expense and as a result, diluted earnings per share for the fiscal years ended September 30, 2003, 2002 and 2001 would have been lower by $0.16, $0.10 and $0.38, respectively. See Note 8 of “Notes to Consolidated Financial Statements.”

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Liquidity and Capital Resources

The following table illustrates the Company’s debt structure at September 30, 2003, including availability under revolving credit facilities and the receivables securitization facility (in thousands):

The Company’s working capital usage fluctuates widely during the year due to seasonal inventory buying requirements and buy-side purchasing opportunities. During fiscal 2003, the Company’s highest utilization occurred during its third quarter and was 74% of the $2.1 billion of aggregate availability under its revolving credit facility and previously existing receivables securitization facilities.

In July 2003, the Company entered into a new $1.05 billion receivables securitization facility (“ABC Securitization Facility”) and terminated the existing AmeriSource and Bergen securitization facilities. At September 30, 2003, there were no borrowings under the ABC Securitization Facility. In connection with the ABC Securitization Facility, ABDC sells on a revolving basis certain accounts receivable to a wholly-owned special purpose entity (“ARFC”), which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. ABDC is the servicer of the accounts receivable under the ABC Securitization Facility. After the maximum limit of receivables sold has been reached and as sold receivables are collected, additional receivables may be sold up to the maximum amount available under the facility. Under the terms of the ABC Securitization Facility, a $550 million tranche has an expiration date of July 2006 (the three-year tranche) and a $500 million tranche expires in July 2004 (the 364-day tranche). The Company intends to renew the 364-day tranche on an annual basis. Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee of 75 basis points for the three-year tranche and 45 basis points for the 364-day tranche. The Company pays a commitment fee of 30 basis points and 25 basis points on any unused credit with respect to the three-year tranche and the 364-day tranche, respectively. The program and commitment fee rates will vary based on the Company’s debt ratings. Borrowings and payments under the ABC Securitization Facility are applied on a pro-rata basis to the $550 million and $500 million tranches. In connection with entering into the ABC Securitization Facility, the Company incurred approximately $2.4 million of costs which were deferred and are being amortized over the life of the ABC Securitization Facility. This facility is a financing vehicle utilized by the Company because it offers an attractive interest rate relative to other financing sources. The Company securitizes its trade accounts, which are generally non-interest bearing, in transactions that are accounted for as borrowings under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

In November 2002, the Company issued $300 million of 7  ¹/4% senior notes due November 15, 2012 (the “7  ¹/4% Notes”). The 7  ¹/4% Notes are redeemable at the Company’s option at any time before maturity at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption and, under some circumstances, a redemption premium. Interest on the 7  ¹/4% Notes is payable semiannually in arrears,

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commencing May 15, 2003. The 7  ¹/4% Notes rank junior to the Senior Credit Agreement (defined below) and equal to the Company’s 8  ¹/8% senior notes due 2008 and senior to the debt of the Company’s subsidiaries. The Company used the net proceeds of the 7  ¹/4% Notes to repay $15 million of the Term Facility (defined below) in December 2002, to repay $150 million in aggregate principal of the Bergen 7  ³/8% senior notes in January 2003 and to redeem the PharMerica 8  ³/8% senior subordinated notes due 2008, at a redemption price equal to 104.19% of the $123.5 million principal amount, in April 2003. The cost of the redemption premium related to the PharMerica 8  ³/8% senior subordinated notes has been reflected in the Company’s consolidated statement of operations for the fiscal year ended September 30, 2003 as a loss on the early retirement of debt. In connection with the issuance of the 7  ¹/4% Notes, the Company incurred approximately $5.7 million of costs which were deferred and are being amortized over the ten-year term of the notes.

In connection with the Merger, the Company issued $500 million of 8  ¹/8% senior notes due 2008 (the “8  ¹/8% Notes “) and entered into a $1.3 billion senior secured credit facility (the “Senior Credit Agreement”) with a syndicate of lenders. Proceeds from these facilities were used to: replace existing AmeriSource and Bergen revolving credit facilities; pay certain merger transaction fees and fees associated with the financings; redeem $184.6 million of PharMerica 8  ³/8% senior subordinated notes due 2008 via a tender offer; and meet general corporate purposes. In addition, the Company assumed $405.3 million of fixed debt. During fiscal 2002, the Company redeemed all $20.6 million of the Bergen 7% convertible subordinated debentures due 2006 pursuant to a tender offer required as a result of the Merger. The 8  ¹/8% Notes are redeemable at the Company’s option at any time before maturity at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption and, under some circumstances, a redemption premium. The 8  ¹/8% Notes pay interest semiannually in arrears and rank junior to the Senior Credit Agreement.

The Senior Credit Agreement consists of a $1.0 billion revolving credit facility (the “Revolving Facility”) and a $300 million term loan facility (the “Term Facility”), both maturing in August 2006. The Term Facility has scheduled principal payments on a quarterly basis that began on December 31, 2002, totaling $60 million in each of fiscal 2003 and 2004, and $80 million and $100 million in fiscal 2005 and 2006, respectively. The scheduled term loan payments were made in fiscal 2003. There were no borrowings outstanding under the Revolving Facility at September 30, 2003. Interest on borrowings under the Senior Credit Agreement accrues at specified rates based on the Company’s debt ratings. Such rates range from 1.0% to 2.5% over LIBOR or 0% to 1.5% over prime. In April 2003, the Company’s debt rating was raised by one of the rating agencies and in accordance with the terms of the Senior Credit Agreement, interest on borrowings since April 2003 have accrued at lower rates. At September 30, 2003, the rate was 1.25% over LIBOR or .25% over prime. Availability under the Revolving Facility is reduced by the amount of outstanding letters of credit ($62.9 million at September 30, 2003). The Company pays quarterly commitment fees to maintain the availability under the Revolving Facility at specified rates based on the Company’s debt ratings ranging from 0.250% to 0.500% of the unused availability. At September 30, 2003, the rate was 0.300%. The Senior Credit Agreement contains restrictions on, among other things, additional indebtedness, distributions and dividends to stockholders, investments and capital expenditures. Additional covenants require compliance with financial tests, including leverage and fixed charge coverage ratios, and maintenance of minimum tangible net worth. The Company may choose to repay or reduce its commitments under the Senior Credit Agreement at any time. Substantially all of the Company’s assets, except for trade receivables which were previously sold into the AmeriSource and Bergen receivables securitization facilities and currently are sold into the ABC Securitization Facility (as described above), collateralize the Senior Credit Agreement.

In connection with issuing the 8  ¹/8% Notes and entering into the Senior Credit Agreement, the Company incurred approximately $24.0 million of costs, which were deferred and are being amortized over the term of the respective issues.

In December 2000, the Company issued $300.0 million of 5% convertible subordinated notes due December 1, 2007. The notes have an annual interest rate of 5%, payable semiannually, and are convertible into common stock of the Company at $52.97 per share at any time before their maturity or their prior redemption or repurchase by the Company. On or after December 3, 2004, the Company has the option to redeem all or a portion of the notes that have not been previously converted. Net proceeds from the notes of approximately $290.6 million were used to repay existing borrowings, and for working capital and other general corporate purposes. In connection with the issuance of the notes, the Company incurred approximately $9.4 million of financing fees, which were deferred and are being amortized over the seven-year term of the notes.

In connection with the Merger, the Company assumed Bergen’s Capital I Trust (the “Trust”), a wholly-owned subsidiary of Bergen. In May 1999, the Trust issued 12,000,000 shares of 7.80% trust originated preferred securities (SM) (TOPrS(SM)) (the “Trust Preferred Securities”) at $25 per security. The proceeds of such issuances were invested by the Trust in $300 million aggregate principal amount of Bergen’s 7.80% subordinated deferrable interest notes due June 30, 2039 (the “Subordinated Notes”). The Subordinated Notes represent the sole assets of the Trust and bear interest at the annual rate of 7.80%, payable quarterly, and are redeemable by the Company beginning in May 2004 at 100% of the principal amount thereof. The Trust Preferred Securities will be redeemable upon any repayment of the Subordinated Notes at 100% of the liquidation amount

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beginning in May 2004. The obligations of the Trust related to the Trust Preferred Securities are fully and unconditionally guaranteed by the Company.

Holders of the Trust Preferred Securities are entitled to cumulative cash distributions at an annual rate of 7.80% of the liquidation amount of $25 per security. The Trust has continued to remit the required cash distributions since its inception. The Company, under certain conditions, may cause the Trust to defer the payment of distributions for successive periods of up to 20 consecutive quarters. During such periods, accrued distributions on the Trust Preferred Securities will compound quarterly at an annual rate of 7.80%. Also during such periods, the Company may not declare or pay distributions on its capital stock; may not redeem, purchase or make a liquidation payment on any of its capital stock; and may not make interest, principal or premium payments on, or repurchase or redeem, any of its debt securities that rank equal with or junior to the Subordinated Notes.

The Company’s operating results have generated sufficient cash flow which, together with borrowings under its debt agreements and credit terms from suppliers, have provided sufficient capital resources to finance working capital and cash operating requirements, and to fund capital expenditures, acquisitions, repayment of debt and the payment of interest on outstanding debt. The Company’s primary ongoing cash requirements will be to finance working capital, fund the repayment of debt and the payment of interest on debt, finance Merger integration initiatives and fund capital expenditures and routine growth and expansion through new business opportunities. Future cash flows from operations and borrowings are expected to be sufficient to fund the Company’s ongoing cash requirements.

Following is a summary of the Company’s contractual obligations for future principal payments on its debt, minimum rental payments on its noncancelable operating leases and minimum payments on its other commitments at September 30, 2003 (in thousands):

The debt amounts in the above table differ from the related carrying amounts on the consolidated balance sheet due to the purchase accounting adjustments recorded in order to reflect Bergen’s obligations at fair value on the effective date of the Merger. These differences are being amortized over the terms of the respective obligations.

The $55 million Blanco revolving credit facility, which expires in May 2004, is included in the “Within 1 year” column in the above repayment table. However, this borrowing is not classified in the current portion of long-term debt on the consolidated balance sheet at September 30, 2003 because the Company has the ability and intent to refinance it on a long-term basis. Additionally, borrowings under the Blanco facility are secured by a standby letter of credit under the Senior Credit Agreement, and therefore the Company is effectively financing this debt on a long-term basis through that arrangement.

In connection with its merger integration plans, the Company intends to build six new distribution facilities and expand seven others (two of which are complete) over the next three to four years. Five of the new distribution facilities will be owned by the Company and, in December 2002, the Company entered into a 15-year lease obligation totaling $17.4 million for the other new facility; this obligation is reflected in Operating Leases in the above table. The Company has begun to enter into commitments relating to site selection, purchase of land, design and construction of the new facilities on a turnkey basis with a construction development company. As of September 30, 2003, the Company has entered into $87.0 million of commitments primarily relating to the construction of three new facilities. The Company will take ownership of and make payment on each new facility as the developer substantially completes construction. The facility commitments entered into as of September 30, 2003 are included in Other Commitments in the above table. As of September 30, 2003, the developer has incurred $25.6 million relating to the construction of the new facilities. This amount has been recorded in property and equipment and accrued expenses and other in the consolidated balance sheet.

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Any outstanding contingent payments relating to recently acquired companies, as described below, are not reflected in the above table. These contingencies, along with any others, become commitments of the Company when they are realized.

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

During the year ended September 30, 2002, the Company’s operating activities provided $535.9 million in cash. Cash provided by operations in fiscal 2002 was principally the result of $344.9 million of net income and $190.0 million of non-cash items affecting net income. Changes in operating assets and liabilities were only $1.0 million as a $362.2 million increase in merchandise inventories and a $133.6 million increase in accounts receivable were offset primarily by a $514.1 increase in accounts payable, accrued expenses and income taxes. The increase in merchandise inventories reflects inventory required to support the strong revenue increase, as well as inventory purchased to take advantage of buy-side gross profit opportunities including opportunities associated with manufacturer price increases and negotiated deals. Inventory grew at a lower rate than revenues due to the consolidation of seven facilities in fiscal 2002 and improved inventory management. Accounts receivable, before changes in the allowance for doubtful accounts, increased only 3%, despite the 16% increase in operating revenues, on a pro forma combined basis. During the fiscal year ended September 30, 2002, the Company’s days sales outstanding improved as a result of continued emphasis on receivables management at the local level. Average days sales outstanding for the Pharmaceutical Distribution segment improved to 16.4 days in fiscal 2002 from 17.7 days in the prior year, on a pro forma combined basis. Average days sales outstanding for the PharMerica segment improved to 43.5 days in fiscal 2002 from 53.4 days in the prior year, on a pro forma combined basis. The $376.0 million increase in accounts payable was primarily due to the merchandise inventory increase as well as the timing of payments to suppliers. Operating cash uses during the fiscal year ended September 30, 2002 included $137.9 million in interest payments and $111.9 million of income tax payments, net of refunds.

During the year ended September 30, 2001, the Company’s operating activities used $45.9 million in cash. Cash used in operations in fiscal 2001 resulted from increases of $726.1 million in merchandise inventories and $151.6 million in accounts receivable partially offset by an increase in accounts payable, accrued expenses and income taxes of $613.3 million. The increase in merchandise inventories reflected necessary inventories to support the strong revenue increase, and inventory purchased to take advantage of buy-side gross profit margin opportunities including opportunities associated with manufacturer price increases and negotiated deals. Additionally, inventories at September 30, 2001 included safety stock purchased due to uncertainties regarding possible increased customer demands or disruptions in the supply stream as the result of the terrorist events of September 11, 2001. The increase in accounts payable, accrued expenses and income taxes is net of merger-related payments of approximately $58.8 million, primarily executive compensation payments made in August 2001.

The Company paid a total of $13.8 million, $15.6 million and $2.9 million of severance, contract, and lease cancellation and other costs in fiscal 2003, 2002 and 2001, respectively, related to the cost reduction plans discussed above. Severance accruals of $4.9 million and remaining contract and lease obligations of $0.1 million at September 30, 2003 are included in accrued expenses and other in the consolidated balance sheet.

Capital expenditures for the years ended September 30, 2003, 2002 and 2001 were $90.6 million, $64.2 million and $23.4 million, respectively, and relate principally to investments in warehouse expansions and improvements, information technology and warehouse automation. The Company developed merger integration plans to consolidate its existing pharmaceutical distribution facility network and establish new, more efficient distribution centers. More specifically, the Company’s plan is to have a distribution facility network consisting of 30 facilities, which will be accomplished by building six new facilities, expanding seven facilities, closing 27 facilities and implementing a new warehouse operating system. During fiscal 2003, a construction development company incurred $25.6 million on the Company’s behalf relating to the construction of three

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of the new facilities. This amount will be recorded as a capital expenditure when the related facilities are substantially complete, at which time, the Company will make payment to the construction development company and take ownership of each respective facility. The Company anticipates that future cash flows from operations along with existing availability under the revolving credit facility and receivables securitization facility will be adequate to fund these merger integration plans. The Company expects to spend approximately $150 million to $200 million for capital expenditures during fiscal 2004.

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

In April 2003, the Company acquired an additional 40% equity interest in a physician education and management consulting company and satisfied the residual contingent obligation for the initial 20% equity interest for an aggregate $24.7 million in cash. The acquisition of the remaining 40% equity interest is expected to occur in the second quarter of fiscal 2004 and the purchase price will be based on the calendar 2003 operating results of the physician education and management consulting company. An additional payment may be earned by the selling shareholders under the Company’s current agreement with such shareholders based on the 2004 operating results of the physician education and management consulting company. The Company currently expects to pay between $30 million and $40 million, in the aggregate, for the remaining 40% equity interest and any additional payment.

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

In January 2003, the Company acquired US Bioservices Corporation (“US Bio”), a national pharmaceutical products and services provider focused on the management of high-cost complex therapies and reimbursement support for a total base purchase price of $160.2 million, which included the repayment of US Bio debt of $14.8 million and $1.5 million of transaction costs associated with this acquisition. The Company paid part of the base purchase price by issuing 2,399,091 shares of its common stock, as set forth in the acquisition agreement, with an aggregate market value of $131.0 million. The Company paid the remaining $29.2 million of the base purchase price in cash. The agreement also provides for contingent payments of up to $27.6 million in cash based on US Bio achieving defined earnings targets through the end of the first quarter of calendar 2004. In July 2003, an initial contingent payment of $2.5 million was paid in cash by the Company.

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

During fiscal 2002, the Company acquired AutoMed for $120.4 million. In June 2003, the Company amended the 2002 agreement under which it acquired AutoMed. The Company also acquired other smaller businesses for $15.8 million. Additionally, the Company purchased equity interests in various businesses for $4.1 million.

During fiscal 2001, the Company sold the net assets of one of its specialty products distribution facilities for approximately $13.0 million.

During fiscal 2000, the Company and three other healthcare distributors formed an Internet-based company that is an independent, commercially neutral healthcare product information exchange focused on streamlining the process involved in identifying, purchasing and distributing healthcare products and services. The Company contributed $1.2 million and $6.5 million to the joint venture in fiscal 2002 and 2001, respectively, and its ownership interest of approximately 22% was accounted for under the equity method. This entity merged in November 2001 with the Global Health Exchange LLC, a similar venture, and the Company’s ongoing ownership interest in the Global Health Exchange, LLC is 4%. Since then, the Company has accounted for its share of the joint venture using the cost method of accounting.

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During the fiscal year ended September 30, 2003, the Company issued the aforementioned $300 million of 7  ¹/4% Notes. The Company used the net proceeds of the 7  ¹/4% Notes to repay $15 million of the term loan, to repay $150 million in aggregate principal of the Bergen 7  ³/8% senior notes and redeem the PharMerica 8  ³/8% senior subordinated notes due 2008 at a redemption price equal to 104.19% of the $123.5 million principal amount. The Company also repaid an additional $45 million of the term loan, as scheduled. During the year ended September 30, 2002, the Company made net repayments of $37.0 million on its receivables securitization facilities. The Company also repaid debt of $23.1 million during the year, principally consisting of $20.6 million for the retirement of Bergen’s 7% debentures pursuant to a tender offer which was required as a result of the Merger. Cash provided by financing activities in fiscal 2001 primarily represents the net effect of borrowings to fund working capital requirements, the refinancing and merger costs described above.

The Company has paid quarterly cash dividends of $0.025 per share on its common stock since the first quarter of fiscal 2002. Most recently, a dividend of $0.025 per share was declared by the board of directors on October 29, 2003, and was paid on December 1, 2003 to stockholders of record at the close of business on November 17, 2003. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Company’s board of directors and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.

Market Risk

The Company’s most significant market risk is the effect of changing interest rates. The Company manages this risk by using a combination of fixed-rate and variable-rate debt. At September 30, 2003, the Company had approximately $1.5 billion of fixed-rate debt with a weighted average interest rate of 7.2% and $295.0 million of variable-rate debt with a weighted average interest rate of 2.6%. The amount of variable-rate debt fluctuates during the year based on the Company’s working capital requirements. The Company periodically evaluates various financial instruments that could mitigate a portion of its exposure to variable interest rates. However, there are no assurances that such instruments will be available on terms acceptable to the Company. There were no such financial instruments in effect at September 30, 2003. For every $100 million of unhedged variable-rate debt outstanding, a 26 basis-point increase in interest rates (one-tenth of the average variable rate at September 30, 2003) would increase the Company’s annual interest expense by $0.26 million.

Recently Issued Financial Accounting Standards

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement clarifies the definition of a liability, as currently defined by FASB Concepts Statement No. 6 “Elements of Financial Statements,” as well as other items. The statement requires that financial instruments that embody an obligation of an issuer be classified as a liability. Furthermore, the standard provides guidance for the initial and subsequent measurement as well as disclosure requirements of these financial instruments. 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 15, 2003. The adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and requires consolidation of variable interest entities by their primary beneficiaries if certain conditions are met. This interpretation applies to variable interest entities created or obtained after January 31, 2003. For variable interest entities created or obtained before February 1, 2003, the adoption of this standard is effective as of December 31, 2003 for a variable interest in special-purpose entities and as of March 31, 2004 for all other variable interest entities. The Company did not create or obtain any variable interest entity after January 31, 2003. The Company is in the process of evaluating the adoption of this standard, as it relates to variable interest entities held by the Company prior to February 1, 2003, but does not believe it will have a material impact on its consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and Accounting Principles Board 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 adoption of the standard was effective for fiscal years and interim periods beginning after December 15, 2002.

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The Company did not adopt the fair value method of accounting for stock-based compensation. As required, the Company adopted the disclosure provisions of this standard. (See Notes 1 and 8 to the Consolidated Financial Statements.)

In November 2002, the FASB issued FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation enhances the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of the initial recognition and measurement requirements of FIN No. 45 did not have an impact on the Company’s consolidated financial statements.

Forward-Looking Statements

Certain of the statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements herein include statements addressing management’s views with respect to future financial and operating results and the benefits and other aspects of the merger between AmeriSource Health Corporation and Bergen Brunswig Corporation. Various factors, including competitive pressures, success of integration, restructuring or systems initiatives, market interest rates, regulatory changes, changes in customer mix, changes in pharmaceutical manufacturers’ pricing and distribution policies, changes in U.S. Government policies, customer insolvencies, or the loss of one or more key customer or supplier relationships, could cause actual outcomes and results to differ materially from those described in forward-looking statements. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth in this MD&A, in Item 1 (Business) under the heading “Certain Risk Factors”, elsewhere in Item 1 (Business) and elsewhere in this report.

The Company’s most significant market risk is the effect of changing interest rates. See discussion in Item 7 on page 34.

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To the Board of Directors and Stockholders of

AmerisourceBergen Corporation

We have audited the accompanying consolidated balance sheets of AmerisourceBergen Corporation and subsidiaries as of September 30, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with 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 consolidated financial position of AmerisourceBergen Corporation and subsidiaries at September 30, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2003, 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.

ERNST & YOUNG LLP

Philadelphia, Pennsylvania

November 4, 2003

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AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

37

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

See notes to consolidated financial statements.

38

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS